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«Original citation: Owen, Geoffrey (2012) Industrial policy in Europe since the Second World War: what has been learnt? ECIPE Occasional paper, 1. ...»

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When Giscard entered office in 1974 he was determined to break with the interventionism of previous governments and to reduce the French industry’s dependence on financial support from the state.57 The goals of industrial policy were scaled back, with more focus on what was called la politique des crénaux – identifying particular sectors where French companies had a realistic prospect of gaining a worthwhile share of the world market. The Giscard administration was also willing to promote cooperation with American companies where it made industrial sense to do so. In semiconductors, for example, instead of relying wholly on Thomson, the government brought in other players, several of whom formed joint ventures with American producers. Two of the newcomers were Matra, one of Thomson’s rivals in defence electronics, and St Gobain, a large industrial group best known as a manufacturer of glass and building materials. (This was St Gobain’s first entry into an industry in which it had no previous experience, but which offered better growth prospects than its traditional activities.) 15 No. 1/2012

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The new emphasis on competition did not imply a radical reordering of relations between industry and the state. Giscard was willing to invest in grands projets, using much the same approach as his predecessors had done. An outstanding example was the modernisation of the telephone system. Thanks to development work in the government research organisation, CNET, France had been the first country to install a fully electronic telephone exchange, the E10, and this technology, manufactured by the CGE subsidiary, Alcatel, became the basis for the transformation of what had been one of the most backward telephone systems in Europe. “As in other grands projets the state played the dominant role. It conducted R & D in a public research institution, financed a commercial prototype and provided a market through public procurement”.58 It was one of the great triumphs of Giscard’s presidency. 59 Giscard might have gone further in a liberalising direction had it not been for the recession which followed the oil price increase in 1973/74. The government found itself under pressure to assist older industries which were in a dire financial situation because of falling demand.

The worst crisis was in steel, still privately owned but heavily dependent on support from the government. In 1978 Giscard was forced to take effective control of the two biggest steel companies, Usinor and Sacilor, in order to save them from bankruptcy. With shipbuilding and other distressed sectors pressing for government assistance, “a state which had groomed national champions was now feeding ‘lame ducks’ ”. 60 The government was also faced with another crisis in the computer industry. CII-Honeywell-Bull had made progress in the first few years after its creation, but in 1979 disagreements among the shareholders threatened to destabilise the company and the government was obliged to intervene. The outcome was the removal of CGE as the principal non-government French shareholder and its replacement by St Gobain. Although a newcomer to computers, St Gobain had the great attraction for the government of being strong enough financially to support CHB through to commercial viability. However, St Gobain’s arrival was almost immediately followed by a sharp fall in CHB’s profits, prompting the need for further government assistance.61 With several other national champions also in financial trouble, French industry was not in a healthy condition at the time of the 1981 elections, which were won by a coalition of the Socialist and Communist parties. The leader of the coalition, François Mitterrand, was able to persuade a majority of the electorate that the solution to France’s industrial problems lay, not in more market, but in more state.

France was not alone among European countries in facing economic difficulties in the second half of the 1970s, and it was not surprising that the party in power during that period should suffer the electoral consequences. Yet the disappointing record of the Giscard presidency did not detract from the progress which the French economy had made since the 1950s. France was now a formidable industrial power, as De Gaulle had intended, and some strong national companies had been created.

How much credit for the improvement in France’s industrial performance can be attributed to the “Colbertist” policies pursued by de Gaulle and Pompidou? Some economists believe that the crucial policy changes came at the end of the 1950s, with the creation of the Common Market, which for the first time exposed French industry to Europe-wide competition, and the adoption of a more rigorous approach to macroeconomic policy through the RueffPinay reforms. 62 The opportunities and pressures arising from a more competitive European market forced French industries to adapt, and some of them did so with notable success. The motor industry, for example, made a great leap forward during this period, with Renault 16 No. 1/2012

ECIPE OCCASIONAL PAPER

emerging as Volkswagen’s strongest competitor at the high-volume, low-price end of the market. Although Renault was owned by the state, this achievement cannot be attributed to industrial policy. Some mergers and acquisitions took place during this period (notably Peugeot’s purchase of Citroen, and its later takeover of Chrysler’s European operations), but, in contrast to the creation of British Leyland in the UK, they were not orchestrated by the government. Some left-wing politicians hoped that Renault and Peugeot might get together to form a French General Motors, but there was never any possibility that the fiercely independent Peugeot family would contemplate becoming absorbed into a state-owned group.63 Where the government did intervene to create a national champion, the results were mixed, with failures such as computers and machine tools64 offset by some successes as in telecommunications. Most of the successes were in infrastructure and defence-related projects where the French administrative system worked better than its British counterpart. Henry Ergas has suggested that part of the reason for French success in projects of this kind was “the great political legitimacy, operating autonomy and technical expertise of its end-user agencies, combined with the strong incentives for success built into the highly personalised nature of power and careers in the French public administration”.65 By contrast, the British system of public administration emphasised anonymity, committee decision making and administrative secrecy. Governments in the UK were “reluctant to devolve major projects to reasonably autonomous entities, so that responsibilities are tangled, decision making is cumbersome and the organisational and cultural context is inappropriate for developing new technologies”. 66 There were, however, two disadvantages to the French approach. First, most of the national champions were heavily dependent on state-controlled markets which were insulated from international competition; how well would they perform if that protection was removed?





