Articles / Rubric: Global

France Opposes Industrialization
September 2013 | Global

The euro crisis, which isn’t letting go of Europe, has forced governments in the European Union to consider whether everything is properly in place for industry. Is Europe able to survive on its own without Asian colonies? The recent collapse of Bangladesh’s largest factory has taught chains to monitor safety in manufacturing. At the same time, the EU government has given out the same prescription found by the Germans: Attract foreign workers, create jobs, and increase wages. Such methods of restoring the economy could be recommended to neighboring France. But as the French love to say, not everything is so simple.

he economic situation in France is much worse than in Germany. Unemployment is hitting records month after month and the biggest problem is the lack of employment among young people. Leading up to the G-8 in early June, Angela Merkel and Francois Hollande held a preliminary meeting in Paris during which the Chancellor advised how France might overcome these difficulties. Parliamentary elections are coming up in Germany and the government is promising to create new jobs, subsidize business, and increase manufacturing. However the Germans have dubbed this nothing more than fairytales from Grandma Merkel.

Professor Shlomo Maital of Technion Israel Institute of Technology and the S. Neaman Institute explains why the once prosperous Europe is in an economic deadlock this year. “America and Europe moved their manufacturing to Asia where the returns on investment were better. The tragedy here was that the private interest was high, but the social interest was low. When the middle class lost its well-paying jobs, it simply disappeared. That is, it’s easy to  move production to Asia, but ten times harder and indeed almost impossible to bring it back. In Europe, industry makes up just 16% of GDP. The European Commission wants to make sure that number grows to 20% by 2020. Even a change that slight will be difficult to achieve.”

In its official publication Enterprise & Industry Magazine, the European Union published an article about the new industrialization. Reaffirming its intentions to increase GDP this decade, the magazine states: “Europe will purposely develop industry, giving Member States the chance to develop themselves. After all, the global market for clean production technologies, currently €380 billion, is expected to more than double, to €765 billion, by 2020. Certain markets, such as automatic waste separation, will grow at an even greater rate.” New industrialization, the article states, will be based on new technologies.

Europe today is the world leader in multiple strategic industries like automotive, aviation, machine building, aerospace, chemical production, and pharmaceuticals. Industry, in fact, still accounts for 80% of exports, and 80% of investments in private sector R&D come from manufacturing. Indeed, France and Germany have famous automotive factories: BMW, Mercedes-Benz, Volkswagen, Peugeot, Renault, and Citron. Also located there are the famous pharmaceutical companies Bayer and Sanofi-Aventis. And don’t forget the French air giant Airbus.

The automotive industries in Germany and France are in completely opposite situations. Whereas Germany is struggling to create new jobs, France is painstakingly making cuts, officially announcing a decline in sales.

As for Germany, WEJ asked the BMW Group some questions. Frank Weinstrott from the Department of Corporate Affairs & Economic and Corporate Relations said that, in the next five years, the company plans to manufacture the most modern cars and motorcycles at the best prices, all while remaining a premium brand. As for the employees, March 2013 figures show that the Group employs 106,470 people, 77,248 of whom work in Germany. In the last year alone, the company grew by 5,210 employees, the majority of whom (3,359) were hired to work in Germany. Most jobs were created in Germany and among those hired were many foreigners who work in manufacturing, development, purchasing, sales, and marketing. Weinstrott says, “Outside of Germany, most of the workforce growth is taking place in the South African Rosslyn factory (977 jobs) and in Spartanburg in the U.S. (358 jobs). We can’t say anything right now about the new recruits in 2013. Our goal is to sign guaranteed, long-term contracts in places where manufacturing is growing.” According to Weinstrott, the production of electric vehicles is growing in Leipzig and the factory there will be hiring people with various specializations.

Vice President and European Commissioner for Industry and Entrepreneurship Antonio Tajani is concerned about the decline in GDP. He is worried about losing European industry altogether. But not all is lost. “European industry can provide growth and employment. In this way, we provide the conditions for the sustainable re-industrialization of Europe, building investments that are needed for creating new technologies. By working together and restoring confidence and entrepreneurship, we can bring industry back to Europe,” said Tajani.

In addition to their own factories, the BMW Group has suppliers that make vehicles and parts for the auto giant. These factories are located around the world and aren’t part of the BMW Group. They are owned by companies that produce cars for the domestic markets. The company doesn’t have information on the number of employees at these factories.

According to Professor Maital, Germany’s economy is supported by the middle class, which purchases and produces goods within their price category. The country’s economic policy is aimed at maintaining this social layer. If the government had not insisted on a reduction in the work week and had not subsidized salaries, the country would have lost a large portion of its skilled workforce. Another big difference between Germany and the other EU countries is its established exports to China.

However, the most recent trade war to unfold between the EU, the WTO, and China has significantly spoiled trade relations between the countries. The best example of this is the story of China undercutting solar panel sales. Siemens had to close its solar panel factories due to a loss of profitability.

Maital says, “China today makes up 40% of global GDP. And Europe? In 2007, the GDP Europe-wide was 21.3% and in 2011 it was 18.6%. ‘The European Commission [says it] will help to reach pre-crisis levels of GDP in the next three years and increase that figure to 23% by 2020.’ These figures are completely misleading. It is crude capital accumulation, 15% of which is depreciation, wear and tear, and replacement. If this is subtracted, you get a net capital accumulation of zero. This is the European Union and it’s the same in the U.S. How can we modernize manufacturing or build factories without funds? Meanwhile China is upgrading their factories and launching a new brand every month.”

French industry today is going through hard times, with cutbacks everywhere. Fault lies with bureaucracy and outdated labor laws. The situation is exacerbated by the Socialist government. By law, layoffs in France are very disadvantageous to businesses. One of my acquaintances was laid off (the factory closed), and for three years, the company pays him monthly. These people are in no hurry to look for work.

According to Professor Maital, “Dell expanded in the 1990s only because IBM laid off more than 150,000 skilled engineers. If IBM and Dell had been in France, IBM would have perished and Dell would never have become a global company.”

In France as in the rest of the world, it is difficult to find goods with the “fabrique en France” label. In the stores, local products cost more than imports. Spain provides cheap vegetables and fruits. Yet their national prides – cheese, perfumes, and chocolate – are all made in-country. It is also hard to find imported medicines, as the market is held by local companies.

As for heavy industry, one of the largest and most important on a global scale is Airbus. The number of employees worldwide is 59,000 of whom 24,000 work in France, in the cities of Toulouse, Nantes, and Saint-Nazaire. The largest manufacturing site is in Toulouse. Manufacturing is spread out over 600 hectares and, in addition to the Airbus employees, there are a total of 80,000 people employed here.

The company is represented by four factories in Germany, in Hamburg, Bremen, Stade, and Buxtehude. As an Airbus representative told WEJ, the company owns numerous plants. In Europe, there are two lines for final assembly, as well as one in China and one in the U.S. Each overseas factory works in its respective domestic market.

In classic French style, they aren’t going anywhere in a hurry. While employment problems are being dealt with by the European government in Brussels and until specific instructions are given to businesses, nothing changes. Unlike BMW, Airbus isn’t planning to make any major changes: “We are a global company and production was long ago established in its own way, based on competencies of each factory in one field of aerospace or another. This allows us to use the best knowledge, resources, and technologies available today. We aren’t planning to change the production scheme.”

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