How the French Do Business Airbus and the Not-So-Invisible Hand
The Airbus case shows once again that French industrial policy is anything but laissez-faire. The government reacts quickly when it sees a threat to national interests. Meanwhile, the Germans are at risk of missing the boat.
Jean-Baptiste Colbert, the all-powerful minister of economics under King Louis XIV, gave the marching orders: domestic industry was to be built up to free France from its dependence on foreign imports. At the same time, he barred skilled French workers from emigrating and recruited the best and brightest from neighboring countries to work in his country's factories.
Colbert's motto? It is "monetary wealth alone which determines a state's greatness and power." His ruthless approach was successful. During the 22 years of Colbert's term in office, France rose to become the European continent's dominant power.
The strategic war-horse from the 17th century has served as a shining example for French economic policymakers ever since. And their code is unbending: anything goes as long as it benefits the French nation; the purpose of communal projects is to serve French self-interest; influence from outside must be repelled; and unilateralism is acceptable.
Frenchmen in charge
In keeping with this philosophy, French Prime Minister Dominique de Villepin on Tuesday took his German partners by surprise in the midst of the Airbus crisis when he announced the "Power8" restructuring program to cut 10,000 jobs. "If that's the case then Villepin knows more than I do," said Thomas Enders, the German co-CEO of Airbus's parent company, the European Aeronautic Defense and Space Company (EADS). German politicians promptly sought to outmaneuver their counterparts in Paris by insisting that the Power8 program was by no means set in stone.
The fact that the French prime minister would pay so much attention to the decisions of an international, privately owned company is not inconsistent with the French approach. While the German government exerts only very little influence over EADS (through DaimlerChrysler and, more recently, a holding company), the French state has held a significant stake in EADS for years. And although the French government welcomes fellow financial backers from Germany, Spain and Great Britain, it prefers to see Frenchmen placed in key positions in company management.
Germany and France are now involved in a dispute over which of the two countries should bear the brunt of the proposed cost-cutting program. Major French shareholder Lagardère has already announced that it plans to take an uncompromising stance on the issue.
The disagreement between the two neighbors over Airbus isn't unusual. Despite widespread agreement between Germany and France on many political issues, economic head-butting has tradition. But in battles over jobs, national prestige and economic strength, the French have recently proven to be the more skilled tacticians.
- When German pharmaceutical company Hoechst merged with French competitor Rhône-Poulenc in the late 1990s to form Aventis, French executives gradually assumed the most senior positions in the new company. In 2004 they allowed Sanofi-Synthelabo, a smaller French competitor, to acquire Aventis in a hostile takeover -- with the support of the French government, which wanted to prevent Swiss competitor Novartis from acquiring Aventis.
- In 2005, the French government injected billions of euros into Alstom, an ailing industrial corporation that produces, among other things, France's TGV high-speed trains, to protect it against a takeover by German electronics giant Siemens. Angry appeals from Berlin and Brussels fell on deaf ears in Paris. The then Minister of Economics and Finance Nicolas Sarkozy, now a candidate for the French presidency, successfully defended French interests.
- So far the French government has successfully opposed the European Commission's demands that it create more competition in the energy market and break up France's large electricity and natural gas conglomerates. The monopolistic electric utility EDF (87 percent government-owned) and natural gas utility Gaz de France (34 percent government-owned) continue to dominate the market.
- The Paris-based, multi-national stock exchange Euronext preferred to be taken over by the New York Stock Exchange than by the German stock exchange. The French managers wanted to prevent the European stock exchange from being based in Frankfurt.
- France attempted to assume full control over the manufacturing consortium for construction of the Galileo navigation satellite. By merging the satellite divisions of Alcatel and Thales, a French majority was to result, but the addition of a Finnish company to the consortium thwarted their efforts, at least temporarily.
There is a unifying philosophy behind these isolated examples. Whereas the German government tends to rely on the market, the French firmly believe in the benefits of government economic intervention.
Colbert's principles, translated for the age of globalization, mean that only those states that act dynamically and aggressively will prevail. The French believe that in a highly competitive market it is even legitimate to act in ways they would not endorse if the situation were reversed. In an interview, Prime Minister de Villepin argued: "All countries around the world defend their economic interests. Why should we be the last ones to do so?"
A ruling class of corporate executives and leading politicians
Unlike their German counterparts, French companies, with the vigorous assistance of the French government, are at the forefront of the international merger race. For example, the creation of TotalElfFina, France's largest company, in 2000 was only possible because the Italians were forced out of a takeover battle between the Italian oil and gas corporation ENI and the French oil company Total-Fina. Today the oil multinational is making record profits.
It's a strategy many French elite learn in school. Most corporate executives and leading politicians in France attended the same elite universities -- after having survived a ruthless selection process. They tend to think alike, and to take similarly efficient approaches to reach decisions. In addition to economic fundamentals, elite institutions like the French National School of Administration and the HEC School of Management teach their students how to assert themselves and how to wield power effectively.
At EADS the aggressive personnel policies of the company's French executives have frequently led to disagreements. Noel Forgeard, the former EADS co-chairman, did everything in his power to become the company's sole chairman while retaining the chairmanship of its key subsidiary, Airbus. When Forgeard was forced out he was replaced by another Frenchman, Louis Gallois, who promptly assumed the Airbus chairmanship.
The fact that German politicians are now reacting at all in the latest Airbus crisis seems to indicate that they realize what is at stake. If the protests aren't loud enough, there is a real chance that Germany-based Airbus factories are the ones that lose out. That, at least, seems to be the thinking in Germany.
It is an interpretation that EADS itself is doing everything it can to refute. "The board members of EADS nominated by DaimlerChrysler" -- a major German shareholder -- "are solely geared to the success of EADS and Airbus," Manfred Bischoff, chairman of EADS, said in a statement on Wednesday. "Thus, the allegation that they might act in a national or political intent is absolutely wrong."
Translated from the German by Christopher Sultan