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Sunday, October 14, 2012

La tentation d'ouvrir la boite de Pandore (The temptation to open the Pandora's box)

The recent proposals of Monsieur Arnaud Montebourg, the French minister for productivity recovery (yes, there is such a position in the French government - "redresseement productif", in original, in French), raised some eyes brows.
M.Montebourg addressed a letter to the President of the European Commission, in which it pleads for a change in attitude of the Commission, in order to allow European undertakings to withstand, as M.Montebourg puts it, "unfair competition" from companies in China, India, Korea and elsewhere outside the European Union.  It looks like the letter has been endorsed by the corresponding ministers from Italy, Germany, Spain, Portugal, Luxembourg and Romania -

Mr.Montebourg would like the European Commission to smooth the state aid rules and allow the states to subsidize "new industrial sectors: nanotechnology, smart grids and new materials".   The purpose looks fine and the proposal seems to look ahead, trying to offer a bright future to such new technologies.  
Whilst speaking of "unfair trade", Mr.Montebourg might refer, in fact, to levelling the playing field, a necessary endeavour in the globalised world.

However, Mr.Montebourg seems rather to look back, into the industrial past of Europe. He complains about the ”de-industrialisation of Europe” and wants "protection from our global competitors".  If Mr.Montebourg would have said "we want to outpace our global competitors", I could embrace (cautiously) his ideas for a reform of the state aid legislation.  But from his words, Mr.Montebourg seems to be a nostalgic, rather than a forward-thinking politician.  He seems to invite to protectionism rather than to substantial solutions for boosting the productivity of the EU manufacturing industries. 
For these reasons, at least, such proposals deserve attention and require careful consideration, so they do not become the road paved with good intentions which would drive EU to hell.

In my practice, I met and I heard too many times the expression "unfair competition", referring not to outrageous situations where one or more companies enjoyed better market position due to subsidizes or other state privileges.  In most cases, the persons complaining of the negative effects of an alleged unfair trade were companies which either refused or were unable to adapt their business behaviour, so to withstand more efficient competitors, through cutting costs or more innovation.  From this personal experience, I am reluctant to complaints of unfair trade, phrased in general terms and not referring to specific situations and based on clear evidence of actions counter to the principles of the fair trade.

I agree, however, that absence of state aid restrictions and environmental obligations in countries such as China or India would put EU companies at disadvantage.  Obligations and liabilities imposed through regulation are a cost for business but there is no evidence that this is what makes EU industry less competitive.  Although Mr.Montebourg does not mention the United States as a villain, US companies perform better than their European competitors but this is not necessarily due to the fact that US does not have a system of control of the state aid (agriculture and aircraft industry might be counter-examples to this statement).   

The answer to the challenge put by the mondialisation and the lower standards applied in countries outside EU is not easy and should not be based on solutions such as "let's do what they do".  Relaxing the rules may be a good idea, provided that it is about reducing bureaucracy and that the reform is applied indiscriminately to business undertakings, whether these are from EU or from other jurisdictions.  Lowering the standards in terms of environmental protection, on the other hand, would produce more negative than positive effects.  Raising barriers to companies from outside the European Union may result in retaliatory measures from the home countries of these companies.  Triggering (unnecessary or unwise) commercial wars could prove detrimental to EU business and consumers. 

Starting from this perspective and in the light of proposals such as those put forward by Mr.Montebourg and the other minister, it would be worth opening a discussion on what the European Union should do in order to withstand the fierce competition from the new economies.  The solutions must be based on a sound understanding of the reasons of the weakness of the EU economy and they must look at the long term effects of the policy which should be adopted by the EU member states.
The debate and the proposed solutions may develop around the proposals of the European Commission, presented on 10 October 2012 -  Although these proposals are presented as general objectives, they intend to induce internal changes –”a sound and profound reshape of the industrial base”, not just to raise barriers or relax state aid rules.

The temptation to open the Pandora’s box is strong. 
It should be resisted.