France is to break down the legal barriers separating public research and private industry and introduce tax and other financial breaks to support the creation of high-tech and other innovatory businesses. And academics will get involved in the creation of new spin-off businesses for the first time.

These were among measures announced by prime minister Lionel Jospin in favour of innovation, which he stressed were a major part of the government's strategy to combat unemployment, and are a response to the conclusions of a scathing report on the state of French research commissioned last year by education minister Claude All gre, economy minister Dominique Strauss-Kahn and Christian Pierret, secretary for industry.

The report - the outcome of an inquiry chaired by Henri Guillaume, an industrialist and former chairman of Anvar, the French innovation agency - found that although France "possessed first-class scientific and technological potential, the connection between its discoveries and knowledge, and its industrial activity, was less effective than in the United States or Japan".

Among its criticisms were the lack of contact and worker mobility between the worlds of research and business that hindered the transfer of technology, especially to small and medium-sized firms; a financial system completely unadapted to meet the funding needs of new companies; absence of a state strategy for coordination, follow-up and financial evaluation of industrial research; and excessive concentration of public finance on too limited a number of industrial groups and sectors.

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Following the report, seven regional meetings brought together representatives of universities, research, business and other interested parties, each investigating a specific major field of technology and innovation, including microtechnologies, communications, biotechnology, arts, education, transport and agribusiness.

Their conclusions contributed to a conference in Paris attended by about 1,000 would-be innovators, to whom M. Jospin announced the government's new plans. These, he said, were "an essential force driving our resolute economic and social policy ... towards a central objective - to drive back unemployment and create jobs".

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He promised changes in the law before the end of the year to permit greater cooperation between public research and private companies, at present kept apart by restrictive legislation. This, for example, forbids a researcher employed in the public sector starting or working part-time for a private business or sitting on a firm's board of directors.

M. Jospin also stressed the need for greater understanding and cooperation between the different cultures of those working in the two sectors. Networks would be set up, he said, between laboratories and businesses in priority areas such as IT, biotechnology, materials and electronics.

But he insisted on the need for state participation. "Strong public intervention is justified in a field where collective benefits are greater than individual benefits," he said. It was for the state to ensure a strong economy, develop a policy for training and qualifications and to support fundamental research, and to back private enterprise, especially the potential for innovation in small and medium-sized firms.

But the state also had a role, M. Jospin said, "to guarantee that innovation and growth do not threaten social cohesion but that everyone benefits". Lifelong learning, one of the government's educational priorities, was an essential element of an overall policy of innovation.

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The state will also play a financial role, partially through contributing its own money, but also by encouraging private investment. M. Jospin pledged FFr100 million (Pounds 10 million) of public money towards setting up a venture capital fund for creating innovative companies, to be topped up by private investors, and FFr1 billion over three years towards promoting cooperation between public research bodies and small to medium-sized firms.

M. Jospin implied tax changes would move from favouring unearned income to encouraging "high-risk investments" and that government aid would shift from concentrating on "certain big industrial sectors and guaranteed results". Efforts were already under way, he said, to encourage development in France of a "truly professional venture capital sector".