France on its way to the top 10 of the World’s most Innovative Countries

The World Intellectual Property Organization (WIPO), the European Institute of Business Administration (INSEAD) and the American University of Corneil have agreed at the beginning of September : France is ranked 12th in the world’s most innovative countries in the 2020 Global Innovation Index.

A spectacular increase of 4 ranks compared to 2019 and Bruno Lanvin, Executive Director of Global Indices at INSEAD, does not hide his enthusiasm:

“It’s a remarkable change, because the higher you are in the ranking, the more difficult it is to progress.”

Just so you know, the Global Innovation Index examines the impact of policies focused on innovation, economic growth and country development to rank 131 states and economies. Specifically, the ranking is based on 80 indicators covering education, policy environment, investment in research business infrastructure and development, and patenting.

A symbolic breakthrough over China

With these 4 ranks won, France is now ahead of China, which is stagnating at 14th place despite its spectacular progress in recent years. A symbolic situation that highlights the priorities established by French policies in recent years.

It is always delicate to compare the economic models of two countries (even European ones), each influenced by a different history and by different social choices and ideologies. The fact remains that France seems to be behind its European neighbors who are leading the pack with Switzerland, the great dean and officially the world champion of innovation. Not far away, Sweden comes second in the rankings, the United Kingdom is fourth and Germany is in 9th position.

On a global scale, the year 2020 confirms the third place of the United States of America. It is also interesting to note an Asian breakthrough with the entry of the Philippines in 50th place, becoming the fourth Asian country in the top 50 with Vietnam (42nd) and India (48th).

What allowed France to jump so many places in the rankings?

Gaining four places by already being so far up in the rankings is not insignificant: support measures for innovators seem to be paying off.

Above all, France has certain structural strengths, such as the quality of its education system and its telecoms and digital infrastructures.

What seems to have made the difference, however, are the policies put in place in terms of financing, such as improving access to business creation through the research tax credit (CIR) and the competitiveness and employment tax credit (CICE).

At the same time, Bruno Lanvin notes an increase in the quality and number of French publications in major international journals as well as the rise of French universities and schools in Shanghai’s international ranking, further enhancing France’s global visibility.

Can France be confident of making rapid progress in the future?

What is currently hindering France in comparison with its neighbors is its social model and a bureaucracy that encourages red tape.

As Bruno Lanvin points out:

“The cost of everything related to hiring and firing is very high, both for the public authorities and for companies.”

Indeed, according to an OECD study dating from 2018, France has a relatively high level of taxation on earnings and hiring (whether through social security contributions, the pension system, taxes and severance pay). It consequently ranks third in the world in terms of the proportion of payroll taxes to GDP (1.5%), just after Sweden (5%) and Austria (2.7%), all three well above the average of 0.5%.

This is mainly attributable to the Vth French Republic’s societal project, which favors a significant redistribution in the form of monetary benefits or public services (which represents more than half of the national wealth created each year).

Above all, it aims to reduce inequalities, promote social equity and reduce the poverty rate through the creation of a “social justice of taxation”. And it appears to be working: according to 2017 figures from the Directorate of Research, Studies, Evaluation and Statistics (DREES), the poverty rate in France would be reduced from 20.8% to 14.1% after redistribution: a significant drop of 6.8 points.

France traditionally charges its citizens through direct taxes, such as income and corporate tax, rather than indirect taxes (such as value-added tax). This trend is rooted in an economic strategy aimed at supporting demand and consumption (with the presence of a relatively low VAT rate compared to its European neighbors).

Although social and supportive, this interventionist model does not allow Adam Smith’s famous invisible hand to regulate the market naturally. By disincentivizing hasty dismissals and imposing high hiring costs, the French system favors employment protection over a fluid but insecure labor market for the employee.

In addition to this, the French bureaucratic machinery also handicaps the fluidity and agility necessary for the optimal development of innovation, by creating delays in administrative deadlines, which may even discourage some players from contributing.

All these elements therefore drastically limit the fluidity of the French labor market, directly impacting current and future companies as actors of French innovation. This is why the strategic levers of innovation must be sought elsewhere, and the French government seems to have figured this out.

Global innovation in the shadow of the COVID-19 pandemic

Although French progress is encouraging, it should be remembered that this ranking was established before the consequences of the global COVID-19 pandemic became apparent.

Francis Gurry, head of WIPO, seems worried about the evolution of the amounts of funding for innovation following the health crisis:

“There are clear signals that sources of innovation funding are drying up around the world.”

Not everyone seems to be equal in the face of this scarcity of funding worldwide. Start-ups are even on the front line, especially those in developing countries that need long-term financing. The fear of a bleak and uncertain future for the latter is prompting Francis Gurry to call on governments to try to make investment in innovation a priority in order to emerge from the crisis and ensure recovery.

Bright days ahead for France

Even if these elements show the limits that France is likely to face if it hopes to climb to the top of the rankings, the future offers great opportunities. The challenge will mainly be to use the right strategic levers to overcome this lack of fluidity in the French labor market and administration, probably through funding and fundraising.

In this respect, the recent government announcement to allocate €3.5 billion to start-ups (out of the €7 billion developed for the digital sector) promises to have a definite impact in the future, positioning start-ups as the rising star of French innovation.

This ideology is in perfect harmony with Cube and what I believe in. We want to encourage future entrepreneurs to get started by supporting them in their product development and by allowing them to enter the market quickly, at a lower cost and especially with a product validated at an early stage. With this, we hope to remove as many barriers to entrepreneurship as possible and show people that they have the keys to our future in their hands. The World as it is does not please you? Change it.