THURSDAY, MAY 18, 2006
PARIS Call it the French paradox. French multinationals go on acquiring foreign assets, but the French government is busy erecting walls around French companies against foreign takeover, while at the same time encouraging foreign investment in the country.
Paris foiled the acquisition of Danone by the American giant Pepsico; publicly opposes the buying of the steelmaker Arcelor by Mittal Steel, and pushed for the recent merger of the water utility Suez and the national gas company GDF to prevent Suez becoming prey to the Italian energy concern Enel.
Prime Minister Dominique de Villepin has repeatedly intervened to stop cross-border mergers as official policy under the label of economic patriotism. His government recently introduced legislation designed to complicate, or just block, hostile takeovers of French companies in 11 sectors deemed as strategic to the economy. The government has drafted a list of 10 major companies from the CAC 40 index of the Paris Bourse as untouchable by foreigners.
Meanwhile, in April the French electronics company Alcatel absorbed the American telecom equipment maker Lucent, the latest in a long list of mergers and acquisitions by French groups - 190 last year, a 157 percent increase over the previous year, for a record 60.6 billion euros.
Such activity suggests France is practicing globalization à la carte - profiting from globalization while resisting others efforts to do the same with French companies, along the principle, Whats mine is mine, and whats yours is open to negotiation.
While France may be more open in applying this double standard, it is far from alone. Since the beginning of the year, Spain has blocked a German company from taking over one of its own energy producers; Poland has thwarted the purchase of several of its banks by Italians, while Italy has done the same for some time, and Germany staunchly defends its Volkswagen law, protecting its auto industry from foreign predators.
Outside the EU, one need only look at the spat over the acquisition of some U.S. port operations by Dubai Ports World, or remember the furor over the Chinese oil company Cnooc attempting to buy Unocal.
This list, not exhaustive by any means, shows that economic patriotism is a truly globalized attitude, especially in the developed world. Ironically, the developed nations push for more liberalization and opening of investments in developing powerhouses like China, India or Brazil - which resist the opening of their still highly state-controlled and national economies.
Economic patriotism may strike some as odd and incoherent when considering that its leading proponent, France, is by far the EU nation most open to foreign investments, at least according to IMF figures. Direct foreign investment represents 13 percent of GDP in Italy, 25 percent in Germany, 36 percent in Britain - and 42 percent in France.
More than 40 percent of the shares of the most important French groups quoted on the Paris Bourse are in foreign hands, and one in seven French workers is employed by a foreign company - compared with one in 10 in Britain and one in 20 in the United States.
But economic patriotism has deep historical roots in France, going back to the birth of the modern French state in the 17th century, under Louis XIV and his prime minister, Jean-Baptiste Colbert.
The states political legitimacy was predicated upon its capacity to macromanage the economy, lead a successful development strategy, launch big industrial and technological projects and nurture world- class industrial champions. This endured into the 20th century, successively upheld by the Left - with the Popular Front government nationalizing in 1936 defense industries, railways, the Banque de France and more - and the Right, with Charles de Gaulle doing much the same after 1945 for the nuclear, aeronautics, rail and space industries.
Today, public opinion polls show that 69 percent of the French favor economic patriotism.
Then again, economic patriotism is not a peculiarly French reaction to globalization, and other forces must be at work. One is the current crisis of the EU. Since last years French and Dutch rejection of the proposed European Constitution, previous attempts, many halfhearted, at European industrial policies and cooperation, and dreams of Europe as Power are at a standstill. At the same time, the deregulation of key European markets has generated a frenzy of mergers and acquisitions unseen since 2000.
Governments have consequently acted along their own perceived national interests, pressured by their citizens anxious about the social costs of deregulation and the loss of decision-making in foreign buyouts.
Proponents of economic patriotism argue that, in the post-Cold War world, technological and economic competition has become paramount, not only for security, but also for diplomacy, politics and social benefits. Economic patriotism is a thoroughly modern concept, according to Thierry Breton, Frances minister for the economy, finance and industry, and a former head of France Telecom.
So all things considered, the paradox one finds in French policies on foreign investment is a generalized one. For all their talk of letting the market decide, the developed countries are just as quick as developing ones to raise walls when they think their national interest may be affected or for reasons of domestic political expediency.
Economic patriotism is the flip side of free-market liberalism and part of the current fashion for globalization à la carte.
** Patrick Sabatier is deputy editor of the French daily Libération. Reprinted with permission from YaleGlobal Online (yaleglobal.yale.edu).
Copyright © 2006 the International Herald Tribune All rights reserved http://www.iht.com/articles/2006/05/18/opinion/edsabat.php
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