Cablegate: Can France Create a "Microsoft"? Gof Creates

This record is a partial extract of the original cable. The full text of the original cable is not available.

121709Z Jul 05

UNCLAS SECTION 01 OF 03 PARIS 004869

SIPDIS

SENSITIVE

STATE FOR EB, EUR/ERA AND EUR/WE

E.O. 12958: N/A
TAGS: ECON EIND FR
SUBJECT: CAN FRANCE CREATE A "MICROSOFT"? GOF CREATES
(ANOTHER) GOVERNMENT AGENCY TO SPUR INNOVATION

1. (SBU) Summary. With French economic growth slowed and
the EU's Lisbon strategy stalled, the GOF is looking for
additional ways to promote industrial innovation. Both the
Raffarin and now Villepin governments have set an industrial
political agenda that has led to reorganization of small
government agencies hopefully strengthening the
competitiveness of French companies. Existing agencies have
been reformed, and the GOF announced the creation by summer
2005 of a new government agency with a two billion dollar
budget, to be partially financed by recent privatization
revenues. Other GOF measures include increased research
spending, a research tax credit, easier credit for SMEs and
a strong focus on building public-private partnerships. The
efforts are strongly supported by Prime Minister de Villepin
and Finance Minister Thierry Breton. The GOF hopes these
initiatives, which were developed to fulfill European
political goals established by the Lisbon Agenda, will
create favorable economic conditions for small and start-up
industries as well as for large projects and jumpstart the
French economy. End Summary.

2. (U) At the Paris Air Show June 14, Prime Minister de
Villepin proclaimed a new role for the GOF in industry.
Reflecting French pride at the success of Airbus, he
described the government as "a central figure in a network
acting to protect, stimulate, and anticipate industry
action". Under this new mantra, the new Agency for
Industrial Innovation (AII), announced by President Chirac
on January 4, will finance "large pioneer projects".
Already de Villepin has increased the power of AII by giving
the agency 500 million euros from GOF sales of France
Telecom shares. He subsequently doubled this initial
endowment to one billion euros. This money will be used to
support projects in new areas such as solar energy,
biofuels, nanotechnology and biotechnology.

AGENCY TO JUMPSTART INNOVATION
-------------------------------

3. (SBU) The Agency for Industrial Innovation (AII) was
developed under the Breton Law (adopted by the National
Assembly on June 28, 2005 and currently being debated in the
Senate) on the modernization of the French economy. The AII
will be composed of thirty professionals working with large
industrial groups to identify half a dozen innovative
programs. The agency will be only partially financed by
revenue from privatizations, specifically France Telecom
shares. AII is slated to be up and running by the end of
the summer 2005 and will begin its financing operations
during the fall of 2005. The GOF provided for an AII
working budget of around two billion euros between 2005 and
2007. While the bulk of its grants are expected to be for
"large projects", French Finance Minister Breton, inspired
by the American Small Business Act, has set a goal to
increase small and medium enterprise participation by
granting up to that 25% of the AII-financed programs to
SMEs.

NEW GOVERNMENT CONTINUES OLD PLAN
----------------------------------
4. (SBU) In addition to institutionalizing support of
industrial innovation, the previous Raffarin government had
developed a five-point plan, adopted by his successor
Villepin, which emphasizes increased funding for cooperative
projects between public and private actors as well as
support for of innovative research by large and small
businesses alike. This plan originally was designed to
serve not only national political economy interests, but
also to advance the EU's Lisbon Agenda objectives in France
(including increasing investment to assure innovation and
competitiveness.) The creation of AII constitutes one goal
of the plan. An additional aspect is an Innovation Plan
allowing tax breaks for research. Under this banner, the
GOF also conceived the tax status "young, innovative
enterprise" (JEI) to provide tax breaks and exemption from
employer's contributions to qualified businesses.

