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The French Connection
The French Connection
A ham-handed French government attempt to control the local operations of ArcelorMittal has reinforced at least one vital lesson: sovereignty has its limits in dealing with a globalised economy. The trouble arose when the steel giant, confronted with falling demand, did what any business would do and warned of planned layoffs. The French government responded by threatening to nationalise the company.
France’s minister of industrial renewal, Arnaud Montebourg, raised the spectre of nationalisation in an attempt to apply his anti-globalisation philosophy to real life. Last year, vying for the Socialist Party’s presidential nomination, Montebourg ran a campaign based on the title of his bestseller Vote For Deglobalisation. France’s economic troubles, he argued, were the result of global trade and investment and could only be resolved by adopting what amounts to protectionist policies. He lost the nomination battle to his colleague (and now president) Francois Hollande, but to appease the party’s left wing, Hollande created a cabinet position for his vanquished rival: minister of industrial renewal.
It was an appointment for which Montebourg appears not to have been very well prepared. Certainly, the past few months have brought home the reality of how difficult it is to battle the forces of globalisation. The impacts of competition and falling demand have led major French companies from PSA Peugeot Citroën and Air France to the drug maker Sanofi to lay off a large number of workers. Other than denouncing the moves, however, the government has been powerless to stop private firms from fulfilling their obligations to their shareholders. The occasion to put Montebourg’s anti-globalisation rhetoric to practice came when ArcelorMittal, majority owned by a foreigner, India’s Lakshmi Mittal, announced plans to shut down redundant blast furnaces in Florange and to lay off 630 workers.
Declaring Mittal was not welcome in France, Montebourg threatened to nationalise the Florange operation, temporarily pending its sale to a prospective buyer. Under heavy criticism from industry, politicians and media, the government disavowed the threat and ultimately negotiated a deal with Mittal. Most of the threatened jobs would be transferred to another location, but the furnaces would be shut unless steel demand revived. The decision to close the plant was the result of a nearly 27 per cent fall in European demand for steel over the past five years and slowing demand worldwide. The dispute with the steelmaker helped to throw in sharp relief how intimately the French economy is intertwined with the global economy. Despite closing two furnaces, ArcelorMittal remains the major supplier of steel for the French construction and auto industries, and employs 20,000 workers in all its French plants. Industry representatives expressed apprehension that loose talk of nationalisation could spook foreign investors already rattled by talk of high taxation. The fact is, without its integration with the global economy, France would be a poor agrarian country. It is the world’s fourth-largest recipient of FDI ($41 billion), the world’s fifth-largest exporter ($587 billion) and one in eight French workers is employed by a foreign company.
Global supply chain underwrites the profitability of Airbus — the pride of France — which is assembled with components made in 60 countries. The importance of France’s export industry will be on show early next year, when Hollande visits India to finalise the `15 billion sale of 126 Rafale fighter aircraft.
The jingoistic reporting in some sections of the Indian media, making Mittal a champion in a boxing match with Montebourg, may also be missing the point about globalisation. The fact that ArcelorMittal succeeded in winning the right to close down the disputed furnaces could be a pyrrhic victory; the company faces a debt burden of $23.2 billion with no prospect of a revival of demand in the immediate future. Mittal enjoyed a short boom after he acquired Arcelor in 2006 but since the 2007 financial crisis and especially since Europe’s credit crisis and recession, his ambitious steel empire has been hit by the same forces of globalisation that once lifted his businesses. Recent industry data shows that Europe’s steel production base may have a 40 per cent overcapacity challenging profitability prospect of all steelmakers. Given the difficulties it faces from feeble global demand for steel and the strong local challenge posed by French trade unions, ArcelorMittal may have a tougher time restructuring, even if Monsieur Montebourg has been forced to eat crow.
The author is director of publications at the Yale Center for the Study of Globalization and editor of YaleGlobal Online.