What's American and Envied by France?

By Anne Dumas
Sunday, June 5, 2005


Praising America isn't the sort of thing that the French run around doing. When we're not lamenting the metastasizing McDonald's outlets, criticizing Hollywood movies or resisting the Americanisms that are creeping into the French language, we are blasting recent U.S. foreign policy. No wonder a book predicting "the breakdown of the American order" became a bestseller here last year.

But there's one area in which France would love to emulate that place across the Atlantic -- the ability to foster small businesses and turn them into big ones.

It's not exactly haute culture , but these days this is a vital topic here in France, where the unemployment rate has been stuck between 9 and 10 percent for a quarter of a century and where not a single enterprise founded here in the past 40 years has managed to break into the ranks of the 25 biggest French companies. By comparison, 19 of today's 25 largest U.S. companies didn't exist four decades ago. That's why France is looking to the United States for lessons. And it's why it was meant as a compliment when the French media dubbed the former finance minister, newly appointed interior minister and potential president Nicolas Sarkozy "the American."

For years, France has been pouring bad old economic policy into new bottles. "France has not solved the crises of the 20th century, including rampant unemployment, and it has to face the challenges of the next one: globalization and a new kind of world terrorism. The country has lost 2 million industrial jobs in the last 25 years," explains Nicolas Baverez, a talented historian, lawyer and op-ed writer, who wrote a book on the decline of France. Although the situation is dire, France lingers in what is matter-of-factly branded "French immobilism."

This sense of job insecurity and of being stuck contributed to the trouncing of the European constitution in last Sunday's referendum. And the job anxiety isn't limited to the lower class. Over the past couple of years, there has been a 27 percent jump in unemployment among managers.

It's no small thing for a country like France to admit its weaknesses, yet many opinion leaders here now concede that France has the rhetoric of a world power without the economic means of one. So even though President Jacques Chirac was content to let the Bush administration go it virtually alone in the war in Iraq, France is ready to follow the American lead when it comes to business development.

And that is exactly what the country badly needs right now. Consider this tantalizing bit of information: There are 2.5 million small businesses in France, each with anywhere between one and 250 employees. They generate half of France's economic output and employ two-thirds of the total working population of 27 million, according to the National Institute for Statistics and Economic Studies in Paris. If every one of those small businesses hired just one more person, there wouldn't be any unemployment in France.

Every country undertakes reform in keeping with its own traditions. In France, where the state has dominated the economy, even the impetus for economic change comes from the state.

Citing an economic reform approach known as the "Lisbon strategy" from a March 2000 European Union meeting, the country has finally decided to make a boost in research and industrial innovation a top priority. (France's growing problem with the outsourcing of jobs to other countries has also spurred reforms.)

The first initiative has been to promote the idea of clusters, or what are called "competitive poles" here. The state plans to allocate nearly $1 billion over the next three years to about 20 regional projects, ranging from biotechnology to communication, from energy-related projects to nanotechnology ventures. "It is unprecedented for rival businesses, research centers and local politicians to forget clan differences and work for a common cause," says Nicolas Jacquet of the Paris Business and Industrial Community. "And it shows the sense of urgency that you feel in France."

The French government is also creating a National Research Agency, which will be granted $2.4 billion over the next three years. The goal is to finance projects, private or public, based on evaluation by international peers. It seeks to replicate the "bottom up" approach of the National Science Foundation in the United States. "I came back to the basics," says Elie Cohen, a prominent economist who designed the project with Philippe Aghion, a professor of economics at Harvard University. "I thought about [Chinese leader] Deng Xiaoping. He could not fight the system so he decided to circumvent it by allowing surplus quotas to be sold on the free market. In France, you cannot counter the rigidity of the state research system, so this way, [at least] the money will not be feeding the beast."

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