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Saturday, 15 March 2014

When does a healthy interest in protecting your own industry turn into unhealthy nationalism and protectionism? French Minister of Industrial Recovery Arnaud Montebourg skims the edges!

At this moment, it is easy to make fun of France. The country – jokingly, but with a serious undertone, called ‘The Sick Man of Europe’ – has not been doing well during the last decades, from an economic point-of-view.

Generally, France enjoyed too little economic growth since the nineties and – to make things worse – only few of the indispensable economic reforms – according to many – were actually carried through. This has been a consequence of reluctance among French politicians to take decisive measures.

Too often, presidents like Jaques Chirac, Nicolas Sarkozy and François Hollande, as well as their teams of ministers, refused to take the painful, but necessary measures that would modernize the French economy and bring the country back on top of things. They were simply too afraid to mobilize countering forces and alienate large shares of their (sometimes short-tempered) population.

In spite of this reluctance for change among French politicians, the atmosphere in the cities and villages in France has yet been very tense, during the last ten years. This was especially true in the poorer regions and urban areas of this country. 

Everybody probably remembers the very violent clashes between groups of poor, unemployed and deprived youngsters (often descending from (North)African minorities) and the French police, in which total city areas changed into war zones and numerous cars were set on fire. 

These events, for their part, led to (verbally) aggressive counter-reactions from f.i. the rightwing-populist Front National and their unsavoury, but nevertheless charismatic leaders Jean-Marie Le Pen and Marine Le Pen (his daughter). They represented the dissatisfied voices of the poor, white classes in France. In some cases, only a little spark (i.e. a little provocation) was enough to put the fat in the fire again in France.

All in all, France’s reluctance to seriously deploy structural changes in its economy is almost as legendary, as the French workers’ aggressive ways of striking and France’s dependency upon (some might call it ‘addiction to’) European agricultural subsidies.

On the other hand, nobody in Europe should have the foolishness to underestimate French politicians and their ways of reaching their political goals. The French are (in)famous for their extremely fine-tuned diplomatic and political skills and – consequently – for their enormous influence in the heart of the European Union. An influence, which almost seems to outstretch their economic importance for Europe.

How many North-West European leaders have not seen their ‘groundbreaking’ ideas being shipwrecked by a firm ‘Non!’ from the seemingly stubborn French, who always seemed to have the last laugh, when it came to a political shoot-out.

And personally, I especially admire the French for not giving in to the ubiquitous cultural and economic predominance from the Anglo-Saxon countries. Instead, the French stand tall for their own society, culture and heritage. 

Although France has not proved to be immune for the British and American popular culture, the ‘McDonaldization’ of French society and cultural life is far less than in other countries. Irrespective whether you call this a pro or a con; you have to give this to the French. After every holiday in France, I must admit that the French do have a point when it comes to some of their opinions on food, drinks, recreation, culture and(luxurious) consumer products.

Besides that, with f.i. Thomson, Alstom, GdfSuez and Airbus, the French do still have plenty of companies, which are at the cutting edge of technology.

Nevertheless, the French economy is currently in a deep trough, from which it is very hard to come out. Many French small and medium enterprise (SME) companies have already defaulted during the crisis years. Some industrial zones in the heartland of France seem like ghost towns, after the buildings have been abandoned by their owners/occupants. 

Many parts of the earlier mighty, French manufacturing industries have been moved to the Far East and Eastern Europe, where the production costs are much lower than domestically. 

All these notions sounded through in the public outcry of Minister of Industrial Recovery, Arnaud Montebourg, after he ‘discovered’ that the shirts of the French football (i.e. soccer) team for the Brazil 2014 World Championship had been manufactured in Thailand.

The following snippets come from the Dutch Volkskrant:

At the World Championship football in Brazil, the French football teams plays in a classic blue jersey with a fashionable white polo collar. From an esthetical point of view, this outfit is undisputed. However, from a political point of view, it isn’t. Minister Arnaud Montebourg of Industrial Recovery is not amused that Nike has produced the jersey in Thailand. “These jerseys could have been produced in France just as easy”, according to Montebourg

The flamboyant minister is on a crusade in order to promote the ‘Made in France’ concept. Every French person should buy as much French products as possible, in order to stop the decay of the domestic industry. For Montebourg, purchasing French-made goods is almost a moral duty. “This is what the French should do in their daily life, within their own means. And the French football association has undoubtedly more than enough means to do so”.

For a year, the journalist Benjamin Carle tried to live according to the commandment of Montebourg. He exclusively used French products, while making a documentary that will be broadcasted on Canal Plus next week. That wasn’t very easy: 

A French jeans was impossible to get. Only 4.5% of Carle's furniture consisted of products, made in France. He had to learn to cook himself, using products that he purchased at the butcher and the greengrocer, as ready-made products were seldomly fully made in France, in the cases that the descent of the food was clear in the first place.

It became also impossible for Carle to move through Paris, using a Vélib (a bike for common usage), as this bike is produced in Hungary. Carle’s conclusion: living ‘the French way’ is time-consuming and expensive.

