Pledging €20 billion for research and development in science, health and technology by the end of 2011, Sarkozy said France needs to spur growth in new industries to ensure it continues to have enough wealth to redistribute.
He said the country's 35-hour work week limit, introduced in 2000, had left it uncompetitive and trailing behind Germany.
Sarkozy addressed the media in a rare open-format news conference 24 hours before Martine Aubry, a key left-wing rival and the architect of the 35-hour week, was expected to announce she will run for the opposition Socialist Party candidacy.
"We cannot continue to ignore the world and keep financing our welfare system," Sarkozy said. "If France wants to continue to fund its welfare system, it needs to invest massively."
He said the €20 billion investment – part of a wider €35 billion package announced last year – was crucial because the increasing debt crisis in Greece had shown that cost cuts are not sufficient for an economic rebound.
"To overcome the crisis, we need cost cuts and higher growth. There is no better way to boost growth than innovation, research and investment," Sarkozy said.
His bleak popularity ratings have brightened somewhat since his erstwhile main rival for the presidency, Dominique Strauss-Kahn, crashed out of the race in May when he was charged in New York with trying to rape a hotel maid.
Sarkozy puts focus on economy
Sarkozy is now working to cash in on his uptick in opinion polls, seeking to cast himself as a visionary for the economy, an area that critics say he has failed to master.
Calling his €35 billion investment plan unprecedented in France, Sarkozy said the country had focused too hard in the past on redistributing its wealth rather than creating it, a point he also pressed during his 2007 election campaign.
"While we were opting for the 35-hour week, our German friends were choosing investment and competitiveness, and today, they have fewer unemployed, a lower deficit and higher growth."
Aubry pushed the reduction in the working week from 39 hours as labour minister in the government of conservative President Jacques Chirac and Socialist Prime Minister Lionel Jospin.
Taking another swipe at the Socialist Party, which polls show could knock him from power next year, Sarkozy said revoking his 2010 law to raise the retirement age or opposing his new plan to put a constitutional limit on the public deficit risked causing France's debt and deficit to explode.
Aubry, and the Socialist Party leader Francois Hollande, are the favourites to win their party's primary contest, which opens on Tuesday. Sarkozy is expected to confirm in late 2011 that he will run for re-election.
Party aides say Sarkozy's campaign message will try to convince voters they are better to stick with him than change teams halfway into the economic recovery, and push the need to open France up to the world economy and boost its exports.
Polls earlier this year showed rightist National Front leader Marine Le Pen could knock Sarkozy out of a first-round vote and go on to a May runoff against the left.
But polls now show that prospect has receded a little as Sarkozy has inched up, benefiting too, pollsters say, from a dip in the unemployment rate.
EurActiv with Reuters