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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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After Mrs Thatcher resigned in 1990 – the Conservatives remained in office, led by John Major, until 1997 – there was a brief renaissance of industrial policy when one of Mrs Thatcher’s fiercest critics, Michael Heseltine, was put in charge of the Department of Trade and Industry. Heseltine, an admirer of what he saw as Japanese industrial policy, sought to rebuild that department as a driver of industrial modernisation; his role, as he saw it, was to “help British industry to win”. However, although the DTI strengthened its links with industry and introduced some new support schemes the amounts of money involved were small. Heseltine’s period at the DTI did not represent a significant departure from Thatcherite policies.

26 No. 1/2012

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More surprisingly, the Labour government which took office in 1997 did not reverse Mrs Thatcher’s reforms. By this time the Labour Party, thanks to Tony Blair and Gordon Brown, had shed its traditional aversion to markets. “New Labour” had no intention of recreating the National Enterprise Board, still less of taking major industries into public ownership.

In a White Paper published in 1998 the government declared that it would not resort to the interventionist policies of the past. “In the industrial policy-making of the 1960s and 1970s, to be modern meant believing in planning. Now, meeting the requirements of the knowledgedriven economy means making markets work better”.108 The need to catch up with the US had been part of the rationale for the creation of large industrial groups in the 1960s and 1970s. Now the emphasis was on horizontal policies – improving the supply of finance for entrepreneurs, providing tax incentives for research and development, encouraging investment in training – rather than support for individual firms. There was also a greater emphasis on competition. The 1998 Competition Act gave the authorities stronger powers to root out anti-competitive practices, with heavier penalties for companies found guilty of breaking the rules; competition policy was tightened further in the 2002 Enterprise Act. Labour also built on what the Conservatives had done in deregulating the public utilities; in the telecommunications, the Communications Act of 2003 made it easier for new entrants to challenge the incumbent.109 Did this mean that competition policy had taken precedence over industrial policy? The Labour government wanted to encourage high-value-added sectors of industry, and this involved some support for particular sectors - for example, biotechnology – but on a modest scale. Technology policy mostly took the form of horizontal measures, including the introduction of a tax credit for research and development and an increase in the science budget.

To the dismay of some business leaders, there was no attempt to slow down the shift of employment from manufacturing to services; indeed, the shift accelerated during Labour’s period in office. The government also continued to welcome inward investment, even if it led to major industrial companies passing into foreign control.110 An example of Labour’s hands-off stance – and one which highlights the difference between the French and British approach to industrial policy – was the demise of GEC. Created by the IRC-influenced mergers of the late 1960s, this company had been built up by its long-serving managing director, Lord Weinstock, into one of the country’s largest and most profitable industrial groups. In 1996, when Weinstock retired, it had three main businesses: power engineering, which since 1989 had been part of a joint venture, known as GEC-Alsthom, with the French company, CGE; telecommunications equipment, in which Siemens had a 40 per cent stake; and defence electronics, which was wholly owned by GEC. Weinstock’s successors took the view that GEC was too diversified and should concentrate on the business which seemed to have the best growth prospects, telecommunications. Between 1998 and 2001 the company divested defence electronics; floated GEC-Alsthom as an independent company (it was renamed Alstom); bought Siemens’s 40 per cent stake in the telecommunications company and acquired, at a high price, two telecommunications equipment suppliers in the US. The name of the company was changed to Marconi to signal its new vocation.

The US acquisitions were justified on the grounds that the demand for telecommunications services, driven by the internet, would continue to increase at a rapid rate. This was a period of euphoria about the “new economy”, with shares in internet and telecommunications companies being driven to extravagant heights on European and American stock markets.

When the boom collapsed in 2000, Marconi was in a difficult situation. For the next few years 27 No. 1/2012

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it tried to resuscitate its telecommunications business, but without success. The final blow came in 2005 when BT (the new name for British Telecom), which had been one of GEC’s biggest customers, excluded Marconi from a large contract for the modernisation of the British telecommunications network; all the orders went to non-British firms. A few months later what was left of Marconi was bought by Ericsson of Sweden.

The British side of Alstom, the Anglo-French power engineering company, had also been losing ground, partly because of a dearth of orders from British electricity companies. Alstom itself ran into a serious crisis in 2002, and would not have survived as an independent company had it not been rescued by the French government. Thanks to this support, Alstom survived the crisis and continues to be an international player both in power engineering and in railway equipment. Its former British partner, GEC, no longer exists. 111 It is doubtful whether the British government could have done anything to save GEC even if it had wished to do so, but some observers in the UK saw this episode as another example of the apparent indifference of successive governments to the demise of some of the country’s important industrial companies. Yet calls for a French-style industrial policy were ignored by Labour, as they had been by the Conservatives before 1997. The case for persisting with a market-based, non-interventionist approach to industrial change was strengthened by the fact that, since these policies had been adopted, British economic performance had improved. As an American study pointed out, “the evidence shows that the United Kingdom made greater market reforms than most other advanced countries (in the 1980s and 1990s);





