The new industrial policy in France
Boston, November 18, 2013
A French ambition
Professor Berger, Professors, Ladies and Gentlemen,
In the same way that it is quite difficult for an American to explain the rules of baseball to a French person – congratulations on winning the World Series, by the way! – it is tricky for a French person to explain the French government’s role in the economy. But please allow me to try.
Today, I would like to speak to you about an “old country in old Europe”, one that gave the world the vaccines of Louis Pasteur, the pioneering aviation work of Clément Ader, radioactivity and Becquerel’s civilian uses for it, and the cinema of the Lumière Brothers.
I would also like to speak about a modern country that is currently developing gene therapy that will enable each and every one of us to have our own tailor-made drug if and when we fall ill, rather than a general medication used to treat everyone in the same way. I am speaking about French Professor Alan Fischer, who is currently developing new drugs in Paris to treat immunocompromised children. Lastly, I would like to talk about a country that is developing new chip technology for tomorrow’s computers in Grenoble at the French Atomic Energy Commission in partnership with one of your biggest corporations, IBM.
I haven’t come here today to talk about the past, or about nostalgia for the French art of living, or Proust’s madeleines. I have come here today to talk about the future, industry and the government, that I have the honour to represent.
Although France must fight to hold onto its current leading position built on past achievements, we have valuable assets to help us do so if we can all make the sacrifices required :
“The fifth pillar is the implementation of necessary regulation on private economy activity”.
Let us travel back in time and remember what George Bush had to say: “Read my lips: no new taxes”. At that time, government was not the darling of the press, and the conservative revolution was underway, sweeping aside all who stood in its path, and prompting the European Union to deregulate public services to better serve consumers in the future.
Those days are gone.
Our belief that a market economy can only flourish as part of a western-style democracy has been shattered by the Chinese model which offers evidence to the contrary every day. We are convinced that the government has a role to play. After a disastrous start to the century that brought the subprime crisis and a near meltdown of the world’s entire financial system in its wake, President Obama has decided to embark upon a global policy to bring jobs back home. We are following in his footsteps.
Over the last 30 years or so, France and the United States have seen their industries contract significantly. French industry’s share of output has almost halved over the last three decades, shrinking from over 21% of GDP in 1980 to 11.5% in 2010. The United States has seen its industrial share of output dwindle on a similar scale, down from over 23% of GDP to less than 13% in 2010. The parallel is striking. In both of our great nations with a long industrial history, the share of output has lost 10 percentage points of GDP within the space of 30 years. The main consequence of this industrial decline has been the disappearance of many manufacturing jobs. In France, we have lost over two million jobs in the last 30 years. In the US, the number of employees working in US industry has fallen from around 20 million to a little over 12 million in 2010. In both countries, the number of industrial workers has fallen by some 40% in 30 years, a significant drop.
The recent financial crisis, which was touched off in September 2008 with the Lehman Brothers collapse, has made the situation worse. We can only hope that it is the type of crisis that comes along only once every century. It was unexpectedly severe and bore similarities at the outset to the crash of 1929. Financial in origin, it pulverised our manufacturing base. The extreme financialization of our economies.
Within the six months following the Lehman Brothers collapse, industrial output shrank by almost 10% in the US, by over 15% in France and by almost 17% on average in the euro area. Within several months, industrial output in the US and Europe slid to its 1997 level. It took only six months to wipe out more than ten years of growth in industrial output on both sides of the Atlantic.
To deal with this economic and financial calamity, those in the public domain, with government and central banks leading the way, have acted together and taken massive steps to stem the spread of the systemic crisis.
The government intervention has helped to avoid the worse-case scenario occurring, staving off a global recession like in the 1930s. But the price is high, and it will take a few more years, possibly decades, for the scars caused by this particular crisis to fade. Rebuilding will take time but it is a must, and this is where Europe and the US diverge.
