Silicon and the State: French Innovation Policy in the Internet Age

by Gunnar Trumbull

Overview

"In the early 1990s, French officials viewed with some concern the emerging and innovative high-technology sectors of the U.S. and British marketplace. Fearful of falling too far behind, the French government implemented a vast array of policies—from tax incentives for investing in risky high-tech start-ups to new standards for electronic signatures—designed to promote the commercialization of new economy technologies in France. The efforts have turned French innovation policy on its head. Traditional government and bank-financed research and development were replaced by private venture capital. Professionals in France's technical elite—long accustomed to a secure career track in prestigious laboratories and industrial conglomerates—began moving into risky entrepreneurial ventures. New technologies, once developed exclusively by France's national champions of the marketplace, such as Ariane, Airbus, and Renault, began to be commercialized by technology start-ups. Efforts to promote the new economy, however, have proved politically and socially contentious. Many French policymakers and public intellectuals fear that regulatory liberalization might threaten or undermine state sovereignty. Gunnar Trumbull investigates France's experience in adapting to the requirements of innovation in the new information and communications technology (ICT) sectors by focusing on events over a six-year period, from 1996 to 2002. This short stretch of time proved a crucible for French leaders and businesspeople: it saw dramatic efforts at regulatory reform; a boom in technology start-ups, venture capital, and initial public offerings; the spread of the Internet; and then a collapse in the Internet market, accompanied by a broader economic decline. The new challenges of the ICT revolution were confronted, and new policies and practices were tested and stressed. The author describes France's new technology policy as both boldly new and familiarly French. He commends the French state for continuing to play a central role in shaping France's new economy and argues that the new reforms actually reinforce the role and autonomy of the state. Acknowledging that the government's solutions have not been elegant, Trumbull asserts that they nonetheless offer a workable accommodation of French values to the requirements of competitiveness in the new economy sectors and provide a model for others. Silicon and the State provides important new insight into the way France has worked to reconcile its traditions of state engagement and social solidarity with the challenges the country faces from new economy technologies.

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Product Details

ISBN-13:	9780815785972
Publisher:	Rowman & Littlefield Publishers, Inc.
Publication date:	04/21/2004
Edition description:	New Edition
Pages:	154
Product dimensions:	5.94(w) x 8.97(h) x 0.24(d)

About the Author

"Gunnar Trumbull is an associate professor in business management at the Harvard Business School."

Read an Excerpt

Silicon and the State

French Innovation Policy in the Internet Age

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By Gunnar Trumbull

Brookings Institution Press

Copyright © 2004 Brookings Institution Press
All right reserved.
ISBN: 0-8157-8596-8

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Chapter One

Technology and the State

France in the late 1990s undertook a revolution in innovation policy. Afraid of falling behind the liberal market systems of the United States and the United Kingdom, the cohabitation government of Prime Minister Lionel Jospin and President Jacques Chirac put in place a vast array of new policies-from tax incentives for investing in risky high-tech start-ups to new standards for electronic signatures-designed to promote new information and communications technologies in France. In their analysis, France in the 1990s had succeeded in the basic sciences, but failed to translate laboratory findings into commercially viable new technologies. Roger-Gerard Schwartzenberg, French minister of research, described France's apparent economic lag as emerging "not from a lack of gray matter, but from an incomplete exploitation and valuation of resources."

The French leadership was especially concerned about a brain drain, as France's technically trained elite increasingly moved to join vibrant small-firm sectors that already existed in Britain and the United States. With its new policies the government sought to encourage the commercialization of new technologies, and they looked to the United States to understand how this might be done. What they found was that in the cutting-edge sectors that constituted the "new economy"-biotechnology, information and communications technology, e-commerce-the successful exploitation of basic science findings appeared to depend on a context of dynamic, new, innovative firms funded through private venture capital. Preoccupied by a growing technology lag, and driven by the fear of losing highly trained technicians to foreign firms, France was determined to create a domestic analog to Silicon Valley.

The new set of technology policies France put in place turned French innovation policy on its head. Traditional government and bank-financed research and development were progressively replaced by private venture capital. France's technical elite, long accustomed to a secure career track in France's prestigious laboratories and industrial conglomerates, were encouraged to move into risky new companies. New technologies that had once been developed in France's prestigious industrial conglomerates were now being commercialized by small technology start-ups. Much of this effort was focused on start-ups working in the new information and communications sectors.

