The French Protection: The Resurgence of Colbertian Statist Economics

http://www.pinr.com/report.php?ac=view_report&report_id=367


Economic Brief: French Protectionism


Report Drafted By:


Erich Marquardt, Dr. Federico Bordonaro


15 September 2005


On August 31, France announced that it would protect from buyouts by foreign companies domestic industries it considers as strategic. French Finance Minister Thierry Breton stated that the country's "very sensitive sectors" would be shielded from foreign bids. While the complete list of protected industries has not been made public yet, some of the protected industries were leaked to the media. As reported by Les Echos, the protected industries include defense, biotechnology, space technology, telecommunication companies, casinos, encryption, IT security, and antidote production.



France's turn toward protectionism follows a global pattern where states with advanced economies are shielding their domestic industries from foreign competition and from potential state rivals.


French Protectionism Returns


For many observers, the ongoing wave of "economic patriotism" advocated by French Prime Minister Dominique de Villepin is nothing else but the renewal of French-style protectionism marked by the Colbertian tradition of statist direction of the national economy.


After rumors circulated in the summer of 2005 about a possible bid from U.S. drinks giant PepsiCo Inc. for French food giant Danone, and a Wal-Mart bid on supermarket chain Carrefour, many in the French political landscape called for an immediate reaction by the current administration so that France's industrial gems could be saved from American takeover. Therefore, on July 27, de Villepin announced that he would gather all available forces to launch a new economic patriotism.


Additionally, France bailed out its major engineering company Alstom in order to promote the French idea of creating "national champions," and avoided Switzerland's Novartis from buying out the French and German pharmaceutical company Aventis by backing Sanofi's merger with Aventis to create Sanofi-Aventis.


E.U. Concern


Protectionist acts from one of the leading states of the European Union have caused justifiable concern in Brussels. Gregor Kreuzhuber, spokesman for the E.U. Commission, told the press that the E.U. does not "want to see any disguised protectionism" and that the E.U. would review France's proposed economic policy.


Paris, predicting the concern in Brussels, quickly argued that its actions would comply with E.U. economic laws. French Budget Minister Jean-Francois Cope explained to the press, "Our move is completely consistent with community law. … Each country is allowed to define 'strategic' sectors in accordance with national interests -- for example in the defense or sensitive technology sectors." Cope further stated, "It's strictly within this framework that the government is considering measures which would be comparable to those in other European Union countries."


While it is obvious that France will try to argue that its protectionist measures abide by E.U. rules and regulations, there is concern that Paris' actions could set an example for other E.U. states to take similar protectionist measures. The fact that the French have casinos listed as one of their strategic industries -- under the notion that casinos could be used for money laundering -- exemplifies E.U. concern that France's actions are "disguised protectionism."


In its attempt to avoid the E.U. from blocking the passage of the new legislation, France will no doubt try to protect only its most vital industries so as to not draw the scorn of Brussels, but also to protect enough industries so as to appeal to domestic interests at home.


Why Protectionism?


French protectionism partly emanates from Paris' concern with foreign companies purchasing major firms in strategic or pivotal industries. Similar to the way that the U.S. Congress reacted to China National Offshore Oil Corporation's attempted purchase of the U.S. energy company Unocal, Paris does not want to see vital industries owned by outside companies tied to the governments of foreign states.


Additionally, however, Paris also wants to protect its domestic industries so that the country does not sustain a loss of jobs, such as factories closing down and moving operations to Eastern Europe or Asia. It provides the French government popularity in time for the upcoming presidential and parliamentary elections in 2007; tackling unemployment and successfully coping with globalization's challenges are vital to enhance the administration's credibility. In fact, without appreciable results in reducing the jobless figure in the country, de Villepin will hardly get the necessary support to achieve his ambitious industrial and energy policy. [See: "Intelligence Brief: French Energy Policy"]


As previously mentioned, de Villepin made the protection of French manufacturers a major policy goal after the PepsiCo Inc. bid was announced. After the bid was presented, President Jacques Chirac was reported saying that "the splitting up and the instability of the capital of certain large French businesses are risk factors for employment and for our industrial strength." It was then that de Villepin boldly announced it was time for France to display "real economic patriotism," or, in other words, economic nationalism. He argued, "When times are hard, when the world is changing, it is a question of gathering our strengths … and defending France and things French."


While Paris' rhetoric is very bold, in the end the French policy is similar to unspoken protectionist policies in other states with advanced economies, as was most recently seen in the protectionist bid by the U.S. and the E.U. against Chinese textile imports.


The important difference, however, is that the protectionist actions in the face of increased Chinese textile imports were taken by the E.U. as a whole, whereas Paris' "economic patriotism" idea is distinctly French. [See: "Economic Brief: Textile Quotas"]


Despite this concern, Les Echos reported that the list of protected industries it acquired did not list any food companies or, for instance, oil companies. However, the French Industry Ministry did state that it would reserve the right to prevent foreign takeovers of companies that had subsidiaries involved in any of the listed "sensitive sectors" and that the government would make the decision to bar a foreign takeover on a case-by-case basis.


The Bottom Line


After decades of dominating political discourse, economic liberalism looks now in a crisis because important decision-makers (such as in France) perceive it as fiction that conceals the hard reality of economic warfare and power relations among states. If France's republican and social-democratic traditions form an axis with the neo-Gaullist right-wing and prevail in the short/medium term over the neo-liberal reformists, look for a new social and political bloc to take shape around the "economic patriotism" policy in France, with considerable consequences for the European Union as a whole.