One learns from experience at any age. Look at me.
Having calculated that the odds of two consecutive once-in-a-century
mega-storms were close to zero, I declined to purchase a standby
generator. Wrong. The generator guy is coming by tomorrow.
In France and the US, politicians have become
experts at kicking the can down the road, until they hit a wall and need to
come up with Plan B. In this country, we
had the Simpson-Bowles Commission; its report was quickly buried but, within
the next twelve months, it will likely resurface as the US margin of maneuver
is squeezed and public finances are in dire need of fixing. If our politicians succeed, they should send
their French brethren a copy of their recipe, because France could learn from
it.
Likewise, France commissioned a report on industrial
competitivess from Louis Gallois, one of its most prominent grand patrons[1]. Mr. Gallois just delivered it today. Having lamented the decline of the US
industry, our politicians would do well to read his report, for even if our
problems are not quite the same as the French, there is enough commonality to make
it required reading. The diagnostic of
the French industry’s weaknesses and falling from grace is particularly
instructive, because we could be next on
that slippery slope.
Generally, Mr. Gallois recommends a “competitiveness
shock” where key measures are applied quickly rather than being diluted over a
decade. He also stresses that French
society must debate the reforms and come together on a plan which will carry
the conviction that sacrifices and benefits will be fairly shared. Indeed, the plan is as much about mutual
confidence as it is about specific measures.
Such convergence of efforts and ultimate rewards
(you think of Reagan’s motto “trust but
verify”) calls for lower social charges for both employers and employees
(1.5% of GDP), greater participation of employees and union representatives in
the policy deliberations of large corporations and a robust support for small
and medium-sized companies.
Although Mr. Gallois is reputed to be left-leaning,
he sees a key contribution of the state as doing no harm. In his view, any significant new law or
governmental decree should be accompanied by a document estimating its impact
on industrial competitiveness, and recommendations as to reduce adverse
consequences, if any. The state should
also refrain from changing key provisions that affect such areas as R&D
investment tax credit, incentives affecting the formation of new companies,
among others. But in typical French
manner, the ghost of Five Year Plans of yore would return in the much milder
guise of Commissariat à la Prospective.
There are twenty two recommendations made in the
report, ranging from broadening and codifying employee participation on
corporate boards to ways of fostering innovation, rewarding long term portfolio
investors, developing shale gas resources, etc.
Many of these recommendations should be studied in this country because
we could benefit from them.
On a higher level, the Report is daunting. It calls on the government to reduce public
spending and it aims at reshaping the French industrial fabric: creating more
mid-size companies (think of the German Mittelstand
model) and pushing the sector up market where higher quality products permit
higher profit margins (think LVMH, Sanofi- Aventis and, I wish, Delage and Delahaye
instead of dreary Peugeot). That is a
very tall order, hence the deliberate step-by-22 steps approach.
The initial French government reaction was typical:
countering Gallois’ 22 recommendations with 35 proposals, yet watering and
complicating the proposed key reduction in social charges. As the Shadoks[2] of
my youth used to say, GA BU ZO MEU, why
make it simple if you can make it complicated.
France like the US is faced with mounting pressure
to reform itself, yet neither country is on the cusp of the abyss. Their respective governments have been
divisive so that there is no popular consensus on the necessary reforms and shared
sacrifices. Yet well connected outsiders (Gallois, Bowles, Simpson) have started
to speak up. In the days of instant
communication and interconnected economies we should and need to pick what they
have to say, wherever they may be domiciled.
[1] Louis Gallois is a former CEO of Airbus,
EADS, SNCF.
[2] A popular and off-beat French TV series in
the 1960s.
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