French Institutions, Innovation, and Growth

Abstract

After a long period of catch-up growth that began after the Second World War, France has now reached a technological frontier in many sectors of its economy. Why is it then that the French economy ranks so low in various rankings of the world’s most innovative economies? Why is it so difficult for France and its economic agents to transform the output of its world-class scientific talent and fundamental research – of which it is a net exporter – into industrial applications that can fuel economic growth?

We believe that France has reached a turning point and that there is today a substantial risk that the “institutions” (as defined by Nobel Prize winning economist Douglass North) of the French economy, which have remained stuck in the past, no longer serve the needs of a modern economy whose growth will depend on its ability to innovate. In order to promote innovation and economic growth in the future, France will need to equip itself with the institutions that will enable the country to cross the technological frontier that many of its economic actors have already reached. Unfortunately, French law as well as French economic policy have too often been captive to politicians that have been navigating France – without a clear compass – through the waves of a rapidly changing global economy. This has created legal uncertainty and a lack of adaptation of the French institutions to the challenges of this changing global economy, both of which are stripping French law of its potential to become a vector for growth and to assume the role of a facilitator in an innovation-based economy.

Without any doubt, the reform of Frances’ institutions is one of the greatest challenges the country is facing today. However, only few are aware of the importance of this challenge.

In this paper, we outline six basic findings on the state of the French economy and its institutions, as defined by Douglass North – finding, which will enable us to present proposals that will contribute to transform French law into a tool ready to serve a French economy facing the innovations and technological challenges of tomorrow.

Keywords: Innovation, Institutions, Economic Growth, Law, Law & Economics

JEL Classification: A10, A11, A12, B20, E00, F43, H00, H70