Government has a role to play in the industrial sector

a conversation with Alain Boublil, former industrial policy advisor to the French President and member of General Electric's International Advisory Board

Energy transition to net zero needs strong government support and guidance. There are historical precedents for state-led industrial retooling, notably in France in the 1980s. I reached out to one of the key actors of industrial policy, Alain Boublil, who worked with President Mitterrand as his industrial advisor from 1981 to 1988, before becoming the chief of staff for the Minister of Finance, Pierre Bérégovoy. Alain Boublil was then deputy CEO of nuclear specialist Framatome (now part of EDF) and subsequently called to be a key member of General Electric’s International Advisory Board by Jack Welch. He has written a number of books and heads up AB2000, a consultancy services company.

Frederic Guarino: you were at the heart of the political and economic conception of the French nationalizations of the 1980s as a vector of development. That is why they were enacted and it was misunderstood, but they were done in large part to compensate for investment capacities that were absent at the time. We are in a period of energy transition and we need governments to accelerate this transition. Based on your experience, can these positive lessons that you explain in your book provide leads for the energy transition?

Alain Boublil: Times have changed so we cannot completely transpose what was done then, but the principles remain. I would like to recall these principles in a few words: in the 1970s François Mitterrand rebuilt the French left by uniting it around the Programme Commun/Common Manifesto. He made an ideological “concession” to the Communist Party by accepting a certain number of nationalizations. At the time, the vision was very clearly political and ideological but what is less known is that, through his own family history and his personal relationships, François Mitterrand was an adept of business, public or private. The day he met the head of a company that would be nationalized were he to be elected president, he asked me to explain why we would need to nationalize it, and therefore I started to work on the topic. 

I suggested going beyond ideological logic and into industrial policy and that suited him perfectly, because it is what was somewhat lacking in socialist thinking. This will lead to my first book “Industrial socialism”, and I became his adviser on all these questions and joined in the negotiations which led to the rupture of the Common Program, precisely on the question of nationalizations. The day after his election in 1981 he appointed me to join his team at the Presidency. 

The basic idea at the time was:  there are a number of industrial companies going through hard times, some without a clear strategy or not adapted to the 1980s. I remind you that we were in the immediate aftermath of the second oil shock and my mission will be, first, to prepare the law to be used for nationalizations, with an extremely pragmatic vision, which François Mitterrand endorsed without hesitation. These nationalizations were then implemented and the companies underwent restructuring, modified their scope of activities and developed themselves, all with the support of government funding. From 1982 on, once the laws were passed and the CEO appointed or confirmed, these companies benefited from significant public funding.

Keynes' money on the supply side

I use the following image: we were going to put Keynes' money, since we operated under a stimulus logic, on the supply side. This can only be successful if it's targeted. The mistakes made by subsequent governments, like the one today, is to practice a supply policy but without targeting it, resulting in unconvincing results. Carrefour's corporate taxes were lowered, as an example, but this was useless for jobs creations and exports and it cost considerable sums. Starting in 1982, we facilitated essential corporate restructuring and the proof of the success of this strategy was given when another government (led by Jacques Chirac) decided to put them back on the market and pocketed considerable capital gains for the public treasury, because these companies had recovered brilliantly. Industry as a whole then regained market share and until 2003 France enjoyed a substantial trade surplus for manufactured products. At the start of the 2000s there was a real turning point, marked by mergers and acquisitions abroad which put a number of large companies in great difficulty, some of which had been nationalized and then privatized.

The most spectacular example remains Alcatel, which was a global electronics and telephone giant which merged with Lucent and this proved to be a disaster: Alcatel has since disappeared as it was bought by Nokia. This is largely linked to the CEO recruiting methodology, who remain “among themselves”. I take a somewhat controversial viewpoint: these CEOs much prefer to play monopoly rather than deal with customers and products, because their professional origin is, most of the time, the “grandes écoles” and ministerial offices and certainly not contacts with basic engineers or with customers. 

Government has a role to play in the industrial field

The recruitment of CEOs is what differentiates the German model and certainly not the cost of labor: German employees, at least until a few years ago, were paid much more than their French industrial counterparts. The lesson remains that the government has a role to play in the industrial field. Will this role be achieved by nationalizing companies ? This can only occur in cases of extreme business difficulty and above all to prevent companies from being taken over by foreign interests or being dismantled. Government must be much more vigilant than it is currently, and we are witnessing a whole series of transfers of French companies to American funds and their survival is absolutely not guaranteed. The French government allows this to happen, even when it sits on the board of directors of these companies. 

The French government also blessed completely absurd mergers and acquisitions, Renault is an eloquent example. France saved Nissan, in return for which Renault was blocked from the three major world markets, namely Japan, China and the United States, which are left to Nissan while Renault invested in Russia and South America. Renault subsequently pursued industrial relocation to bolster its margins, and built factories in Turkey. Germany has never faced this problem. The government has all the means to be a good strategist and to intervene in the development of public policies, by nationalizations or by equity investments. Industrial strategy is needed right now, but the government refuses to undertake any, either because of European constraints where it cannot impose its will, or because it is ideologically opposed to it. There is a sort of intellectual consensus consisting in explaining that governments are incapable of being useful shareholders. However, the 1980-2000 experience demonstrates the contrary and governments knew exactly how to be meaningful and consequential shareholders, but for the last 20 or 15  years no longer is. It is up to the government to reconsider its role. 

