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Tech Development A French Resolution

By Peter S. Goodman
Washington Post Foreign Service
Friday, December 9, 2005

CANNES, France -- On this rocky stretch of Mediterranean coast, playground for the glitterati, where the day begins with lunch and lunch gives way to a nap, cocktails and the discotheque, France is attacking its national unemployment crisis with a dream that seems positively un-French: It aims to cultivate a new Silicon Valley.

At a research-and-development park overlooking the sea, scientists in futuristic campuses develop a system that could allow doctors to monitor patients' vital signs and drug regimens at home. Others master technology allowing shipping companies to track inventory on rail, road and sea. Lunch is rushed. Coffee is carried to labs in paper cups. Talk is of wireless and satellite, of Internet protocol and the architecture of computer chips.

Global high-tech firms such as Texas Instruments, Philips and Alcatel have been on the famed Cote D'Azur for years, joined by hundreds of start-up companies. But a recent national initiative aims to encourage them to work together to develop new products that could make France a telecommunications leader and, most important, create jobs -- a need underscored by the waves of violence that afflicted Paris's suburbs last month.

This summer, the government designated this area one of six Competitive Poles -- clusters of industry and research -- earmarking $1.8 billion in tax credits and subsidies for projects here over the next three years.

"This is something new," said Jean-Pierre Mascarelli, president of Sophia Alps Maritimes Promotion, an agency that courts investment. "In France, it's new to have something new."

The notion of a notoriously bureaucratic French government stage-managing innovations in the high-tech sector -- typically known for fierce competition and a libertarian ethos -- seems paradoxical. But in France, business remains a risk-averse activity in which industry looks to the government for succor. Proponents say this is precisely what makes the initiative necessary: France has proven skilled at research but weak at transforming ideas into money -- a step requiring government orchestration.

"In France, we have a lot of people who know a lot about high-tech, but they are not really put together," said George Kayanakis, chief executive of ASK, a Cannes maker of computerized tickets that is helping make electronic labels used to track inventory worldwide. "The Frenchman doesn't really like to gather. You need to have somebody who tells you, 'You have to get together.' You have to have a project that is fully approved by everybody, with all the details worked out and no risk for anybody."

Through the Competitive Poles program, the government hopes to create more than 84,000 jobs nationwide in three years and about 200,000 jobs over the next decade.

But even if the roughly 1,000 tech companies of the region can be knit together, a key question confronts the initiative and the future of the French economy: In a country in which a labor contract can be as binding as a marriage and in which steep corporate taxes fund a generous welfare state, will government incentives spur companies to hire significant numbers of people?

In France, firing workers is highly restricted and often subject to legal challenge. The national unemployment rate sits at about 10 percent, and 20 percent among those in their 20s. Economists say the greatest impediment to job growth is the reluctance of managers to take on new workers lest they get stuck with exorbitant, long-term bills for unproductive employees.

Moreover, some argue that France's continued nurturing of the welfare state -- the labor protections plus the social benefits and high taxes needed to fund them -- conflicts with efforts to make the country more competitive as it grapples with unemployment and the continued flow of investment to lower-cost countries such as Romania, Poland and China. Taxes to fund state-run pensions, medical care and other social services amount to nearly half of wage costs, according to the Organization for Economic Cooperation and Development.

France "is afraid to adapt to globalization," said Guillaume Sarkozy, president of a Paris textile firm, Tissage de Picardie, and head of the Industrial Textiles Union, a trade group. "The old model has to be changed."

He complained about a regime that taxes him based on the number of looms he operates, a disincentive to expand. He bemoaned a flood of inexpensive goods from China, India and Pakistan. He might have been able to adjust had he cut his workforce to lower costs, he said, but the labor code made that impossible. This year, he filed bankruptcy.

"We've invested in new machinery," he said. "We have trained our people, improved our design. I don't know what we can do better."

In many ways, France remains a monument to the virtues of resisting change. In Nice, for example, the Nicolas Alziari Olive Oil Co. continues to extract oil by pressing olives in the same stone mill it has used since 1868. The company could add a modern mill and triple its production, following aggressive exporters in Spain and Italy. But that would change the taste.

"For me, it's better to produce small quantities at higher quality," said Vincent Biot, one of the managers at the family-owned operation.

If preservation appeals to some, it offers no comfort to the jobless. The Competitive Pole initiative seeks to generate jobs in areas in which France retains global advantages. The government invited proposals from regions with strong universities, independent laboratories and industries that can work together.

Stretching from the resort towns of the Cote D'Azur to the gritty port city of Marseille and north to the Alpes Maritime, this region was an obvious candidate. Texas Instruments has been operating a campus above Cannes since the 1960s, developing computer chips embedded in mobile phones. The research and development park, Sophia Antipolis, is home to more than 300 companies, among them software developers, telecom gearmakers and optics firms.

Much as Stanford University and the University of California at Berkeley have sent a stream of venture-minded researchers to Silicon Valley, the French National Institute for Research in Computer Science and Control has helped incubate roughly 100 companies in the area. And just as the temperate climes of northern California have served as magnet, the charms of the French Riviera have ensured a large supply of brainy people here.

Overall, the region is home to about 45,000 high-tech jobs. The pole aims to increase that number by 50 percent over the next decade. Since the government anointed this region the pole for secure communications, representatives of the companies and labs have met to draft proposed projects to submit for funding. It now includes more than 80 projects. The governing council aims to pare it to five or 10 by the end of the year.

The group has agreed to focus on communications tools for tourism, health care, inventory and risk management. Under a pilot project at a local hospital, systems are being tested that use microchips to track the whereabouts of patients. Other systems are being fine-tuned that could help tourists find their way around by sending location information to their mobile phones, then beaming them audio guides upon arrival.

Alcatel has been working with chipmakers and software developers to create a communications system for firefighters, rescue crews and other responders to natural disasters. It would combine satellite data with ground-based sensors to produce maps and reports delivered to those in the field. One system would combine floodwater sensors with phone numbers sorted geographically, sending telephone and e-mail alerts to communities when threats arise.

How the workload is shared and the profits dispensed could prove contentious. In an industry centered on intellectual property, will companies really share their designs?

"We are all more or less competitors, but we are always forced by our customers to work together," said Jean-Pierre Henry, Cannes plant manager for Alcatel Alenia Space, a satellite subsidiary of the French telecom giant Alcatel Group. "We are very used to working in such a way in Europe."

Some worry that projects may attract funding not on the basis of what is best but rather most politically expedient, with projects from influential companies having the best shot at the government's cash.

"Every project has to be approved by the government," said Sen. Pierre Laffitte, founder of the Sophia Antipolis research park. "They should not have done it this way."

But already, say those involved, the initiative has produced tangible benefits: In a country gripped by economic malaise, a bit of vibrancy has been injected into the conversation.

"Just the simple fact that these people came together in one room and were introduced to one another," said Bruno Delepine, director of the Mobile and Personal unit at Philips Semiconductors. "There's a critical mass here. A lot of technology that has been mastered but has not necessarily been put together. This is sending the message that France is serious about high-tech."

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