The US, where the subprime crisis began, was able to stem the tide and begin rebuilding its economy as of 2010. Although the country was ground zero in the financial crisis, it was able to bounce back. American industrial output has grown sharply over the past four years and has returned to pre-crisis levels.
This is not the case in Europe, where industrial output is still 12% below its pre-crisis figure.
The turning point for the US came in 2010, when, buoyed by the upturn in industry, you were able to restart your economy.
For the euro area, the turnaround was less dramatic and short-lived. Unfortunately, after two years of anaemic growth, Europe fell back into recession in 2012 and 2013 – unable to avoid the devastating effects of double dip recession.
The figures do not lie, and the picture they paint is a bleak one. Whereas in late 2009, unemployment in the US and the euro area was identical – both reached the infamous threshold of 10% of the workforce – it is now 7.3% in the US and 12.2% in the euro area.
Between late 2009 and the present, the US has managed to cut the number of job-seekers by more than 4 million. In the European Union, the number of those seeking work has grown by more than 4 million.
The euro area now has nearly 20 million job-seekers, and for the EU the figure is 26.5 million. The US, with 11 million unemployed, seems back on the road to full employment.
Europe, despite considerable, long-term efforts, has not achieved the desired results. Unemployment is rising, labour relations are worsening, the competitiveness gap experienced by southern European countries has yet to be successfully tackled, except for the introduction of wage deflation. This spiral – combined with a strong euro that hampers industrial exports – is pulling Europe into debt deflation, the phenomenon originally described by Irving Fisher. This is why the European Central Bank has recently pulled down its rates.
Europe’s inability to pull out of the crisis that began in 2008 represents a serious burden, despite some progress. According to the European Commission’s Eurobarometer, trust in the EU has plunged over the past five years. For the EU as a whole, the percentage of those holding positive opinions fell from 52% in the spring of 2007 to 30% in the fall of 2012. Euro-scepticism is on the rise, and we cannot rule out the possibility that the European Parliament will, following the elections in May of next year, be dominated by an anti-European majority.
Following an austerity programme in late 2010, the euro area’s number one priority is reassessing Europe’s macroeconomic strategy. This is not because it is unpopular, nor because it has been stretched to capacity, nor even out of fear of losing an election, but rather because slavish devotion to austerity is economically untenable and is leading Europe’s economies to breaking point. As the Italian Prime Minister Enrico Letta said, France, Spain and Italy “reject Death by Austerity”.
Nobel laureate Joseph Stiglitz has this to say: "No economy has ever recovered from recession through austerity. The European Union needs growth policies rather than the austerity policies that it has today. It must invest in education, technologies, innovation and infrastructures."
This is the French proposal that this strategy must be a pan-European one – we cannot go it alone. It must go hand in glove with a monetary policy that is better tailored to the other central banks’ pro-growth policies and that provides governments with the means to stave off attacks from the financial markets and the rating agencies. By following such a strategy, we could start to rebuild a forward-looking Europe that is aware of both its strengths and responsibilities.
We have in mind the example of your great nation. In spite of the huge problems you are facing, you have managed to confront this crisis head on and emerge from it. The US has reached a turning point in its industrial history. It has been able to both find the means and create the conditions for recovery, thus bringing 40 years of deindustrialisation to an end. For President Obama, who is a great source of inspiration for my own policies, industry is a strategic priority for the US economy. He stated it very clearly in his State of the Union Address last year :
“Now, this blueprint begins with American manufacturing.”
Highly tangible initiatives have been tabled such as tax cuts, training strategies, the introduction of “fair competition” rules and major structural measures.
US industrial reconstruction is also due to very powerful macroeconomic factors that make manufacturing costs considerably lower than in competitor countries. Firstly, the labour costs / productivity ratio in the US is less than that of its trading partners. This can be explained by the weak dollar and substantial productivity gains. I am always saying that I would like the European Central Bank to be more like the Federal Reserve Banks – more pragmatic and less dogmatic – focussing not only on inflation but also on manufacturing and employment. For the moment, unlike the Fed, it is only tasked with controlling inflation and this may have a negative effect on growth.
