France has been in a state of shock since it was revealed last week the company that built the high speed TGV train and steam turbines for EDF’s nuclear reactors was about to be taken over by the yankees. Things scarcely improved when a desperate Paris sought to bring in the Germans for an alternative bid over the weekend.
That the fate of Alstom – one of France’s largest private sector employers and seen as central to the country maintaining its position among the world’s major manufacturing powers – is in the hands of two foreign engineering giants, General Electric and Siemens, is seen as another blow to French pride. It comes amid a string of high profile company closures and record 10% unemployment, a picture that has allowed the Economist magazine to brand the country as the ‘sick man of Europe’.
For the unpopular French socialist administration, gloating from the right-wing opposition UMP party that on their watch President Nicolas Sarkozy warded off foreign predators with a multi-billion-euro bailout and temporary nationalisation, is particularly embarrassing.
Try as they might, President Francois Hollande and his Industry minister Arnaud Montebourg are struggling to show the administration’s patriotic colours. To be sure, Montebourg was behind Yahoo’s failed bid in April last year to buy French video site Dailymotion, arguing that he would not let the country sell off one of its top startups. But their overall record over the past two years is somewhat mixed. For example, that national cause-celebre of the Florange steelworks in north-eastern France. On the campaign trail in 2012 they pledged to keep the blast furnaces going after Indian multinational Tata pulled the plug, only to let them shut.
French giant run from Connecticut
Montebourg objected on Monday to the possibility that Alstom “in three days, can decide to sell 75 percent of a national jewel behind the backs of the employees, of the government, of most of the board and of the senior executives.” The bid from General Electric raised a simple problem that “the main part of Alstom, 75 percent of the businesses, 65,000 employees in the world, is going to be run from Connecticut.”
Their aim is reportedly to keep Alstom’s decision-making centre in France and protect jobs and strategic energy interests. But so far, their only solution was to bring in the Germans, and to try and flog the plan to the French as an Airbus-style “European” project, which might have worked in the past but is less likely to get a sympathetic hearing in the current Euroskeptic climate where Germany is rightly accused of imposing misery on fellow Europeans.
For General Electric, this is an opportunity to expand in Europe – and retreat from its none-too-successful transformation from a real economy engineering firm to a Fortune 100 “diversified financial” company, which invested in the sub-prime market and got its fingers burnt (a track record the French ought to be aware of). For Siemens, it is about wiping out the competition, and above all blocking the US giant’s ambitions.
But how bad is it for Alstom and does it really need rescuing? The newspapers variously report that the company is ‘coming is under pressure because its main markets for power generation and rail equipment are expected to be weak in the next few years’, that its debts are mounting, that Alstom, and that with a stock market capitalisation of a mere $11 billion, it is too small alongside giants such as GE and Siemens ($268 billion and $144 billion respectively).
Unions point out the say Alstom’s problems are much overplayed. Its order books amount to 56 billion euros, a record. In its transport division this amounts to 5 years worth of work. In any case the issue of depressed orders from power utilities affects Alstom’s rivals too.
Cost of capital
For his part, in a tweet this week, former Presidential candidate Jean Luc Melenchon identified some more fundamental problems: the ‘cost of capital, austerity and neo-liberalism’. So for the sake of balance in this debate, let’s explore the radical leader’s tweet.
1. Cost of capital: Over the past four years 1.5 billion euros has been handed out to shareholders in dividends, according to unions. Compare that to 2.3 billion euros of debts, which while below the average level in French companies, could be substantially lower if the fat cat owners had less cream. And the biggest shareholder of all – Martin Bouygues, the billionaire chairman of family conglomerate Bouygues, with a 29.4% stake – wants to sell its share to spend some money on what today are considered more lucrative ventures, perhaps telecoms. A capitalist captain of French industry who wants to bail out, heading for what he hopes are calmer waters, leaving behind him his ship and crew with a gaping hole in the hull.
2. Austerity: Alstom’s orders are heavily reliant on public procurement, and in particular the French state. But cuts in budgets due to the financial crisis and its austerity response, and the longer term EU budget straight jacket (the deficit must be no more than 3% of GDP) have had their impact. If you consider that Alstom’s clients globally are also subject to austerity plans of varying intensity and/or suffering the international repercussions, then the company’s problems are very much a result of public spending cuts. These same policies of course are the ones hurting the public finances and so are stopping the government pursuing the option unions support – nationalisation, albeit on a temporary basis.
3. Neo-liberalism: in some respects Alstom will have benefited from freer trade and greater global competition, for example orders for plant from key client EDF, now one of Europe’s largest energy companies. But greater competition has put the company under intense pressure by exactly the types of companies from the world’s more powerful capitalist nations that want to gobble it up. The Sarkozy rescue reportedly only got past EU competition chiefs on condition work was handed out to competitors, resulting in thousands of French job losses.
Pro-market policies since the early 1980s, as well as driving concentration of ownership into ever fewer hands, have moved decision-making away from centres of democratic oversight, if not control, meaning an a ‘dirigiste’ industrial policy becomes increasingly difficult. Hollande needs not to forget the lessons of France’s relatively successful fight against globalisation which has left the country not only with a world beating rail system but with a volume car industry led by Peugeot and (whatever you think of nuclear) a formidable energy sector, and today, a rapidly growing green energy industry, led by companies like Alstom. These are sectors which provide the kind of high-skilled, high paid jobs that underpin any prosperous nation.
How about a ‘Franco-French’ solution?
So will it be a US takeover, a Franco-German solution or, as one trade union leader suggested would be best, a “Franco-French” future for Alstom? The latest in what one French newspaper has called a “national psychodrama” is that Alstom has accepted General Electric’s $17 billion offer to buy its energy division, despite government protestations. An apparent concession to ministerial pressure is that it is said to still be prepared to consider a counter-bid from Siemens. In the meantime, an independent committee will scrutinise the preferred bid from the US conglomerate and will report back at the end of next month.
Unions remain fearful that either proposed solution means big job losses and a breakup of the group. Instead they see a much more muscular role for the state in protecting French interests.
Says Christian Garnier, a CGT union rep at the company:
“For us, there is no preferred option. Whether the predator is American or German, we do not want either because in both cases it leads to the collapse and disappearance of the [Alstom] group. Siemens wants to eliminate a competitor. General Electric wants to get patents, know-how, the order book, and industrial facilities… Whatever the buyer, there will be job losses and closures. The true explanation of the proposed sale is that the largest shareholder Bouygues wants to make a capital gain by selling shares. We are being sacrificed for finance. We want the nationalization of the company. We want the state to stop its rhetoric and take action.”
Melenchon and his communist allies, who remain influential in parts of the trade union movement, say a state-led energy and transport “pole”, or cluster, is “the only guarantee of industrial independence for France”. This could be achieved, they suggest, by state-controlled train company SNCF, metro operator RATP, energy giant EDF and nuclear group AREVA buying shares in Alstom as part of ‘new strategic cooperation agreements that are industrially, financially and employment-friendly, as well as being socially useful.”
This is a plan that will no doubt fall foul of EU state-aid rules, and other economic orthodoxies of the day, but if I were a Frenchman it would get my vote.