It is easy to disqualify this gaudy, French attempt towards protectionism and promotion of French goods at the expense of goods from other countries. And from an economic point of view, we should do this indeed, as protectionism has proven to be a flawed strategy on numerous occasions in the past.

Nevertheless, we can make some marginal comments in favor of Montebourg’s statements:

First, although the clothing and sportswear industries have undoubtedly brought prosperity to the low wage countries in Asia and Eastern Europe, there has been a race to the bottom for the lowest production costs. 

Especially among the sports brands Nike, Puma and Adidas, the enormous marketing budgets and skyrocketing sponsoring contracts with the ‘stars’ of sports and leisure must be compensated by reducing the production costs of sportswear to the bare minimum, in order to earn a decent profit.

During the last decade, there have been multiple small and large accidents and incidents within the clothing factories in countries like Vietnam, Cambodia, Bangladesh, India and Pakistan. These incidents have proven beyond a reasonable doubt that the financial well-being, working pleasure and safety of their foreign personnel in these low-wage countries has not the highest priority for the large European and American brands that produce in the Far East or elsewhere.

Second, the extremely low production costs for the world-leading brands, which produce in the Far East, have caused the decay of many formerly successful, local brands. These brands often did produce goods and sportswear of very good and sometimes exceptional quality, but their production costs and  consequently  sales prices were just much too high, while their marketing budgets were only a fraction of the leading brands' budgets.

Fashion brands with a ‘domestic’ look-and-feel – in The Netherlands, these are for instance brands like Gaastra, Mexx, Quick Sportswear and a dozen others – almost all feel forced to produce in the low wage countries. 

This is of course with an exception for… the ultimate luxury brands, like Louis Vuiton, Hermés, Chanel and others. These brands have the luxury of producing uncompromising quality at astonishing prices and they can survive, due to the fact that their clientèle has a nearly unlimited budget and unstoppable consumption power. However, very few brands reached this status in Europe and the United States.

Third, the way in which food and agricultural produce is produced and processed all around the world, has been the 'raison d'etre' for numerous documentaries and scientific investigations: 
  • Green beans from Kenia;
  • Asparagus from Chile; 
  • Prawns that are full of antibiotics and food preservants, from Vietnam; 
  • Garlic from China; 
  • And especially Dutch grey shrimps, which are peeled in Morocco, only to return to The Netherlands for consumption;
These are some of the blatant excesses in the international food industry. There, the French minister definitely has a point.  

People have got used to eating unripe fruit, which had been picked much too early and had been stored in containers for weeks, and tasteless vegetables that has been imported from around the globe, instead of eating domestic and closely produced vegetables and fruit, within the proper season.

Nevertheless, besides these remarks, this heartfelt plea by minister Montebourg to buy French products, ‘in order to stop the decay of the French industry’ (see red and bold text), seemingly ignores the two elephants in the room:

The circumstance that the French can’t or won’t buy more French-made products, in order to save their own industry, is caused by the fact that French-made products either became too expensive or are not available anymore at all. It is the same as what happened in for instance The Netherlands (Philips), the United Kingdom, Italy and Germany (Braun, Siemens, Bosch).

Loyalty to domestic (or European) brands and to a domestic descent of goods and appliances generally lasts for about 10% price difference at the most (warning: this is my own rule-of-thumb), presuming equal quality. 

If the discount of the foreignly produced good exceeds this 10% in price difference, the people will definitely go for the cheaper brand or the cheaper produced goods. This is – of course – what happened in the past with many household appliances and consumer electronics

Some brands can escape this rule of thumb, due to their exceptional quality and the life expectancy of their goods (f.i. the German brand Miele is one of these exceptions), but most brands simply can’t. Their manufacturers therefore choose the easy way out and also start producing in the Far East or Eastern Europe.

And there is more: especially French politicians have ignored for decades the need to change the French industry and economic landscape and reduce the power of the too mighty French labour unions and representatives of the agricultural industry. 

While this might have been a wise policy to maintain the domestic peace-and-quiet, it has definitely been killing for some important parts of the genuine, French manufacturing industry; especially the ones that produced the French household appliances, consumer electronics and inexpensive consumption goods. And perhaps, even if the French politicians would have acted earlier, it would be questionable whether the French manufacturing industry could have battled the cheap labour and production circumstances in the Far East. His battle has been lost for many European manufacturers...

Nevertheless, also the French agricultural industry is confronted with the fact that many countries can almost do what the French do, and they can do so for a fraction of the price.

Taking this into consideration, it is easy to see that this attempt to save the French industry by Arnaud Montebourg skims the edges of unhealthy nationalism and protectionism: it tries to cover up the problems of the French industries and economy, instead of exposing them and trying to solve them.

Still, there is no reason to be too pessimistic about France, in my opinion. I have no doubt that this stubborn and somewhat eccentric country, with its centuries-old traditions and heritage, still has everything it needs to invent the cutting edge technology of the future. Were it not the French, who invented the Deux Chevaux car and who brought the TGV trains into full development?!

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