Look at Google Cisco Genentech or Amgen

After two years of work, Philippe Pouletty (France Biotech), Grégoire Chertok (Rothschild) and Pierre-Alain de Malleray (Inspector of Finance) presented yesterday to the Government a highly critical report on the French device of funding "Young shoot" innovative. Prepared under the auspices of the Council of economic analysis, it proposes 11 measures concerning research and development and credit to SMEs. Measures which are of a particular news in financial crisis.

What balance do you the financing of SMEs in France

Grégoire Chertok. Our finding is that there is a real aberration. Some SMEs are very well funded, others almost not. These are precisely those who are mature markets, generating a significant cash flow, who have access to the resource so that they sometimes less need and that young highly innovative companies are in a real desert. They have no access to the banking market while the market shares is not sufficiently developed. In North America, a quarter of current major groups were that SMEs twenty years ago, or even no were even not born. Look at Google, Cisco, Genentech or Amgen. In Europe, this proportion falls to 7 and France to 1. What are these new major groups which today are lacking to the point of economic growth that is absent in the country.

What are the reasons for these shortcomings

Philippe Pouletty. Any share of the funding of research. But this is not the money missing, good projects which are too few. SMEs will attract capital if they are based on technology projects of rupture from a very innovative upstream research. SMEs must work with the best global research centers. It is not that the universities finance or develop themselves products. Must be on the other hand that they generate excellent science and are close to the business. The history of Google started because of the proximity with the Department of mathematics at Stanford University. Amgen and Genentech same thing with the departments of genetics of the University of California.

One of our proposals is to grant a wheel of much more important funding to the national agency of research (ANR). The current system of the research is much too static, in contrast to what is being done elsewhere in the world. And not just in the United States, but in Switzerland, Ireland, the Canada also. In these countries, the financing is more on project, after evaluation and uncompromising selection by major agencies means.

Is this not precisely the role of the ANR

Philippe Pouletty. Yes, but what is its budget 1 billion euros, is only 8 of the budget of academic research. In the United States or Britain, 80 of the funding is done through agencies means. The system forced researchers, all three or four years, to get the credits with the teeth, which requires them to be compared to the other a great "benchmarking" exercise and to be efficient. It is the premium to the scientific excellence that gives all of the results in quality of publications, number of Nobel Prize for creations of start-up or on the attractiveness of universities for entrepreneurs.

Our proposal is to provide 5 billion more to the NRO, even make transit a share of the credits that feed online universities, CNRS, Inserm, and strengthen good governance to be the powerful vector of a deep and rapid French research reform.

Is the State SME support effective

Philippe Pouletty. It is insufficient. The State must make choices and focus its resources on the ecosystem of innovative SMEs and those of less than 250 employees. To promote a revival of industrial research, better equip ANR of EUR 10 billion and allocate EUR 10 million to OSEO Innovation that sprinkle 20 billion tax credit research over five years. Because the latter now to finance 80 of large companies, which may override the public money to private expenditure. There is not that the France which primarily helps its enterprises in this way and neglects small. If you want to attract research centres in France, it brains, some campus of international level, for young innovative enterprises of rapid growth, rather than poorly oriented tax incentives.

What measures could take the State

Grégoire Chertok. Much remains to be done on taxation. Public authorities could use the 2.6 billion euros of tax aid to life insurance to encourage more to redirect a percentage in young innovative enterprises (JEI), for example, 3 to 4 and record some tax deductions ceilings which are much higher abroad. The EWB deductions related to investment by capital increase in SMEs than five years could be extended to companies listed on Alternext, to strengthen this market, which remains far less developed than the London AIM. The reform of the Act of backup, which promotes injection of fresh money, led backwards. Should strengthen the protection of creditors and to abolish the super-privilège of the claims of the employees.

Would this not lead to the dismantling of companies

Grégoire Chertok. On the contrary! The France destroyed more jobs in corporate defaults than the Anglo-Saxon countries. It is to pass a sort of "contract" with banks: against a better protection of their claims, they can commit to lend more to SMEs and to take more risks in exchange for adequate compensation. The recovery of claims in bankruptcy rates are low in France, in the order of 54 compared to 74 in the United Kingdom. Each point earned on this rate will increase as the volume of loans to SMEs.

Is this enough to open the gates of the credit

Grégoire Chertok. Intermediate debt, mezzanine products, remain underdeveloped in France from our European neighbours they are vital for SMEs in the absence of own funds. To make an exception to the banking monopoly by allowing new players to offer products as the mezzanine, leasing or factoring, of course, regulating would extend the offer of funding while stimulating competition. The State could also extend the guarantee provided by Oséo traditional loans, mezzanine debt which would facilitate the securitization of these credits and even strengthen the offer.

Your report was started before the financial crisis. It does put not any subject

Grégoire Chertok. On the contrary. SMEs will suffer as much as the major groups. Seen already in sectors such as automotive subcontracting, building or even distribution, very related to consumption and purchasing power. This is manifested first in the short term with liquidity problems. Because let's not forget that the crisis lasts since August 2007 and that some SMEs have not renewed credit lines that have an average life of eighteen to twenty-four months. It is all the more delicate that SMEs will be strangled while they are healthy. Longer term, SMEs already indebted or belonging to sectors in difficulty will meet problems.

This crisis is in many ways the opportunity to move the lines. First by introducing a true "New Deal" with the banks. Then, by intervening at the level of own funds of enterprises, with ceilings of deductions Act Tepa of ISF. In fléchant a part of the EUR 100 billion investment Fund announced by the Government to SMEs. Finally, third idea, by redirecting a part of life insurance to SMEs.