Macron’s Industrial Policy: More of the Same?

European Straits #64

Nicolas Colin

Dear all,

Emmanuel Macron’s election last year promised to be a boon for the French entrepreneurial ecosystem. Here was a progressive, forward-looking president whose political trademark was fighting off rent-seeking and who counted many entrepreneurs among his personal friends.

What’s more, the overall context seemed to favor France as the leading European startup hub. Britain is on its way out. Germany decidedly lacks a knack for shaking up the status quo. And while the Nordic and Baltic countries perform well on paper, their peripheral position makes it hard for them to lead the rest of the continent in a more entrepreneurial direction.

Almost one year later, however, it’s time to temper the initial optimism. Whereas the entrepreneurial ecosystem seems to have taken on a real life of its own, the signals coming from the French government mostly suggest continuity. Many policies undertaken by the Macron administration look very much like the ones implemented by its predecessors—from reducing labor costs for low-wage workers to reforming the civil service to liberalizing the national railway system.

Continuity is especially visible when it comes to supporting technology ventures. As I’ve argued in a (rather critical) op-ed published by the Financial Times, Macron’s recently unveiled plan for artificial intelligence belongs to “the old tradition of French industrial policy: everything aimed at university-led research, lots of public money going to incumbents, and the usual tinkering and wasting of resources in the huge national research and development bureaucracy”.

Of course, none of this means that Macron is failing at transforming the country. His administration could eventually confirm an idea shared by many economists: when something unexpected happens, we tend to overestimate the short-term consequences and underestimate the long-term consequences which are not yet visible (and could be positive). However, I think there are three worrying reasons why many share the impression of Macron’s tenure as a disappointment.

The first is legacy thinking in the French public sector. The French state has been tailored to design and implement policy for the age of the automobile and mass production. Today’s most senior civil servants were trained between the 1970s and the 1990s. Macron himself, who obviously prefers the unimaginative, technocratic approach, displays many characteristics of a reformer stuck in the 1990s—much more Romano Prodi or Gerhard Schröder than the Franklin D. Roosevelt of our time.

The second reason is the lack of curiosity for the innovative policy thinking that is happening beyond French borders. Some non-French thinkers such as Joseph Stiglitz and Jeremy Rifkin are well-known in France. But that’s only because their work has been translated into French following their winning major awards or smashing the publishing market with global best-sellers.

Meanwhile, most thinkers focused on development, innovation, and industrial policy are overlooked by the French elite. I’ve mentioned in a previous newsletter that . Sadly, that’s also the case for inspiring authors such as Carlota Perez, Mariana Mazzucato, William H. Janeway, Vivek Wadhwa, William Bonvillian, Amar Bhidé, and Josh Lerner.

Finally, the third reason why the French government is lagging behind is that it has no local tech champion on which it can rely. In the absence of local giants in the making, designing industrial policy is very difficult. Old domestic incumbents tend to hack industrial policy and turn it into a corporatist shield, dragging the country down into under-development. Meanwhile, foreign tech giants lure the government with seemingly generous local investments when in fact they mostly seek to capture local resources (especially engineers) to generate wealth elsewhere.

What should industrial policy be in the current transition to the Entrepreneurial Age? I see three ideas:

  • First, it’s impossible to innovate at the frontier without looking outward. This is exactly what Deng Xiaoping recommended when he took charge of China’s economic policy from the late 1970s onward: China needed to learn from others and come back with a better sense of how to generate local wealth in a more global economy. It led to many outward-looking initiatives, from sending young Chinese pupils to study at foreign universities to Jiang Zemin’s “Go Out Policy” that was designed to encourage Chinese enterprises to invest overseas. This is what old France should start doing: learning from others instead of being stuck in its own obsolete traditions.

  • Second, regulation should be a lever to support domestic startups rather than a weapon to channel foreign giants. If local champions are too small and not ambitious enough, regulations tend to be designed only to slow innovation down rather than to speed it up. In such cases, it’s only a matter of time before foreign giants break into the underserved domestic market, crush the local players weakened by backward-looking frameworks, and seize leadership over the long term. The alternative, of course, is that the market remains completely closed to innovative products, be they produced by domestic firms or foreign ones. But I don’t see any victory in such an outcome: it means that the country is sinking deeper into under-development—hardly a reason to rejoice!

  • Third, if we want our local ventures to prosper, we need to help entrepreneurs build a thriving ecosystem. Following Mariana Mazzucato’s work, I think that the state’s role in such an undertaking is to impose a direction for innovation. Silicon Valley is an entrepreneurial ecosystem originally built for a clear and critical mission: winning the Cold War. Today, as I suggested in the Financial Times, a country such as France should base its industrial policy on inspiring missions such as curbing climate change, making healthcare more affordable, or solving the urban housing crisis. And this is where the Macron administration is falling short. Reforming for the sake of reforming is not a mission. So what are they actually aiming to achieve?

Here are a few relevant articles:

Warm regards (from Paris, France),

Nicolas