French Institutions, Innovation, and Growth

After an extended period of economic growth following the Second World War, France stands today at the technological frontier in several sectors of its economy. Still, as emphasized in our paper ‘French Institutions, Innovation, and Growth’, the country remains low in global rankings for economic innovation and is struggling to translate its world-class scientific research and talent into applicable, marketable industrial results.

With many of its ‘institutions’ (as understood by Nobel Prize-winning economist Douglass North) being outdated and no longer serving the needs of a modern economy, whose potential for growth is dependent on its ability to foster innovation, France is at a turning point. In order to promote innovation and economic growth in the future, France will need to equip itself with modern institutions that will enable the country and its economic agents to continue to develop its strengths in the area of research, innovation, and technology. A failure to develop these necessary institutions could condemn France to remain in a constant state of playing economic catch-up and seeing its potential for innovation been translated into industrial projects elsewhere in the world.

Unfortunately, French law and economic policy is all too often shaped by politicians who have been navigating France – without a clear compass – through the waves of a rapidly changing global economy. This multiplied the sources of legal uncertainty over time and perpetuated institutions that are ill-adapted to the challenges that the French economy currently faces and will have to face; both of these problems, ie legal uncertainty and inadequate institutions, strip French law of its potential to act as a driver for economic growth and to assume the role of a facilitator in an innovation-based economy.

Reforming its institutions is undoubtedly one of the greatest challenges that France is facing today. However, few grasp the true importance of this challenge. We maintain that France will soon be unable to compete in the technology and research intensive sectors without starting to promote innovation more widely. A radical overhaul of the institutions needs to be carried out if one wants to promote economic development and innovation in France: the focus of the institutions must move away from facilitating the simple accumulation of capital and move towards facilitating the investment in promising economic projects. This shift in focus, however, requires a more precise analysis of the practical implications of French law with regard to the selection of investment decisions.

We argue that the failure of French legal scholars to embrace the insights of legal realism is one of the reasons that explain why its legal system has developed into an excessively introverted and complex system that refuses to adopt the insights of other academic disciplines – particularly economics. France, however, has not only failed to embrace the insights of the intellectual movement of legal realism; in furtherance of this first failure it has also failed to take heed of the lessons of the Law & Economics movement.

In light of the above observations, we consider that a paradigm shift is necessary among French law- and policymakers in order to facilitate future reforms and to create the institutional fundamentals that will enable the French economy to face the innovation and technological challenges of tomorrow. Prior to the submission of new legislation to the French Council of State (Conseil d’État), more thorough economic analyses must be carried out and provided alongside the draft legislative proposals. The powers of both the French Council of State and the French Constitutional Council (Conseil constitutionnel) to check and comment on the quality of such impact studies must be increased, which will require providing these institutions with additional financial and human resources. Further, those responsible for the drafting of legislation should receive additional training in more diverse areas, such as microeconomics and private law; competencies in French administrative law are not sufficient anymore in a world in which smart regulation is the aim of many governments, and where behavioural economics has become a scientific tool for decision makers in order to improve the implementation of policies. More broadly speaking, an interdisciplinary approach to legal studies in France is to be encouraged in order to allow those studying law to draw on a broader knowledge base when approaching and solving public policy problems.

It is through the reform of French institutions that France and its economic actors will be enabled to position themselves at the forefront of future radical innovations, such as in biotech and nanotech. By rethinking both the role of the State in the French economy and its relationship with economic research, policy makers will be able to take better informed and long-sighted decisions – decisions that have the potential to produce a more pragmatic legal framework, which will in turn facilitate the conversion of academic and technological prowess into industrial growth and economic success.

Sophie Vermeille is the President of the Droit & Croissance (Rules for Growth) Institute (‘Droit & Croissance’), and Mathieu Kohmann and Mathieu Luinaud are both members of Droit & Croissance.