Frenchman seeks to rally Europe on industry

Posted in Europe | 05-May-04 | Author: Katrin Bennhold| Source: International Herald Tribune

Frenchman backs use of public money

PARIS - After hammering out a controversial deal last week to create an industrial icon for France, Nicolas Sarkozy, France's energetic new finance minister, seems ready to take on the world.

In his first news conference since President Jacques Chirac moved him from the Interior Ministry in a cabinet shakeup, Sarkozy said Tuesday that the government would engage actively in a policy of keeping jobs and key industries on French soil. But for the first time, he went beyond that, calling on European governments to join forces to keep the core of the economic bloc from turning into "industrial deserts."

"There are great companies in Europe, with a savoir-faire of the highest standard," he told a packed auditorium of journalists during a two-hour question-and-answer marathon. "We have to support them."

Promising to start an initiative on the European Union level, he added: "Neither France nor Europe can become industrial deserts. Solutions exist."

Some solutions have the ring of déjà-$ vu. Like his Socialist predecessors in the 1980s, Sarkozy, a member of Chirac's center-right UMP party, urged that public money be freed up to support companies with public money.

EU state-aid rules are "far too restrictive," he said, and called for a relaxation to allow national governments to give their corporate elites a leg-up in competitiveness. He also proposed a Europe-wide push for tax incentives aimed at forging industry hubs, Silicon Valley-style, which he said would intensify the growth potential of these regions by creating synergies. Taking a page from the United States, Sarkozy suggested that European companies bidding for public contracts could be obliged to disclose where subcontractors are from.

With unemployment near a three-year high and unease about globalization on the rise, Sarkozy's words are likely to strike a chord with French voters. Three days after the EU welcomed 10 new, mostly East European countries, his push to take the European stage is also well-timed. As the region's geographical center moves yet further away from Paris, French anxiety about losing economic and political influence in Europe is palpable.

Yet analysts warn that the strategy will do nothing to stop manufacturing jobs from leaving Europe - and may well backfire.

"He is fighting against windmills - the process of disindustrialization is inevitable," said Daniel Gros, director of the Brussels-based Center for European Policy Studies. "Those countries who slow that process pay. The problem is not that there is disindustrialization in France, but that it isn't happening fast enough."

Like in the EU's other large economies, the proportion of manufacturing in the French economy is just under 20 percent, much higher than in the EU's smaller member states, where it is on average about 14 percent. According to Gros, this has slowed the process of establishing high-end service employment that complements, rather than competes with the lost jobs. The only way to create lasting jobs and build an economy is to either increase spending on research and development and make current spending more efficient, he said.

While EU governments spend about 1 percent of their GDP on research and development, the same proportion as the U.S. administration, America registers almost twice as many patents per researcher as Europe. And private R&D investment amounts to 2 percent of GDP in the United States, compared with only 1 percent in Europe. One way to increase the private funds available for this investment would be to open tender offers for state-run research projects to EU-wide competition. Almost 95 percent of all research funding is national today, Gros points out.

One reason ambitions for a coordinated European response to job losses stemming from globalization may falter, is that national governments - and France particularly - are loath to give more control to foreigners.

"This is why the idea of economic government was buried in Brussels 25 years ago," Gros said. "It doesn't make sense to have European champions - national governments will just fight over whose national favorites are the winners and who are the losers."

According to Frédérique Sachwald, an economist at the French Institute of International Relations, or IFRI, the government's new interventionist rhetoric has a distinctly political ring to it. Only about 5 percent of the investment that leaves France to move abroad can be defined as "disindustrialization," she said. While government measures should help to ease the restructuring pain when a large proportion of a local population is hit by a factory closure, she added, globalization should not become an excuse to go backs to large-scale subsidy programs of the 1980s.

"The point is that we want industry that doesn't need to be subsidized all the time, " Sachwald said. "For that we don't need 1980s style industrial policies. It's very French to defend existing jobs and forget that we may hinder the emergence of new businesses and jobs in the process."

France has benefited from globalization. As Sarkozy pointed out at Tuesday's press conference, 15 million people in France are on the payroll of foreign companies. Last year, the country was the No. 1 recipient of direct foreign investment with E52 billion, or $64 billion.

"It's a contradiction to say to foreigners 'please come and invest here, but we'll do everything to stop our companies to go to you,'" said Philippe Waechter, chief economist at Natexis Asset Management.