France travels rough road to build nationalized industries
Two years ago, when the Socialists nationalized six of France's leading industrial corporations, they said they were constructing a ''locomotive'' for quick economic growth. Today, they talk about their success in ''saving'' the industries from bankruptcy.
Only one of the newly nationalized companies made a profit last year. Losses in the sector totaled some $1.2 billion, and to keep the companies afloat, the government has shelled out nearly $2.5 billion.
The government has set 1986 as the break-even point for the industries, but turning this disastrous situation around will be difficult. Losses are expected to rise this year as the economy as a whole stagnates. And the enlarged nationalized sector will have to fight for investment cash from an austerity-minded government and managerial freedom from the centralized Paris bureaucracy.
''The next few years are going to be tough,'' says J. Paul Horne, chief European economist for Smith Barney, Harris & Upham Company. ''To regain competitiveness, these companies are going to have to cut back, lay off workers.'' He asks, ''Will a Socialist government let them?''
For their part, the Socialists insist that the companies would have drowned if they had been left swimming without state aid and control. Though their proud boasts about building the newly nationalized corporations into world leaders through huge state-financed investment programs have been muted, they argue that they are preserving France's industrial structure, finally giving it the needed investment funds to modernize.
''Nationalizing these industries was the brightest move we have made,'' one top adviser to President Francois Mitterrand said recently. ''If we hadn't done anything, France would have no industry left today.''
The last assertion is debatable, but no one denies that French industry was weakening well before the Socialists took over. Despite the dynamism during the 1970s of sectors such as nuclear, aerospace, and telecommunications, French industry overall was borrowing too much to finance expansion. Moreover, wage costs were rising faster than in West Germany, the United States, and Japan.
Straining under a heavy debt burden, corporate investment eventually dropped sharply. So did profits, especially after the 1979 oil shock. In 1981 the industries to be nationalized - largely chemical, textiles, aluminum, and electronics firms - were in a bad way, with losses of some $500 million.
This largely explains why, apart from a few scattered protests about the exact level of compensation, there was little public fuming over the nationalizations. The shareholders were only too glad to be receiving good prices for their poor investments.
In addition, the Socialists were working within a well-known framework for France. As officials like to point out, Louis XIV set up a state glass works in the 17th century because he didn't want to depend on Venice for the windows of his Versailles Palace. They also point to the success of Renault, the automaker nationalized after World War II and has since been a commercial winner.
The idea behind the new nationalizations, the Socialists explained, was to use state funds where private initiative would be insufficient. This was to be achieved through increased investment and rationalization of fragmented sectors.
As best they could, the Socialists have followed this two-pronged strategy. Since the takeovers, investment in the companies has shot up. This year's outlay of some $2.5 billion is more than ten times the sum invested in the companies between 1976 and 1981.
''Before we took over, the company was disinvesting massively,'' said Loic Le Floch-Prigent, head of the chemical giant Rhone-Poulenc. ''We have corrected the situation.''
Meanwhile, certain chaotic sectors have been reorganized. Electronics was concentrated at Thomson. Computers at CII-Honeywell Bull. And so on, for the Socialists reason that in such fields with tough international competition, only one French entrant has a chance to survive.
Even critics of the nationalizations agree that such reorganizations were necessary. ''The industries were going in too many directions,'' says Jean-Marie Chevalier, an economist at Universite de Paris Nord. ''This rationalization will help.''
Still, the problems facing the nationalized industries are immense. Austerity means that the government is looking to back off on its generosity with public funds for investment. About $1.5 billion is earmarked for the state-owned companies next year, but in 1985 and 1986 it is hoped much less will be needed.
''We could use some $800 million of investment money alone,'' Rhone-Poulenc's Le Floch-Prigent said. ''But that would be too beautiful. We'll just have to do the best with what we have.''
In a private corporation, doing the best with what one has would translate into job cuts and factory closings. But in return for their public funds, the newly nationalized companies are being asked to keep employment levels stable, both in their own groups and if possible among suppliers.
''The government is giving the workers a life contract,'' Mr. Chevalier complains. ''It can't do that if it wants the companies to remain competitive.'' Adds Smith Barney's Mr. Horne, ''If the cuts aren't made or disguised somehow, we'll see a similar situation to what happened in Britain.''
The key question, analysts say, is whether these managers will have the necessary freedom from the government to contemplate layoffs and factory closings. Until March of this year government interference was apparently a major problem. The industry minister, Jean-Pierre Chevenement, tried to force the companies to follow his grandiose master plan for using the nationalized industries to make France self-sufficient.
The company bosses became so annoyed with Mr. Chevenement they met with Mitterrand. Shortly after that, Mitterrand told his industry minister to stay out of running the companies.
Mr. Chevenement responded by resigning and was replaced by Laurent Fabius. Mr. Fabius has discarded all the high-flown rhetoric about self-sufficiency, instead emphasizing sound management and independence for the company presidents.