Second, the bias in favour of large, nationally-owned companies distorted the allocation of the nation’s technical and human resources, and diverted attention from the need to nurture a strong tier of small- and medium-sized enterprises. This was a weakness in France’s industrial structure, and one that “Colbertism” was ill-designed to correct.

2.3. GERMANY “If industrial policy is taken to mean a government’s active shaping of the industrial structure of a country and attempting to direct its permanent modernisation, then such a policy could not be said to exist in West Germany”.67 There were some departures from this non-interventionist stance, notably the decision to shield Germany’s high-cost coal industry from international competition68, and pressure for a more active industrial policy increased after the Social Democrats entered government in the 1970s. There were also some instances of intervention by Land governments to protect or support local companies. In general, however, state involvement in industry in the first thirty years after the war was considerably less than in France or the UK.

The Christian Democrat government which took power in 1949 did not seek to extend the public sector through nationalisation. It inherited some state-owned companies, such as Volkswagen, from the Nazi regime, but most of them were later wholly or partially privatised.

The railways (Deutsche Bundesbahn) and the telephone system (part of Deutsche Bundespost) were in the public sector, but, in contrast to the UK and France, electricity and gas were largely in the hands of private sector companies.

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The German economic miracle that began in the 1950s was not the result of industrial policy, but underpinned by a broader set of policies of which the promotion of competition and openness to foreign trade were probably the most important. To a much greater extent than France or the UK, Germany was the pace-setter for trade liberalisation in Europe.

Some of Germany’s institutions, such as the vocational training system and the close cooperation between banks and industry, had deep historical roots. There was continuity, too, in science policy. There had been a long tradition of state support for scientific research, in universities and in government research laboratories, through the Max Planck Society. These arrangements were reinforced after the war by the creation of the Fraunhofer Society, which acted as a bridge between basic research in public laboratories and applied research in industry.69 After a slow start it grew into a substantial organisation, closely linked to universities but mainly carrying out applied research on behalf of clients in industry and government.

It was part of Germany’s diffusion-oriented technology policy, aimed at encouraging widespread access to technical expertise and reducing the costs which small- and medium-sized firms faced in adjusting to change.70 The industries which made the biggest contribution to Germany’s export success were for the most part ones in which Germany had a long-established competitive advantage. German entrepreneurs had been the leaders in the development of the modern, science-based chemical industry in the second half of the nineteenth century, and this sector continued to be a source of strength after the Second World War. When the three big companies that had been part of I G Farben – Bayer, Hoechst and BASF - were set up as independent enterprises in the early 1950s, they soon re-established a leading position in the world market, alongside DuPont, Dow and Monsanto in the US and ICI in the UK. In electrical engineering Siemens and AEG quickly recovered from the war, and although AEG was later to enter a prolonged period of decline, Siemens became a European leader in power engineering, telecommunications equipment and some branches of electronics.

A third area of strength was non-electrical machinery, and here the dynamism came mainly from small- and medium-sized firms – the Mittelstand. Their success was based on technical excellence, a highly skilled workforce, and specialisation in particular segments of the market. This was a decentralised industrial order in which firms “enjoyed dense and overlapping ties with a whole array of institutions dedicated to providing them with technological and market information, highly trained people, and contact with other producers with complementary expertise”. 71 The motor industry, which had been something of a laggard before the war, was one of the principal beneficiaries of the opening-up of the European market, thanks in part to the spectacular success of Volkswagen. Owned until 1960 by the state but managed without political interference, this company applied Fordist mass-production techniques with such success that the Beetle became by the mid-1960s the world’s best-selling car. The government had no direct influence on Volkswagen’s strategy 72, or on the policies pursued by the two leading producers of luxury cars, BMW and Daimler-Benz. Some of the smaller car makers were absorbed by the large groups during the 1960s, but the rationalisation of the industry took place without government involvement.

In all these industries, industrial policy as practised in the UK and France was virtually nonexistent. They were also industries which fitted well with the distinctive characteristics of the German business system: close links between companies and banks; limited recourse to equity markets; continuous investment in workforce skills; and patient, long-term invest

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ment in the development of new products and processes. By contrast, Germany did not provide a conducive environment for industries such as computers and semiconductors where there was much greater technological uncertainty.

Germany made a slow start in high-technology industries after the war because of the restrictions imposed by the Allied authorities. These controls were lifted in 1955, and at that point the government sought to recover the ground that had been lost. A new government department – the Ministry for Atomic Questions – was created to support development work in nuclear energy; its responsibilities were later extended to encompass space research. In 1962 it was converted into the Ministry of Research and Technology (BMFT).

An early target was the computer industry. Several German companies, including Siemens, had introduced their own computers in the late 1950s, but they were making little headway against IBM. The BMFT launched its first Data Processing Programme in 1967, providing financial support for R & D in computer hardware. Most of the money went to Siemens and AEG, and the Ministry tried without success to persuade the two companies to merge their computer operations. As noted earlier, Siemens formed an alliance with RCA, and later helped to set up the short-lived Unidata partnership. When that venture collapsed it turned to Fujitsu of Japan as the supplier of IBM-compatible mainframe computers at the top end of the range.



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