But France's homegrown analog to Silicon Valley, if it did succeed, was likely to look different from its American counterpart in at least two ways. First, France's new technology start-ups did not emerge spontaneously. Drawing on the French interventionist regulatory tradition, the government played a guiding role in establishing the basis for high-tech innovation in the private sector. Efforts included public contests and educational programs to promote entrepreneurship, industry incubators sponsored by public research labs, even an entirely new legal form for companies tailored to the needs of high-tech start-ups. The goal was to create a new institutional framework in which individual entrepreneurship could prosper. But encouraging small-firm dynamism appeared, at least at the outset, to imply more rather than less state activism.

Second, French policymakers faced strong political pressure to make the new innovation strategy compatible with French political values of equality and social solidarity. Government efforts to promote entrepreneurship were therefore carefully designed to limit their impact on French society. Stock options in France were tightly regulated to balance incentives for innovation against excessive executive compensation. The administrative burden on French companies was reduced, but not through simple deregulation. Instead, the French service publique began adopting Internet-based capabilities to streamline business interaction with the government. And new private investment instruments were carefully designed so that they would not threaten France's popular public welfare system. Even as the French government encouraged private innovation via startups working in new technology sectors, it retained a strong guiding role for itself in the economy.

This book investigates France's experience in adapting to the requirements of innovation in the new information and communications technology (ICT) sectors. It focuses on the six-year period from 1996 to 2002. Although short in duration, this period included dramatic efforts at regulatory reform; a boom in technology start-ups, venture capital, and initial public offerings (IPOs); the spread of the Internet, then a collapse in the Internet market, accompanied by a broader economic decline. This short stretch of time, in other words, was a crucible for French leaders and businesspeople, a period in which the new challenges of the ICT revolution were confronted, when new policies and practices were tested and stressed.

Of course, the challenges that the new information and communications technologies posed were not unique to France. All countries, in one way or another, faced the same issues. But by focusing on the experience of a single country, we can gain a deeper sense of the political and economic challenges of adjustment, and of the interests that lay behind the policies. It may be many years before we are able accurately to assess the economic consequences of the experiment that France undertook during this six-year period. But we can already capture the political and social texture of the struggle. To understand the challenge that new technologies pose to sovereignty, we need to look where silicon and the state collided.

Technology and the State

Observers have suggested that today's new information and communications technologies constitute an industrial revolution. On a par with the mechanization of the eighteenth century or the vertical integration pioneered in the nineteenth century, this third industrial revolution threatens to change the very economic and social order of society. Like these earlier revolutions, the new ICT may fundamentally reshape industry and the workplace. Researchers at the Berkeley Roundtable on the International Economy describe the new ICT as "producing one of those very rare eras in which advanced technology and changing organizations do not revolutionize just one leading economic sector but transform the entire economy and ultimately the rest of society as well." But in one important respect this latest revolution appeared to be different from its predecessors. Despite the political challenges that earlier industrial revolutions posed, they left the state stronger and the nation more consolidated. The third industrial revolution, by contrast, appeared to threaten core functions of the state.

The French state historically played a central role in developing and commercializing new technologies. These new technologies in turn promoted, rather than subverted, the purposes of the state. France's earliest communications technology, the visual telegraph invented by the Chappe brothers, employed a chain of tall towers sporting mechanical semaphore arms. The system was used to transmit messages from Paris to the limits of French territory. Soon new steel train lines extended along the paths of the semaphore, built in a radial pattern extending from Paris, accompanied by the new electrical telegraph. Such projects have been deeply tied to the creation of a distinctive French identity. These early technologies drew the country together as a commercial unit, while also meeting basic military needs to transport troops and materiel to the borders. "There could be no unity," concludes Eugen Weber in Peasants into Frenchmen, "before there was national circulation." They helped to create what Benedict Anderson has called an "imagined community," an image of France as a nation of which all were a part.

Not only did new technologies reinforce the French state; the state was also the primary sponsor and user of new technologies. Especially in the post-World War II period, emerging technologies were systematically pursued and applied to reinforce national sovereignty. The new technologies increased the power and autonomy of the French state in two ways. As complex and technologically challenging projects, they required a deep government role in the promotion of new research. This has been especially true in the post-World War II era. The elite National Center for Scientific Research (Centre national de la recherche scientifique, CNRS), founded in 1939 on the eve of World War II, created a network of research labs intended explicitly to support basic research in the national interest. Through CNRS the postwar French state was able to direct the development of new technologies.

Moreover, the technologies often had explicitly national goals. Military research allowed France to manufacture advanced weapons. Space launch technology gave France worldwide surveillance capacity. France also pursued an aggressive nuclear power program in order to reduce its energy dependency on the Middle East. When France withdrew from NATO in 1966, for example, the United States refused to sell advanced computers to assist with France's nuclear research. In response, Charles de Gaulle created a new national laboratory in advanced computing, the Institut national de la recherche en informatique et en automatique (INRIA), located in the abandoned NATO headquarters in Rocquencourt. Research at INRIA in turn laid the groundwork for France's homegrown computer manufacturer, Bull. Thus both in their development and in their use, the new technologies of the second half of the twentieth century served to concentrate and reinforce the French state's control over key technologies. In doing so they helped to forge a modern French identity grounded in national autonomy, cohesiveness, and a respect for state initiative.

