«Original citation: Owen, Geoffrey (2012) Industrial policy in Europe since the Second World War: what has been learnt? ECIPE Occasional paper, 1. ...»
CGE’s traditional rival, Thomson, was not included in the first wave of privatisations; its portfolio contained some loss-making businesses which would not be attractive to the private sector. Thomson made most of its money in defence electronics through CSF, but it also had stakes in electronic components and in consumer electronics. Since the Plan Calcul of the 1960s the semiconductor industry had been regarded by successive governments as strategically important, and under the Socialist administration between 1981 and 1986 Thomson’s semiconductor subsidiary was given substantial support in the hope that through acquisitions and new investment it would lift its share of the world market to at least 3 per cent, regarded as the minimum necessary for viability. But Thomson’s strategy, which included the takeover of an American company, Mostek, in 1986, was over-ambitious, and the semiconductor division continued to lose money. Finally, in 1987, it was put into a joint venture with an Italian state-owned component producer, SGS Microelettronica.
The 1993 parliamentary elections brought the return of a right-wing government; this was a second period of cohabitation that lasted until 1995, when the candidate of the right, Jacques Chirac, won the presidential election. The new government announced that it would privatise twelve industrial companies that had been on the original 1986 list, including Bull, Thomson, Pechiney and Rhône-Poulenc. More controversially, it added nine new candidates,
including Renault, Aérospatiale, Snecma and the steel group Usinor Sacilor.121 The inclusion of Renault, which had long been a trade union stronghold, was a shock for the left, and regarded as risky by some economists.122 The government argued that Renault’s ability to participate in the alliances and acquisitions that were transforming the world motor industry would be inhibited as long as it remained wholly owned by the state; an earlier partnership with Volvo had broken down, mainly because Volvo shareholders did not want the Swedish company to become part of a group dominated by the French state. In a concession to the left the government agreed to retain majority control of Renault, at least for a period. At the time of privatisation the state held 53 per cent of the shares, reduced two years later to 46 per cent. In 1999, when Renault formed an alliance with Nissan, the government shareholding came down to below 30 per cent.123 The Renault/Nissan agreement was an example of the internationalisation strategies which leading French companies were pursuing during the 1990s. The break-up of Rhône-Poulenc, France’s largest chemical company, was part of the same trend. After privatisation in 1993 the management chose to focus on pharmaceuticals, and it made several acquisitions in this field. In 1997 it announced that its chemical businesses would be hived off as an independent company, to be called Rhodia, while at the same time the pharmaceutical side would be merged with Hoechst in Germany; the enlarged group, Aventis, became one of the biggest pharmaceutical companies in Europe.
Not all national champions could become world leaders, and the French governments of the 1990s were willing to accept that, in some cases, the best solution for a poorly performing business might be to sell it to a foreign acquirer. Bull, no longer burdened with a global mission, was partially privatised in 1996, with some 40 per cent of the shares going to Motorola of the US and two Japanese companies, NEC and Dai Nippon Printing. Bull is now principally a supplier of IT services.
The case of Thomson was more problematic. In 1996 the government put the company, which by then had two main businesses, defence electronics and consumer electronics, up for sale. Two offers were submitted. One was from Alcatel Alsthom, which was prepared to buy both businesses, the other from Matra, which was only interested in the defence side.
Under Matra’s plan, consumer electronics would be sold (at a nominal price) to Daewoo of South Korea. There was fierce opposition from employees to the Daewoo deal and the sale process was aborted. The government then split Thomson into two, Thomson-CSF and Thomson Multimedia (which included consumer electronics) and both were privatised in 1999; the consumer electronics business was later sold to a Chinese company. This allowed Thomson-CSF (renamed Thales in 2000) to do what Alcatel had done in telecommunications equipment - to build a worldwide business in defence electronics. 124 The freedom to pursue international strategies was also a factor in the government’s decision to introduce private capital into the public utilities. France Telecom (successor to the Direction Générale des Télécommunications) was partially privatised in 1997, EDF in 2005; both have been active acquirers of businesses outside France. In privatising the utilities, however, France did not go as far as the UK had done. In the case of EDF, the government retained a substantial shareholding, and there was no question of breaking the electricity industry into smaller pieces and allowing those pieces to be bought by foreigners, as happened in the UK.
The government also kept control of Areva (formerly Framatome), the nuclear engineering company.
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ECIPE OCCASIONAL PAPERThese were infrastructure industries and the companies were seen as too important to be exposed to the threat of takeover. The same applied to aerospace and defence. The government retained a stake in EADS, the Franco-German group formed in 2000 by the merger between Aérospatiale and the Daimler subsidiary, DASA. It also had a minority shareholding in Thales and in Safran, the company formed by the merger between Snecma and Sagem in 2004.125 Even outside infrastructure and defence the ownership of large industrial companies remained a sensitive issue for the French authorities. When the privatisation programme began in 1986 the government ensured that a large minority shareholding in the privatised companies would be in the hands of a stable group of French shareholders – the noyaux durs.
