A Brain Drain In France

France's Socialist government is taking tiny steps to stem the growing tide of companies moving to Britain, the U.S., and Switzerland. But the effort is late and puny compared to what is truly needed by the growing cadre of entrepreneurs who want nothing less than to be left alone by the overbearing bureaucrats who control economic life in France. Unless Paris wakes up fast, the exodus of France's best and brightest business minds will devastate the nation. In a society that still views entrepreneurs as shady wheeler-dealers, smart young business people will migrate to where there are fewer regulations, lower taxes, and a respect for creating enterprises.

Growth Plus, an association of French growth companies, has been lobbying the government to slash heavy taxes on stock options that kill the ability of young companies to attract top talent. The government of Lionel Jospin has grudgingly offered to cut social security taxes on stock-option gains for companies less than five years old. This will help, but not nearly enough. Once companies hit the five-year mark, they will begin sending senior managers and employees to Britain and elsewhere--as they are doing now.

Other measures passed by Paris are also inadequate. Entrepreneurs can delay paying capital-gains taxes on the sale of their companies if they roll the gains into a new company--but only if they hold a 25% stake in their original company. Most owners of high-tech companies, however, own only 5% to 10% of the stock in their companies after raising capital from venture capitalists. Like so many government proposals to help, this one isn't based on economic reality.

France today is dividing between a new generation of entrepreneurs trying to build an information-based society and the old statist, bureaucratic elite. One wants the freedom to express their creativity and to grow. The other believes it has the right to rule and control. France must choose between the individual and the state. One choice brings challenge, risk, and prosperity. The other results in continued stagnation. France must ask itself why there are 40,000 Frenchmen working in Silicon Valley and why America is getting the economic benefits of their brainpower.

    Before it's here, it's on the Bloomberg Terminal.