And what was good for the state appeared to be good for industry. Since the 1950s, French industrial innovation projects have been ambitious and largely successful. That success had its roots in large state-run companies, so-called national champions, which received high levels of government financial and research support. The Ariane space launch vehicles, Airbus and the Concorde, France's nuclear program, Minitel, Renault automobiles-nearly all of France's industrial achievements of the postwar period had their origins in collaborative projects between France's large firms and the state. The relationship between large and small firms was correspondingly troubled. If anything, French planners typically tried to eliminate small companies, in the understanding that they lacked the market power and economies of scale necessary for promoting economic efficiency.

But the features of the French political economy that so closely aligned the interests of the technology sector and the state also posed challenges for promoting innovation in the new information and communications sectors. France's tradition of state-initiated innovation tended to concentrate France's technical "knowledge-bearing" elite within the state-run sectors. Those with the greatest capacity for technological innovation were still mainly working for the government. On top of this, the postwar tradition of state-led industrial planning and the apparent success of earlier government-funded innovation projects had led French citizens to associate innovation with government initiative. But this legacy confronted the French state with a conundrum. On the one hand, government-led initiatives were poorly suited to the rapid pace of technological and market development in the new information and communications technologies. France's Plan Calcul to promote the electronics sector in the 1960s and 1970s had already shown that state-sponsored innovation did not necessarily compete well in the global marketplace for information technologies. On the other hand, if new private initiatives failed, it was likely that these failures would nonetheless be blamed on the government. Moreover, the dominant role of the central government in postwar France had weakened local authorities that might otherwise have taken the lead in promoting decentralized private-sector innovation projects. France's postwar economic trajectory had concentrated expertise, political responsibility, and institutional capacity at the state level. This posed real problems for cultivating technology-intensive innovation in small firms.

The Challenge of New Information Technologies

Moving to a decentralized model of innovation in order to make France competitive in the new information technologies required potentially risky changes in policy. Would private investors make appropriate decisions about the allocation of venture capital? Would entrepreneurs acting separately pursue projects that generated a successful technological trajectory for France? Could the government legitimately step back from technology decisions that were arguably critical for France's economic future?

French politicians expressed real concerns about whether their country could adopt the institutions necessary to promote high-tech start-ups without at the same time importing the entire package of American-style capitalism. "How can we catch up with the United States," asked Christian Sautter, Jospin's former economics minister, "without losing our souls, that is, without sacrificing the solidarity that lies at the heart of the European model?" The centerpiece of the ICT revolution, the Internet, was grounded in a collection of new technologies and services-microelectronics, software, telecommunications; Internet service providers, e-tailers, and web designers-that appeared to prosper only in a liberal economy. Yet France had, until recently, possessed few of the necessary liberal economic institutions.

Venture capital funds, a central source of start-up capital, were invented in the United States in 1954. They did not appear in significant numbers in France until forty years later. Stock-option plans had become a core component of compensation for technology entrepreneurs in the United States, luring highly skilled scientists, engineers, and businesspeople into risky ventures with the promise of future fortune. But French tax law had recently been rewritten to make stock options prohibitively expensive. Finally, a successful high-tech start-up sector implied the rapid formation and dissolution of companies. The U.S. common law legal system and its tradition of laissez-faire regulation imposed low costs on company creation and failure. France's civil code legal system and strong regulatory tradition, in contrast, placed brakes on company creation and failure.

The risks implicit in a small-firm technology sector also challenged basic tenets of France's social contract: risk-sharing, job security, and wage equality.

Continues...

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Excerpted from Silicon and the State by Gunnar Trumbull Copyright © 2004 by Brookings Institution Press . Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

	Foreword	ix
	Acknowledgments	xiii
Chapter 1	Technology and the State	1
Chapter 2	The State and the Entrepreneur	17
Chapter 3	Private Equity in the Shadow of the State	40
Chapter 4	Minitel and the Internet	60
Chapter 5	Regulation and the Internet	83
Chapter 6	Silicon and the State	100
	Notes	109
	Index	129

Editorial Reviews

"... aims to describe, in Trumbull's words, the 'revolution in innovation policy' achieved by France and the French government of the late 1990s.... Remains a precious resource for understanding the workings of the modern French economy and the historic interaction between the state and businesses." —Pierre Briancon, France Magazine, 7/1/2004

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