5. (SBU) Another point of the GOF's industrial innovation
plan is the identification of "poles of competitiveness".
This appellation denotes a geographic grouping of business,
educational and research centers focused on one
technological/ scientific domain. These clusters are
composed of both private and public entities. They must
have shared, concrete projects and potential international
visibility. The status provides fiscal advantages in the
form of tax breaks and possible subsidies from local
communities and EU funds (such as FEDER, FSE, FEOGA and
IFOP). As of February 28, 2005 the GOF had officially
identified ten such "poles of competitiveness".

HELPING OUT THE LITTLE GUYS
----------------------------
6. (SBU) Other efforts include the GOF establishment on June
29 of OSEO, an umbrella agency to facilitate a closer
partnership between the French Innovation Agency (ANVAR) and
the Development Bank for Small and Medium Enterprises
(BDPME). Whereas AII deals mostly with large-scale research-
related projects, OSEO is an umbrella organization
specifically created to support SMEs. Through a network of
public and private actors, this agency will provide
financial support (chiefly at the regional level) to SMEs at
crucial moments in enterprise life, including creation and
research. At the Paris Air Show in June 2005, Prime
Minister de Villepin announced that 350 million euros
(mainly resulting from privatization receipts) would also be
given to ANVAR in 2005. In 2004, OSEO allotted
approximately 260 million euros in assistance for 3,680
innovation projects. In addition, the Innovation
Development Contract formulated by OSEO provides for
continuing support of inventive research by helping SMEs to
commercialize the results of their research.

7. (SBU) Regarding SMEs and the French economy: On June 14,
2005, de Villepin announced that innovation aid managed by
ANVAR will be increased by 50% starting in 2006 in order to
directly support technology companies. This decision is
especially directed at aiding innovative SMEs compete at the
same level as large enterprises that will receive AII-
sponsorship for technological projects. Parenthetically, a
stock exchange, Alternext, devoted to small businesses
opened May 17 in Paris.

CURRENT LEGISLATIVE EFFORT
---------------------------
8. (SBU) In addition to creating new agencies and
classifications, the final point of the GOF industrial
innovation plan revolves around a bill (the LOPRI law) on
guidance and planning for high-tech research that should
entail the formation of a high council for research and
innovation (HCRI) and a national research agency (ANR).
HCRI will establish a national strategy for public and
private sectors including research priorities and
recommendations. This council will be composed of ten
scientists and ten representatives of what the French call
the "socioeconomic sector". Its monthly reports to the
Prime Minister will serve as the basis for debate in
Parlement. The ANR (successor to the temporary Public
Interest Group National Agency of Research, or GIP ANR) will
put the national priorities into practice. In effect, the
agency will both support and conduct research.

CURRENT CORPORATE CLIMATE IN FRANCE
------------------------------------
9. (SBU) A study by Comite Richelieu (an association of
small French high-tech firms) has shown that globally, new
firms (less than twenty years old) are behind most economic
growth. Traditionally, small and medium enterprises have
not received visible support from the French government or
its principal institutions, limiting their possibilities for
growth. Large, "low-tech" companies in traditional sectors
dominate the economic landscape, and receive greater
attention from the GOF. The lack of new firms on the French
business scene poses potential barriers to economic growth
and creation of new employment. A recent survey by French
umbrella organization OSEO reports that while French SMEs
may have innovative ideas, they do not possess the means to
put them into practice.

10. (SBU) COMMENT: The government's strategy, while culled
largely from its predecessor's efforts, announces a clear
strengthening of French industrial policy--with a slightly
different take. The chief goal is to make the French
economy and French enterprises more innovative by supporting
industrial projects in the economic "sectors of the future"
in France. Through a combination of initiatives promoting
innovation within both large business groups and small
enterprises, the GOF hopes to encourage hiring, expansion of
business, increased exports and development and
commercialization of new technology. Unlike the heyday of
the French-style planned economy, this new industrial policy
does not look to promote the French government's direct
management of the economy. Rather, the government is
striving to create favorable economic conditions for
industrial innovation. While many of the measures have been
publicized recently, most of them have been on the drawing
board for over a year. It is unlikely that Prime Minister
Villepin is counting on them to stimulate the economy in the
next 100 days.

STAPLETON

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