Industrial Policy

France and Germany Getting It Wrong

ARCHIV - Ein Absetzer schüttet Abraum auf eine Halde am 18.08.2014 im Braunkohletagebau Welzow-Süd der Vattenfall AG in Welzow (Brandenburg). Die südbrandenburgische Stadt Welzow hat ein mögliches Nachtarbeitsverbot für den angrenzenden Braunkohle-Tagebau Welzow-Süd ins Gespräch gebracht. Foto: Patrick Pleul/dpa (zu Vorausmeldung dpa "Nachtarbeitsverbot für Tagebau im Gespräch" vom 13.09.2016) +++(c) dpa - Bildfunk+++
Brown coal mine. For countries like Germany and France, industrial policy is critical.
  • Why it matters

    Why it matters

    Lacking effective industrial policies, France and Germany keep wasting money and economic and political uproar.

  • Facts

    Facts

    • Recent failures or excesses of government intervention into industrial policy have created expensive problems in France and Germany.
    • Germany’s sudden, top-down switch to renewables led to huge losses for major utilities and a collapse in the wholesale price or electricity.
    • France decided to set up its own wind power producers but the companies, Alstrom and Areva, couldn’t match more experienced providers like Gamesa and Siemens.
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    Audio

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France and Germany have one worrying similarity: Both seem incapable of coming up with a sensible industrial policy.

In Germany, it’s seen as synonymous with state intervention and is therefore taboo. In France, this is the area where politicians seem determined to show their mettle. Both approaches can spell trouble.

Germany’s transition to renewables was decided upon without being backed up by a suitable industrial policy. Now, the environment, consumers and energy companies are all paying the bill.

In France, governments on both the left and the right try to lead sectors and companies to success by decree and if this success doesn’t come about, everyone hurries to cover up the failure with new interventions which make an even bigger mess. Then, an economic mishap becomes a political disaster.

And nobody seems to learn from this. Instead, new graduates come along from elite schools trying to prove themselves by meddling with companies.

You can see this from two recent examples, one involving renewable energy. In 2007, Nicolas Sarkozy decided that France needed two large producers of wind power stations. No one in the country had the necessary technical experience, but Mr. Sarkozy refused to order masts, windmills and generators for huge offshore wind parks from experienced producers like Siemens.

Instead he ordered the development of a domestic industry and issued the first call for bids regarding offshore facilities in 2011. Implicitly, one of the requirements was that only French providers would be selected. Areva, the builder of nuclear power plants, was selected, as was conglomerate Alstom, which Mr. Sarkozy had rescued with blood, sweat and state funds and which already had enough on its plate making turbines and trains.

Nothing changed in this area after the Socialists came to power in 2012. There were new calls for bids on further offshore projects. Once again French companies carried the day, though the Spanish company Gamesa was included – unlike Siemens, it wasn’t seen as dangerous.

In 2014, disaster struck: General Electric took over most of Alstrom, a sorry end for the first independent provider of wind power in France. Areva held out a little longer thanks to accounting tricks but in 2015, the company was for all practical purposes bankrupt. The capacities for offshore wind projects are being phased out; the company’s shares in the large windparks off the coasts of Brittany and the Vendée are being handed over to Gamesa, which has since been taken over by Siemens. The French wind-power industry is gone with the wind.

The French political establishment hasn’t learned from this – on the contrary. Astrom, now active only in transport, is battling the consequences of this ill-conceived industrial policy. Alstrom had dared to express its plan to stop making locomotives at a factory that has been operating below capacity for years and without the prospect of receiving enough orders. The company said it would transfer 480 workers to other locations. A fair business decision.

But elections are around the corner so the government is trying to “save” the factory by drumming up orders regardless of the cost. This is a classic French industrial strategy: A company becomes an invalid so the government can ride to the rescue. The state railway SNCF and French regional administrations are supposed to buy trains from Alstom they don’t need and can’t pay for. The Alstom CEO and his colleague at the state railway will be put under pressure for however long it takes until they agree to this “promising outlook for the future.”

You don’t know whom to pity more: The industrialists persuaded by brute force or the government itself, which is alone in its belief that this can significantly improve the poor prospects for François Hollande to be reelected president. The French remain unimpressed, two-thirds think closing the factory is the proper course of action.

For France and for Germany, there are many different ways to approach industrial policy.

Both governments should implement better financial frameworks for start-ups that they promised more than a year ago. They could harmonize investments in infrastructure and improve the performance of their electricity grids and rail networks. With fewer obstacles in social insurance, workers would be more mobile. If the governments cooperated on weapons production, this would reduce pressure on governmental budgets. The list could go on and on. But there’s every reason to fear that the governments will continue to ignore these opportunities.

 

To contact the author: hanke@handelsblatt.com

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