Reports underscore importance of industrial policy in context of globalisation

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Two reports issued in early 2005 examine the position of French industry in the wake of numerous company relocation announcements and the resulting fears of the deindustrialisation of the French economy. The analysis and comparisons contained in the reports mainly focus on the need to return to a proactive industrial policy. Trade unions have given the reports a broadly positive reception.

Industrial policy has returned to the forefront of political debate in France. Two reports have recently dealt with the issue. The first of these papers, entitled 'Deindustrialisation, relocations' (Désindustrialisation, Délocalisations), was compiled by Lionel Fontagné and Jean-Hervé Lorenzi, two economists from the Prime Minister’s Economic Analysis Council (Conseil d’Analyse Economique, CAE). The second report, entitled 'For a new industrial policy' (Pour une nouvelle politique industrielle), was drafted at the behest of President Jacques Chirac, by Jean-Louis Beffa, chair of the Saint-Gobain glass company. He was assisted by a task force of 12 people, including industrialists, experts and two trade unionists.

Broadly similar overview

Both reports point to a trend of deindustrialisation. This phenomenon is highlighted by the significant drop, in both absolute and relative terms, in manufacturing jobs. While each has its own focus, the two reports seem to share a broadly similar diagnosis.

The CAE report puts the macroeconomic consequences of international competition and of relocation into perspective. The direct responsibility of these two factors in the net loss of manufacturing jobs seems limited. The report focuses on the difficulties faced by the French economy in dealing with technological changes in both industry and the service sector. These problems are reflected in the fact that French productivity has once again fallen behind that of the USA. The 'knowledge-based economy', which relies on close ties between industry and the service sector, has been experiencing increasing returns. Internationally, those manufacturers able to take advantage of these increases are therefore not only competitive themselves, but also in a position to eliminate those which are less so. Consequently, the report highlights a serious danger that the 'French economy might lose part of its manufacturing base and therefore experience a situation far worse than the negative effects of current trends on its industrial production facilities'.

The CAE report provides a detailed assessment of the strategies developed by companies and groups. The relocation phenomenon is seen as a specific type of foreign direct investment (FDI) that comes in many shapes and forms, ranging from the creation of new production units abroad and the acquisition of foreign companies to the transfer abroad of existing production activities. As a result, the impact of relocation should not be analysed separately from a company’s FDI strategy, of which it is a specific component.

The Jean-Louis Beffa report focuses on 'signs that French manufacturing industry is starting to lose ground', due primarily to the fact that French manufacturing specialisation is not sufficiently high-technology oriented. This degree of specialisation is one of the factors underlying the relative lack of research and development in France (FR0407103F) since French industry focuses primarily on activities that are not traditionally research oriented. Overall, a significant amount of research is done in France but it tends to be concentrated on a small number of areas such as nuclear science, aeronautics and space, which are often linked to the defence sector and were formerly funded through major government spending programmes. The report regrets that competition policy, authority over which lies mainly with the European Union, has ousted industrial policies anchored within the national framework.

Recommendations

The CAE report put forward the following recommendations:

• boost the effectiveness of company strategies through appropriate government action; and

• foster effective specialisation in more high-technology industries through initiatives to promote clusters of companies and research centres. These clusters would then become designated 'competitiveness centres'.

There is particular focus on the development of financial incentives for innovation, particularly for smaller companies, as well as on the promotion of science and technology in French society. The recently introduced European Company Statute (EU0206202F) is seen as a legal means of setting up Europe-wide companies able to breathe new life into industrial innovation. The report advocates the creation of a European Science Foundation modeled on the USA’s National Science Foundation, ie an 'arm’s-length' agency with the task of choosing and promoting innovative projects.

More specifically, the Beffa report recommends the definition and implementation of 'industrial innovation stimulation programmes' (Programmes mobilisateurs pour l’innovation industrielle, PMIIs). These would be an updated version of previous a 'major industrial programmes' scheme. They would aim to identify industrial initiatives involving major technological innovation and addressing new growing European or worldwide markets. Their time frame would be five to 15 years. PMIIs would receive public financial backing and provide various forms of insurance coverage and incentives with a view to fostering partnerships between companies, large and small, and other entities involved in the various initiatives, such as research laboratories. The terms and conditions underpinning public backing, which would take the form of subsidies in the early stages and of repayable loans at pre-competition development stages, would of course have to be in line with EU rules. The various PMIIs would be administered by an Industrial Innovation Agency (Agence de l’Innovation Industrielle), which should have sufficient resources to enable it to acquire the necessary expertise and to act as a project 'driver'. The range of programmes will be wide enough to diversify and help to bear collectively the brunt of the inevitable risks associated with innovation.

Reaction

There was a positive response to the CAE paper and also to the Beffa report, which was commissioned by the President, involved trade union representatives and was received a lot more media attention than its CAE counterpart. Indeed, by French standards, this was an issue where unusually wide consensus was possible. However, the consensus on the role of industry in the French economy and the need for a proactive industrial policy did leave room for significant differences of opinion.

The French Democratic Confederation of Labour (Confédération française démocratique du travail, CFDT), through a statement released by Gaby Bonnand, one of its national secretaries and a member of the Beffa taskforce, took the view that the report 'met several of [its] demands' and 'broke with the conventional wisdom on the impotence of national governments faced with globalisation'. However, this statement also asserted that  'the necessary investment is such that the report’s recommendations can only be credible and feasible if implemented on a European scale'. Through Jean-Christophe Le Duigou, who was also a member of the taskforce, the General Confederation of Labour (Confédération Générale du Travail, CGT), added its support to the Beffa report, stating that it was a 'basis for trade union action'. It contended that programmes must be selected through consultation and that the ability to create long-term jobs must be built in to the criteria used to select projects. The General Confederation of Labour-Force Ouvrière (Confédération Générale du Travail-Force Ouvrière, CGT-FO), welcomed the Beffa report’s plea in favour of industry but was more balanced in its overall assessment. It has identified a contradiction between the industrial voluntarism advocated and the overall restrictive thrust of economic policy. It is of the view that primary responsibility lies with the state and that trade union independence must prevail with regard to the new entities suggested by the report.

President Chirac was quick to indicate that the Beffa report will result in tangible initiatives. The proposed Industrial Innovation Agency is to be set up under the direct control of the Prime Minister. It will double investment from the private sector and will be allocated a budget of EUR 2 billion by 2007. These funds are to come mainly from the proceeds of privatisation, a plan that has not gone down well with the trade unions.

Commentary

The two reports discussed above are consistent with a mainly French approach to the phenomenon of deindustrialisation and to the importance of industrial policy. It goes without saying that both the reports explicitly address the European dimension of these issues. However, whether their general approach and practical proposals will find support or even a hearing at the European level is far from certain. (Jacky Fayolle, IRES)