In real terms, since 2010, American economic policy has resulted in industry’s share of GDP rising by one point of GDP. That’s my ambition for France. If we look at what has happened in the last four decades, this is unprecedented. What is more, 700,000 new jobs have been created in industry. There is nothing inevitable about industrial decline and I will continue to look to the American policy as a template for my own action. France is now making these choices both for its future and to map out its destiny which has for too long been dictated by the all-powerful markets. We are also at a historic turning point and the goal of my industrial policy is to halt the deindustrialisation which is so undermining for France.
LET ME NOW GIVE YOU A FEW WORDS ABOUT THE NEW FACE OF FRENCH INDUSTRY.
You all know France, with its perfume, its champagne, its scenery and I even know some professors from MIT who go skiing in the French Alps when the winter comes.
But let’s talk about other things!
Let’s talk about motion pictures invented by the Lumière brothers in Lyon. Thanks in part to us, you were able to enjoy “Gravity" on the big screen. Let’s talk about the airplane that brought me here from Paris. Of course, the Wright brothers played a role, but Clément Ader came before them, not to mention the L’Oiseau Blanc, which flew across the Atlantic before Lindbergh did and is probably lying on the ocean floor.
France has made its mark on global industry through its inventions. And when France is great in an industry, its strength often stems from industrial policies initiated by its government.
I’m going to tell you three stories to show how you wouldn’t be able to play with your Wii, travel or be vaccinated without French ingenuity and the role played by the French government.
In 1945, France was devastated. Thanks to its Allies, and the Americans more particularly, it had just won the Second World War. But it needed to rebuild. One of the key factors in its return to power stemmed from its energy independence, as well as its military independence. Back in 1945, General De Gaulle founded the French Atomic Energy Commission under the authority of Frédéric Jolliot Curie to work on both civilian and military nuclear power. The Commission’s facilities were first built on the Saclay plateau, where Frédéric Jolliot Curie liked to take walks, but Grenoble, with its engineering school specialising in electricity, soon became the main site.
Over the years, the goal of energy independence was backed by a push to have the Grenoble site specialise in microelectronics and nanotechnology, with the creation of the French and Italian joint venture ST Micro Electronics. Today, Jean Therme, Head of Research at the Atomic Energy Commission, is developing a world-class center of excellence in these fields based on Minatec. This year, I have launched the Nanotec 2017 plan by investing more than 600 million euros and by working with ST Micro Electronics, as well as with IBM. As a result, Grenoble and Dresden in Germany have become one of the world’s few nanotechnology clusters, alongside Samsung in Korea and the USA.
Where am I going with all this ? It’s simple: if you (or your children or parents) play with the Wii today, it’s because of a chip invented in Grenoble that is still being manufactured in the heart of the French Alps.
Let’s continue making our way across France to Lyon. It is the world’s gastronomic capital with Paul Bocuse, but it is also the heart of global immunology. Back in the Middle Ages, long before the Mayflower reached the shores of what was to become New England, Lyon was the site of France’s great silk fair. Two kings insisted that, instead of selling silk, the people of Lyon should produce it locally, and this was achieved.
A silk-maker’s son studied chemistry to diversify his father’s merchandise and produce different colours, before branching out into medicine. He was soon to become an assistant to Louis Pasteur, who discovered the vaccine for rabies and created an immunology company. This man was Mérieux, who founded a Lyon manufacturing dynasty. One of his grandsons met with the CEO of a company that you here in Boston know all about, Genzyme, and was the first to believe in its business project.
Today, Genzyme is located in Lyon. Today, Cris Viebacher, the CEO of Sanofi, one of the world’s biggest Big Pharma companies, has made Lyon a world-class scientific hub for immunology. The French government has backed this ambition by funding a high-security BSL-4 laboratory and by setting up an infectious disease research institute. Now, when you are vaccinated, particularly against tropical diseases, you are protected in part by France.
