French National Champions: Timing's Advantage

Even while the Economist was dozing on the brink of boredom -- before the change in Editor-in-Chief this spring -- one could always count on the magazine to deliver a healthy dose of sometimes funny and pertinent French-bashing. This week's leader implicitly continues the tradition with its positive evaluation of the legacy of the London Big Bang and a logically concomitant critique of the opposite example:

Britain's most lucrative industry owes its dynamism to many things, including globalisation, innovation and the good fortune to be based in an old imperial trading city that sits handily between Asia and the Americas. But there was nothing pre-ordained about London's success as a financial centre: it happened largely thanks to an inspired piece of state intervention 20 years ago that opened the doors to foreign talent and foreign capital.

On October 27th 1986, pressed by Margaret Thatcher's government, the City blew apart the closed shop of the London Stock Exchange in a reform known as Big Bang (see article). Out went minimum commissions and other restrictions, and in came a stampede of foreign firms. The government stood by and watched as they swallowed the old British firms that had previously dominated the City. (...)

This is the lesson of Big Bang: to protect an industry, sacrifice your national champions. That brave decision 20 years ago brought wealth, jobs and cosmopolitan buzz to a once-sleepy City, and banished the overcooked cabbage for ever.

As the example of the London Big Bang shows: the pro-globalisation and pro-competition arguments are easily presented. The French government, of course, has adopted the opposite strategy -- of (creating, supporting and protecting) national champions. Part of this is a long list of sensitive industries which the government intends to protect -- one that in an expansive conception of security famously included the yoghurt giant Danone.

Why do the French not seem to want to take these lessons to heart? The rational argument, apart from the usual and somewhat tiresome grandeur theme, may be that they figure they can earn a buck more by opening up their markets later than the rest of the European market. One element often missing from the connection between economic theoretical ideas and reality is time: time for changes in behavior to take place and for the invisible hand to be played out. An advantage of forging national champions in the context of a deepening European economic integration would then be that a protected home market would give the newly assembled giants a pause to breathe in peace, gather strength (or at leasdt size) through national mergers -- and then leave the fortress and charge the neighbors (like EdF in Italy).

The general gains brought about by increased competition in the shape of leaner, fitter companies would of course not have been reaped until then, and so the process of adaptation might be even tougher. But who says that the home market will ever be opened up? The EU energy liberalisation directive has been in place for more than seven years -- but the the energy troll EdF still seems like an overweight teenager in a couch, high on cheap sugar and hysteric for mum to come by with a fresh round of crisps.

Fittingly, the Economist runs a 'Survey of France' in next week's edition. The theme of the champions nationaux will surely feature prominently.