Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
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Innovations Need Companies, Not Government

In a recent article, Lucas Léger, an IREF associate researcher, pointed out that even if the research is a French Government priority, entrepreneurship and innovation are not supported and the basic research would better off without Government intervention.

Once elected, François Hollande, as all his predecessors, wanted to put France back on track. Yet he never talked about innovation whereas it is of the utmost importance for growth and success in today’s global economy. It is believed that President François Hollande thinks the Government can handle innovation with public investments and fiscal regulations. Yet the Government goes against common sense and is actually favoring status quo and sinecures rather than innovation.

The Rise and Fall of Innovation

An entrepreneurial Government is a wishful thinking. Using French people’s savings for “innovating companies” or creating a “Public Investment Bank” to finance handpicked companies have never proved to be sustainable strategies to drive innovation. Research and Development cannot be decided in an office of the ministry of finance because innovation is the sum of success and failures of millions of entrepreneurs.

Ideas are the base of our economy. But in France, ideas are stuck. If the number of French patents is above the European Union average, France is way behind Sweden, Germany and Finland. French companies are ranked 15th on 27 concerning innovation. Harsh taxation and fear of “risk-taking” destroyed entrepreneurship. Young French entrepreneurs are driven elsewhere if they want to make the best of their skills.

A study on basic and applied research

Financing basic research should be a Government duty, some people argue. That is why in France public funding is increasing. The idea is that there is a “division of labor” between a Government supporting basic research and companies using this basic research for their applied research. Yet, reality is otherwise as shown by Peter Marsh in his book “New Industrial Revolution”. He explains how new technologies found through basic research are applied to business. In his article, Lucas Léger has created a table is based on March’s table about the most important innovations of the last 100 years, to which is added the indication of basic and applied research. Among the most important innovations of the 20th century and their business application, here are some example:

> Electricity, at the end of the 18th century: the basic research was done by W. Gilbert and B. Franklin, and the business application by T. Edison and M. Faraday.

> Motorized Vehicule, 20th century: the basic research was done by K. Benz, W. Maybach and G. Daimler, and the business application by Mercedes, Peugeot, etc.

> Mass Production, 20th century: the basic research was done by H. Ford and the business application by Ford Motor Company.

> Computer, 20th century: the basic research was done by A. Turing, ENIAC, and the business application by IBM.

> Internet, 20Th century: the basic research was done by DARPA Agency, L. Kleinrock, R&D departments of US universities, and the business application by Xerox and Macintosh.

(Please see French article to see full table)

The real problem is that, from Benjamin Franklin to Kiihiro Toyada, and from the MIT to IBM Zurich, it is hard to find the Government’s contribution to basic research. Moreover, twenty years ago, William Sommers wrote a report for the NBER (National Bureau of Economic Research) in the United States and showed that the most important breakthroughs occurred thanks to non-subsidized research. That is why the Reagan administration questioned NASA’s basic research credits, among others.

In the United States, it was understood that there is no cut-clear border between basic and applied research. Nobel prizes and academic articles are monopolized by American researchers. It must be acknowledged that working conditions are much better in US universities than in French universities. A research center in Dijon can hardly be compared to Pasadena, California or the MIT. Furthermore, academics often become consultants for private companies. As a consequence, there are 9.21 researchers for 1000 inhabitants in the US compare to 5.7 in Europe and 1.43 in China. New products and business processes are created by theses high-profile jobs.

On the contrary, in France, the Government goes on with its monopoly of innovative sectors, giving subsidies, creating “university centers of excellence” while turning down competition because of diploma and national approval process. Thus the 3 billion euros budget for the French CNRS (National Center of Scientific Research) gives funds to a lot of searchers but few finders.

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