Let’s finish with a city further south and a French invention, Airbus, without which Boeing would be feeling very lonely.
Toulouse became the European capital of aerospace engineering, not because of vast forests, which drew Boeing to Seattle, but because of pure chance.
Pierre Georges Latécoère came to Toulouse to set up a factory for manufacturing railroad freight cars, but when the First World War started, the French government needed airplanes more than it needed rolling stock. Toulouse also had the advantage of being far from the German border.
In the blink of an eye, French aviation was born in Toulouse and Latécoère went on to set up the Aéropostale service in 1927 to carry mail to Africa and, later, to Latin America. Saint-Exupéry and Jean Mermoz were his most prestigious pilots.
The story continued with the founding of Airbus in Toulouse in 1970, with the involvement of the German and British aerospace industries. The A300, the company’s first airplane, had to wait for more than two years for the first orders to come in. Without the support of the French government of the time, Airbus would have quickly gone out of business.
Today, Toulouse is the unchallenged European aerospace capital, with the combination of German and French talent. It is the heart of an aerospace engineering cluster and employs more than 65,000 people in Europe.
When you take a trip in the A380, the world’s largest airplane, your flight is made possible in part by France and you will think of Toulouse, the "Pink City" that might have become the hub of the French railroad industry.
This trip across France shows you that our industry has deep roots, but that it is still at the cutting edge, able to meet great challenges with the strong support of the government at each critical juncture. Today, we are writing a new page in this history with our 34 plans for the New Industrial France.
In this context, industrial renewal is a national imperative and not some impossible dream.
Industry is the focus of innovation, R&D, investment and technological progress – all of the elements that help raise our potential growth path, while cutting our carbon emissions. This is why the economy needs industry to be strong and why businesses need a government that can guide the economy towards the activities of the future that generate innovation and productivity gains. This has been confirmed by a recent MIT study, “Production in the Innovation Economy,” directed by Professor Suzanne Berger. The study stresses the fact that industry is a vector for growth, for innovation and for the economy as a whole.
What we want to address, is the brick-by-brick construction of the New Industrial France. Our history is a glorious one, from the steam engine to high-speed trains, from automobiles to electronic chips, from motion pictures to rechargeable batteries, from balloons to airplanes. It is our duty to continue this economic and industrial saga, which is all too often unsung. This is the idea behind the thirty four plans, which are blueprints for elevating France and its businesses to the front ranks of global competition.
In this challenge, France has a lot of assets. The last Thomson Reuters report on Global Innovation shows it : France is ranked as the third most innovative country in the World, with twelve companies and research centers among the top 100.
Indeed, France is a country of inventors, pioneers, entrepreneurs and captains of industry. In tough times, France has always found the strength to reinvent itself. Today, France is reinventing itself again. These thirty four plans will be the focal point for all of our efforts, the meeting point for all our industrial forces, researchers, engineers, designers, workers and entrepreneurs, and the starting point for our industrial victory.
The government should not do the work of the private sector; as they have proved, manufacturers know the market best. They also know their customers and their technology. But it is the government’s job to define the framework, provide support and stimulate industry. The 34 plans for the New Industrial France are part of an overall competitiveness policy, which also lowers production costs by cutting social security charges on labour and capitalises on our energy competitiveness from nuclear power.
Each of the 34 plans say the same thing: we can no longer make a distinction between old industries and the new economy. There are thriving companies in industries that are supposed to be in crisis and there are troubled companies in growth industries. It’s not the age of an industry that counts, as shown by the textile industry, the aerospace industry and the automotive industry. What counts is innovation, technological progress and an industry’s ability to develop uses, purposes and products that were once deemed obsolete or gone forever.
Above all, I’m mentionning one project, which is bound to strike a chord with everyone here.
