France to Create Industrial Innovation Agency

Dirigisme is alive and well in Jacques Chirac’s France. The French President wants to take some of the money from privatizing Airbus Industries to make sure the country can produce “the Airbuses of tomorrow.” This idea is a slippery one. If he does it right, it could benefit all of Europe, not just France. But if he starts picking national champions and tossing government money at them, he may as well just toss the money in the Seine.

The biggest problem European companies in general have is their very low rates of investment in research. According to the Financial Times “all EU countries suffer from low private sector investment in research, a fact that accounts for 80 per cent of Europe’s lag behind the US in overall research funding.” The FT suggests making the companies cough up some money to get access to the public funds. But that only addresses a small part of the issue.

It would be far better for the French to award the money in the form of a loan to smaller companies. The Airbuses of the future depend on the commercialization of existing technology. The leap must be made from chemistry and biology (among other things) to engineering and marketing. Money can help make this happen, and if the funds are a loan, no business will take the money without some plan to bring a product to market quickly.

In any case, Mr. Chirac is toying with the very worst aspects of European business. Governments are notoriously bad at commercial innovation on their own, and large businesses are only slightly worse (remember Xerox developed the personal computer but didn’t think anyone would buy one). Real commercial strides come from out of the blue (Microsoft 20 years ago), and it is something for which no one can really plan.

Government, contrary to the radical libertarian view, does have a place in the business world. Property law and contract enforcement are vital, a reliable currency is extremely useful, and provision of infrastructure is best done as a social, rather than private, effort. In reducing costs of taking risks, such as the invention of limited liability corporations, government can even get the market to move faster than it might otherwise. What it can’t do is decree creativity. That is best left to the market.



© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.

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