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Gunnar Trumbull

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Silicon and the State

Brookings Institution Press

Chapter One

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-Girard 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...