I would like to talk to you about the High Speed Train of the Future project. The industrial revolution began in Great Britain, with Stephenson’s steam locomotive and the start of the railroads, but high-speed rail started in France. Back in 1981, French high-speed trains covered the distance of more than 500 kilometres between France’s two largest cities in less than two hours. High-rail service started with trains travelling at commercial speeds of more than three hundred kilometres per hour. This technological feat and business success relied on the determination of the government and, more particularly, of the President of the Republic at the time, Georges Pompidou, as well as the determination of the French railroads and the manufacturer, Alstom. The match between these three partners is based on logic and passion and it is still the key to France’s success today.
Imagine a train capable of travelling at speeds of more than 350 miles an hour. Imagine double-decker trains holding more than 500 passengers travelling between Boston and Washington at nearly 200 miles an hour. This American dream is an everyday reality in France!
In order to conquer new global markets, the High Speed Train of the Future plan enhances France’s ambition. The government, France’s national railroads and Alstom decided to have the High Speed Train of the Future plan include a new train carrying more passengers (640), at a speed of 350 kilometres an hour, and using 20% less energy. The new train will be tested on French routes in 2017 and sales will start in 2018.
French ambitions are much larger that the High Speed Train. If I have a bit more time, I would be delighted to present you the other plans, such as Renewable energies, Less consuming cars, Electric charging stations, New batteries, Driverless vehicles, Electric planes, Heavy-lift airships, Embedded software and systems, Electric-propulsion satellites, Environmentaly friendly ships, Smart technical textiles, Wood industry, Recycling material, Thermal renovation of buildings, Smart grids, Water quality, Green chemicals and biofuels, Biotech, Digital healthcare, Medical devices, Innovative products for safe food, Big data, Cloud computing, E-learning, Telecom sovereignty, Nano-electronics, Connected devices, Augmented reality, NFC services, Super-computers, Robotics, Cybersecurity, Advanced manufacturing.
Innovation leads our path, from the beginning and the design of these plans. To improve competitiveness of the France of the Future, I wanted to rely on the men and women who know industry the best. These thirty plans are the result of a joint work between government, academics and businessmen and businesswomen. Now, these CEO are leading each plan. For instance, Carlos Ghosn, world-famous chairman of Nissan and Renault, is the person in charge of the Driverless car plan. On the other side, Thierry Breton, CEO of IT solutions company Atos Origin, is driving Cloud computing.
To start and catalyse private investment, I decided to fund these plans with four billions euros (nearly five and an half billion dollars). This direct funding is adding with our fiscal incentive for R&D, the research tax credit, which represents in total six billions euros.
Of course, as one of the biggest American companies says, we have to “think global”. This is why the more international the thirty four plans will be, the better and the stronger they will stand. In this way, I call on each businessman and businesswoman leading the projects to develop international partnerships. Obviously I would be very proud if MIT becomes one of our stronger associates.
Reviving a taste for industry and innovation, taking up the Made in France battle, first requires faith in France. This is not mere arrogance; I am simply proposing that we take a resolutely optimistic view of France’s capacity for renewal. This discourse is not unfamiliar to you in the country of Made in America and the Buy American Act. Citizens, businesses, government agencies, trade unions, and politicians all stand shoulder to shoulder to defend America’s industry, to defend the Made in America label. I call that economic patriotism. This is what we would like to move towards with the Made in France drive, so that everyone uses the means within their power in a patriotic fashion.
This determination to bring government back into a universe where deregulation has occasionally led to a disorderly world, is what John Maynard Keynes called “the end of laissez-faire”. I am a government minister in a deeply political nation. Laissez-faire is the very negation of policy; it is an ode to fatalism.
Modern thinking requires us to cast off ideological trappings to embrace the cause of industrial renewal. I prefer economic pragmatism to free-market dogmatism, and the renewal of France and Europe to decline and austerity.