This was designed to provide protection against unwelcome takeovers. However, during the 1990s most members of the noyaux durs sold their shares, and the buyers were often foreign, mainly Anglo-American, investors. As the shareholder base became more widely spread, these companies became vulnerable to takeover.
The first to suffer this fate was Pechiney, the aluminium company, which was bought by Alcan in 2003, an event which caused unease in the government but was not actively opposed.
In the following year Aventis, the Franco-German pharmaceutical group formed by RhônePoulenc and Hoechst, was the subject of a takeover offer from another French pharmaceutical company, Sanofi. The Swiss company, Novartis, then indicated that it might make a higher bid, prompting the French government to make it clear to all the parties that it would not permit control of Aventis to pass into non-French hands.
A striking example of France’s concern to preserve its national champions was the Alstom affair in 2004. As noted earlier, this was the company formed by GEC and CGE and later floated on the stock market. In 1999 Alstom bought a gas turbine business from ABB, the Swiss-Swedish engineering group. ABB had won a large number of orders for this equipment in the US and elsewhere, but the performance of the gas turbines fell short of what had been promised, and it became apparent that there was a serious technical fault. By the end of 2001 Alstom was facing financial penalties from some of its US customers, and, with other parts of the group also performing poorly, there was uncertainty about whether the company could survive.
The French government observed these events with growing concern. There was no question of allowing the group to go under, yet direct assistance from the state would run into opposition from the competition authorities in Brussels. Consideration was briefly given to a break-up of the group, but in the summer of 2004 the government reached an agreement with the Commission whereby, in return for asset sales and cost reductions, the state would participate in the financial restructuring of the group. The government took a minority stake in Alstom, with the promise that the stake would be sold not later than 2008.
The Alstom rescue did not imply a general retreat from the more liberal policies which successive French governments had pursued since the 1980s. There was no longer an appetite for grands projets, and much of the apparatus of state intervention had been dismantled.126 “Looking across the wealthy democracies”, Jonah Levy has written, “one would be hard pressed to find any country that shifted so far from its post-war economic strategy as the France of François Mitterrand and Jacques Chirac”.127 But there were some aspects of freemarket capitalism - not least the hostile takeover - about which French policy-makers were distinctly uneasy. There was also a continuing attachment to idea of the state as the protector of the nation’s industrial assets. Nicolas Sarkozy, who as finance minister played a central part in the Alstom affair, frequently referred to this episode in his successful presidential
campaign in 2007. He presented himself as a stalwart defender of French industry against marauders from overseas, and determined to resist de-industrialisation. This was a theme that would figure prominently during his presidency.
3.3. GERMANY In contrast to France and the UK, there were no drastic changes in German economic policy in the 1980s, but the economy was slow to recover from the two oil shocks and unemployment remained high. The growth rate of productivity fell far below what had been achieved in the 1960s and early 1970s, raising concerns that institutional rigidities, especially in the labour market, were holding back Germany’s adjustment to industrial change. Then came unification, a hugely important political event but one that imposed heavy costs on the West German economy. After a brief post-unification boom, economic growth slowed down again and by 1997 unemployment had risen even further to 4.5m, more than 11 per cent of the workforce. There was a widely held view, inside the country and outside, that the German economy had become over-regulated, and that the earlier emphasis on competition had been weakened by the trend towards protection and subsidy; the “social” element in the social market economy had taken precedence over the “market” element.128 German industry was also poorly equipped to take advantage of the new technologies – especially information technology and biotechnology – which looked certain to grow faster than the mature industries such as automobiles and mechanical engineering that constituted the bulk of Germany’s exports. There was an inertia in Germany, some commentators argued, which made it difficult to shift financial and human resources from traditional industries into high-technology sectors.129 The Ministry of Research had based its initial support for information technology on established companies such as Siemens and AEG, and this continued in the 1980s. In semiconductors, for example, Siemens was the principal recipient of government grants, but it could not match the Japanese producers in developing ever smaller and more powerful devices.
With the German government’s support, Siemens formed a joint venture with Philips of the Netherlands to develop the one megabit chip which would store over one million bits of information. The partnership was later extended to include the Franco-Italian group, SGS-Thomson. The existence of this partnership did not prevent Siemens from negotiating a separate licensing agreement on semiconductors with Toshiba and later with IBM. While these decisions were criticised in Germany, Siemens believed that international alliances with the world’s leading producers were essential if it was to keep its technology up to date.
In computers, the 1980s saw the start of a transformation of the industry stemming from the shift from proprietary to open operating systems. Nixdorf was slow to respond to these changes and its financial performance deteriorated; it was taken over by Siemens in 1990.
Siemens, for its part, had achieved some success with its mainframe computers (some of them based on Fujitsu technology) and had increased its share of the German market. Following the takeover of Nixdorf, the enlarged group – Siemens Nixdorf Information Systems – was the largest European-owned computer manufacturer, but it faced a formidable task in integrating two incompatible ranges and in adapting to the rise of the personal computer.