France’s big plan for a European Small Business Act

French president Nicolas Sarkozy during last year’s election campaign:now he must deliver on his promise for a Small Business Act. (Photo Guillaume Paumier.)

And yet – during the last presidential campaign the three main candidates, socialist Segolene Royal, conservative Nicolas Sarkozy and the centrist Francois Bayrou, each had a manifesto promise for a Small Business Act, inspired by the US act implemented in 1953. Maybe that is why the winner, Nicolas Sarkozy thought the idea was so good that he is now offering it not only to France, but to Europe.

There is, though, a chasm between political intention and reality, especially in the web of constraints of international, European and national laws. To come up with proposals that will have good chance of convincing first the vice president of the European Commission and Commissioner in charge of Enterprise and Industry, Günther Verheugen, and then the Member States, Sarkozy asked former state secretary and economist Lionel Stoleru to design a strategy.

The first outcome is a report Stoleru sent to French Prime Minister Francois Fillon last week. On the face of it, the proposals may look disappointing when compared to the US Small Business Act, with its proven track record of growing innovative start-ups like Cisco or DHL into leading multinationals.

Adopted in 1960, the US act reserved 40 per cent of all federal procurement for SMEs. In recent years, this has translated into about $100 billion annually of federal money going directly into SME revenues. Many of the contracts go to innovative start-ups which get cash flow and references that strengthen their position before they go out to compete in international markets.

But attempts to copy and paste in Europe what has proved to be a major trump card for US competitiveness have failed. In 1996 EU Member States signed the General Procurement Agreement of the World Trade Organisation, which bans discrimination based on the size of companies that can apply for a public contracts. The US also signed this agreement, but negotiated an exemption for its small businesses.

15 per cent of public R&D procurement for start-ups

If Stoleru’s proposals are accepted, 15 per cent of European public R&D procurement would be reserved for innovative start-ups. That is because public agencies are not always looking to buy existing products, but may be interested in getting new ones developed, and also because contracts worth less than €211,000 would not be covered by the WTO General Procurement Agreement.

Stoleru’s inspiration for this proposal is a pilot started in 2005 in France. Supported by the French innovation agency OSEO and the innovative start-up association Comité Richelieu, the SME Pact (Pacte PME) brings together 43 large companies and big public sector clients, including the City of Paris and the hospitals network of the Ile de France region.

According to Emmanuel Leprince, the general director of Comité Richelieu, “Unlike the [Small Business Act] in the US this programme is not forcing public entities to buy from SMEs but at least it allows them to do it. Most of the time public agencies do not source their needs in term of innovation from SMEs and if they do want to, they are put off signing contracts because of the intrinsic fragility of a start-up compared to an established company.”

So the French SMEs Pact is nurturing regular contacts between the 43 large accounts and the 2,000 start-ups belonging to Comité Richelieu, and has also has agreed a guarantee mechanism with OSEO. In 2006, this drove those big clients to reserve 18 per cent of their procurement for SMEs, generating revenues of €3.2 billion for SMEs. According to Leprince, “2007 is even better.” Stoleru proposes to scale this programme to the European level no later than next autumn.

While supportive of other current initiatives, such a the Lead Markets and Clusters Policy, Stoleru also wants greater financial support from the European Investment Bank (EIB). His report says the EIB should, for example, manage a European venture fund to give small countries better access to venture money.

With regional policy in Europe is targeting two competitiveness and regional development, Stoleru says the structural regional programmes FEDER and Jeremie should be adapted to foster the development of clusters. He also wants more flexibility about the ceiling of 250 employees that defines whether an SME is eligible for national and European support for research.

Moving the innovation agenda forward

Stoleru’s vision of a European Small Business Act is clearly one that will to foster internationally competitive start-ups. He is calling for more cooperation between Europe’s national agencies, for example in intellectual property. “No national centre can afford the cost of international lawyers to defend intellectual property rights,” Stoleru told Science|Business. “One day, it will appear obvious that it is less expensive to have one European office instead of 27 national ones.”

He also wants the most promising innovative start-ups of each country to get special treatment from the European Commission itself, such as a direct access to the commissioner in charge of their sector, or a privileged to access to European programmes.

As designed by Stoleru, the European Small Business Act project may look quite different from the American one. But, he says, the success of the American act lies the mindset of the administration managing the programme, rather than the letter of the law itself.

In many ways his proposal looks like a good opportunity to use the momentum around a Small Business Act to move forward existing European projects like the Community Patent or European private company status, and to enlarge national good practice such as the UK’s system for reducing bureaucracy by not allowing rules concerning SMEs to be changed more than twice a year.

Together with the acceptance of the London Protocol for patents by France last autumn and the recent Lead Markets initiative from the Commission, the proposal for a European Small Business Act suggests that the spirit required to boost European innovation policy is gathering momentum.