A good example is the Chantiers de l’Atlantique, which no one has heard of in the United States, yet it is the world's leading ocean liners manufacturer. There had been talk of selling it or of merging with its main Italian competitor Fincantieri, when Alstom, its shareholder, was in dire straits. This was absurd as when the order pipeline was full, St Nazaire (where the shipyard is located) would have liners to build, but when things went less well, priority would obviously be given to Italian shipyards. Fortunately, the French government held firm and the agreement with Fincantieri did not come to fruition and France is now a shareholder, so de facto the Chantiers de l’Atlantique were nationalized, which is a very good thing. If investors or large groups want to take an interest in this sector again, it’s possible for them to do so. This shows that the idea of ​​nationalization has not completely disappeared but that it is no longer one of the main instruments today. 

Italy generates 60 billion euros in trade surplus

One of the main instruments is to have a financing and investment policy on the part of the State that is targeted and not general, to support our industrial companies. On the other hand, we must reform or at least create a new consensus around the method of recruiting business leaders. In a recent article I explained that it is not only Germany that has succeeded in doing this, but also Italy. God knows if we French say terrible things about Italy but it generates 60 billion in trade surplus, and they do not have nuclear power. Their political leaders and the Italian entrepreneurial class are completely motivated and invested in the success of their companies, which is not the case for the French managerial class.

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Frederic Guarino: The COVID pandemic has shown all governments, even the most supply side-friendly, that public power is necessary to create markets, that's what vaccines showed us. You were at the heart of the nuclear industry with Framatome. What does it take to demystify nuclear power, which is caricatured and misunderstood, even though it is more than necessary to decarbonize?

Alain Boublil: I completely agree with what you have just said! What is missing today is an analysis of why we have come to this, it’s for questions of German domestic policy. Do not believe for a second that the Greenpeace movement is a movement in favor of the environment, it is a movement which from Australia and even today in Poland is there to protect coal mines. These are the origins of Greenpeace and when they denounced nuclear tests in the 1980s, they fully understood that there were civilian applications and that the world's leading exporter of coal is Australia. There are therefore pseudo ecological movements which are, in fact, protectors of the status quo, which we cannot blame them for. I blame governments, France in particular, to have not understood it and not to have said it. There is no worse enemy of the environment than these kinds of environmentalists. This is a first and very strong lesson or message to pass on. The second message is that this has been imported into France and the political class, in order to garner a few percent of environmentalists' votes, has tried to do the same thing as in Germany where the Eastern Länder are very difficult for the CDU or the SPD to conquer electorally.

to demystify nuclear power: demystify Fukushima. It is not a nuclear disaster

We should have reacted strongly by explaining that given the climate constraints which are indisputable and our strategic choices, nuclear power is essential. The first thing to do is to demystify environmentalists and their relationship with nuclear power. Once we tell them, this is your story and what you want to do and why we don't agree, we will have made progress. 

The second step of this message is to make it understood that if Merkel closed her nuclear power plants, supposedly after Fukushima, it was to gain the support of the Greens in Germany, but it was also to protect her coal mines. Just look at the German electricity mix: the closure of nuclear power plants inevitably results in an increase in the production of electricity based on fossil fuels and mainly coal. 

This political message, this analysis has not been done. The third source to demystify nuclear power: Fukushima. It is not a nuclear disaster. It was a terrible tsunami that drowned a region and caused 12,000 deaths. Why did it become a nuclear accident? Because the managers of Tepco, the company that operated the plant, for bottom line motivations, did not double the electrical cooling. There was only one layer, located at the water's edge. It is a huge mistake that they have acknowledged. The plant was therefore unable to react as it was designed. As long as we associate Fukushima with a nuclear disaster we will not succeed in convincing the French that nuclear power is absolutely essential. This is strategic communications and it is up to politicians to do it. Then there is no more absurd decision than the closure of Fessenheim (an Eastern France nuclear plant). What must be explained, to once again demystify, is that the older a plant, the safer it is.

It is the new plants that pose a problem: the Three Mile Island plant was poorly designed but it was not in operation and there were no fatalities, it was an accident. The same is true for the RBMK reactor at Chernobyl, it is an accident linked to management errors in the operation of the plant. 

the EPR reactor, when there is human error, stops operations automatically

Third point, to rehabilitate the EPR ​​(Evolutionary Power Reactor): following Chernobyl, France and Germany agreed to design a reactor which, even in case of an error, stops automatically. This is what we called passive safety and I was precisely at Framatome at the time. It was decided in 1989-90 to design a reactor where, in case of human management errors, the machine comes to an automatic stop. This led to the EPR, which was certified. The gigantic mistake made by subsequent French governments was to not order a reactor. Prime Minister Lionel Jospin (in power from 1997 to 2002)  had, and rightly so, already stopped the Creys Malville reactors (controversial experimental reactors), which were not yielding good results. He gave environmentalists a form of satisfaction, but at the same time he should have ordered EPRs so it would have been balanced. There would not have been a period of more than ten years during which the French utilities did not order anything, no industry can resist that amount of lag. 

15 years passed between the last N4 reactor order in 92-93 and the reactor order in 2006-07, no industry can resist that. The difficulties that the EPR encounters today are not related to its design, much less to the principles which were at the origin of its creation, they stem from the error made by not having the experience of managing a single plant for fifteen years.

I give you as a counterexample Taishan (an EPR reactor located in Southern China), whom I was invited to visit. Taishan was built in nine years and is running normally. The Chinese and French engineers from EDF (Electricité de France - France’s state-owned utility) working there explained their working methods and why they had succeeded: on the one hand because they had not lost their skills and because they devised a way to work together. 

All this is factually indisputable, so it is not very difficult to explain to the French that mistakes were made, and that we were wrong, but that it is now easy to correct them.

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