How France Snubs Startups

Instead of backing young, innovative companies, the government is handing out billions in research aid to rich corporations

No question, for most entrepreneurs, Nicolas Sarkozy was a better choice than his Socialist opponent to shake up change-resistant France. Important reforms, such as giving wealth-tax payers the choice of either stupidly paying the levy to the state or smartly investing in young enterprises, were good moves.

However, a clear vision of economic policy is still missing in Sarkozy's world. Most developed countries that boast strong economic growth achieve this by boosting the excellence and competitiveness of universities and by betting on young, innovative enterprises that grow fast into large companies. France still doesn't get this.

Although it recently passed a new law claiming to give universities more autonomy, universities still will not be able to screen or select their students, set tuition fees, or hire presidents from outside the state-run university system. In addition, independent members of university boards will not have voting rights, which are reserved for employees and students.

Young Companies Need Government Support

French priorities on research funding are equally misguided. Out of the total academic research budget, only 7% goes to a fund that finances projects based on competition and peer review—the kind of projects that could help the best universities grow rapidly.

One would think that large French energy, pharmaceutical, defense, and information technology companies do not need taxpayers' money to support research and development. Young companies spun off from universities—the very companies that often produce true innovation—are the ones most in need of government support during their high-risk early years. Alas, the French government has just decided to reimburse all big companies for 30% of their research expenditures up to €100 million per year and 5% of all expenditures beyond €100 million. At the same time, the government will decrease its support to hundreds of young, innovative enterprises!

This Christmas gift to large companies is expected to cost the government an astonishing €10 billion during Sarkozy's five-year term. Just imagine how such support could have stimulated venture capital and attracted scientists and entrepreneurs if it had instead gone to young, innovative enterprises! But of course, for this to happen, ministers and presidents would need to do something they rarely do—mingle with hard-working entrepreneurs trying to launch the next Amgen (AMGN) or Google (GOOG), rather than with the CEOs of large companies.

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