arrested the nearly century-long trend of economic decline relative to its historic competitors, Germany and France; and improved the place of the United Kingdom in the economic league tables”.112 A later paper noted that by 2007, shortly before the financial crisis, GDP per head in the UK was just above French and German levels. The biggest single reason for the improvement in performance, according to the author, was the replacement of the pre-1980 policies of protection by a new emphasis on competition.113 What was also true was that, since the 1980s, the structure of the economy had evolved in a different way from that of comparable European countries, with a faster decline in manufacturing than, for example, in Germany and a greater reliance on financial and other business services as a source of employment and of foreign earnings. A positive view of these developments was that the UK was shifting resources into activities where it had a competitive advantage. But could services, especially tradable services, grow fast enough to offset the continuing decline of manufacturing? Anxieties on this score, already apparent before the financial crisis, were intensified by the events of 2008 and 2009. The issue that then came to the fore was whether the economy needed to be “rebalanced”, and, if so, whether there might be a role for industrial policy.

3.2. FRANCE In France the 1981 elections brought into power a left-wing government, led by François Mitterrand, whose approach to industrial policy, and to the management of the economy as a whole, could not have been more different from that of the Thatcher government in the UK.

Its first step was to set in train a programme of “redistributive Keynesianism”114 - reflating the economy through increased government spending, new measures to create jobs for the unemployed and more generous benefits for low-income families. Then came a sweeping programme of nationalisation, which gave the government full control of thirteen of the country’s twenty largest industrial companies, including CGE, Thomson, Rhône-Poulenc 28 No. 1/2012

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and St Gobain, and a majority stake in several others. The plan was to use the state sector as le fer de lance, a means of strengthening the ability of French companies to compete in international markets. Detailed plans were drawn up for individual industries; in the case of electronics no less than eleven branches of the industry were identified as worthy of support, including not only computers and semiconductors, but TV sets, industrial automation, scientific instruments and medical electronics. 115 This was la politique de filière, aimed at strengthening the selected industries at all stages in the value chain – much more ambitious than Giscard’s politique des crénaux.

Nationalisation allowed the government to inject much-needed new capital into companies which had been weakened by the recession.116 The authorities were also able to bring about some asset swaps, so that the state-owned companies could focus on a narrower range of businesses. In the electrical/electronics sector, for example, Thomson ceded its telecommunications business to CGE, while taking over CGE’s interests in defence electronics and electronic components. St Gobain was required to abandon its newly acquired interests in computers and semiconductors and to return to its traditional activities. Rhône-Poulenc withdrew from petrochemicals and acquired additional businesses in pharmaceuticals and fine chemicals.

At a time when the world economy was still recovering from the second oil shock, Mitterrand’s dash for growth in 1981-82 was risky, and it was not long before the French economy began to suffer strains. The balance of payments went into deficit, the franc came under pressure in the foreign exchange markets, and inflation increased. In 1983 Mitterrand was forced to make a historic U-turn in the direction of financial orthodoxy. As Jonah Levy has written, “a leftist administration that had been elected just two years earlier on a campaign to intensify dirigisme began instead to dismantle dirigisme.”117 The decisions taken in 1983 marked the start of a reorientation of French industrial policy which was to be taken further by the right-wing government led by Jacques Chirac which held office between 1986 and 1988. (This was the first of several periods of “cohabitation”, with the presidency in the hands of one party and the government in the hands of the other.) The new government promptly set about a privatisation programme, drawing up a list of sixty five enterprises that were to be returned to the private sector. Some of them, including CGE and St Gobain, were successfully floated, but the process was put on hold by the stock market crash of October, 1987. Only two more companies were privatised before the rightwing government lost power in the 1988 elections; in the same year Mitterrand was elected to a second presidential term.

Scarred by the experience of 1981-83, the Socialists had no intention of reviving their nationalisation programme. Instead, they pursued the so-called ni-ni policy – neither privatisation nor nationalisation – although they did allow state-owned firms to raise capital from the market in the form of non-voting shares. Both the privatised companies and those that remained in the public sector were for the most part free to develop and implement their strategies without interference from the state. Most of them opted for specialisation and internationalisation, concentrating on their stronger businesses and giving them a global dimension, often through acquisitions in the US as well as in Europe.

CGE, for example, focused on two areas: telecommunications equipment through Alcatel, and power engineering and rail transport through Alsthom. After the acquisition of Thomson’s telecommunications interests in 1983, CGE’s next step was what came to be known as the deal of the century, the purchase of ITT’s European subsidiaries. Completed in 1987, 29 No. 1/2012

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this purchase lifted CGE into the front rank of the world’s telecommunications equipment manufacturers, not far behind A T & T in the US. In power engineering, CGE formed a 50-50 partnership with its British counterpart, GEC; GEC-Alsthom, was established in 1989. The French parent was renamed Alcatel Alsthom in 1991.

The name of the company was changed again to Alcatel in 1998 after the power engineering business was floated on the stock market. Now specialising mainly in telecommunications equipment, Alcatel continued to expand outside Europe. In 2006 it concluded one of the biggest trans-Atlantic transactions when it merged with Lucent Technologies in the US. (Lucent, previously known as Western Electric, had been the manufacturing arm of American Telephone and Telegraph, but had been hived off as a separate company in 1996.) The name was changed yet again to Alcatel-Lucent.



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