Dr.

Ben Clift, University of Warwick

French Economic Patriotism: Legislative, Regulatory, & Discursive Dimensions

Dr Ben Clift (B.M.Clift@Warwick.ac.uk) Senior Lecturer in Political Economy, Department of Politics and International Studies, University of Warwick, Coventry CV4 7AL, UK Paper prepared for the PSA Annual Conference, Manchester, April 7-9th 2009

Work in Progress: Please do not quote or cite without permission Abstract This paper focuses on the phenomenon of economic patriotism understood not in the narrow or exclusively French sense (i.e. ‘what Nicolas Sarkozy says and does’). Rather, French policy developments are analyzed as one (crude) iteration of a wider genus of political economic activity in contemporary Europe which seeks to advance the perceived economic self-interest of particular groups and actors (firms, workforces, or sectors) defined according to their territorial status. Economic Patriotism can be seen as the latest iteration of a much longer established set of practices and approaches to economic policy (neo-mercantilism, economic nationalism, protectionism). This paper explores economic patriotism in France in recent years primarily in relation to corporate governance and takeovers, noting a combination of neo-liberal and protectionist elements within French Economic patriotism. The novelty of modern economic patriotism is its operation within a multileveled governance of political economic and corporate activity, which spans the regional level (European regulation) and the global level (the World Trade Organisation). This renders elements of traditional economic nationalist political economy and industrial policy unfeasible. Supranational rules constrain or prevent policy mechanisms such as tariffs, public procurement, subsidies, and favoured market access. Economic patriotism must therefore operate within certain limits of supranational and global regulation.

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Introduction: French Economic Patriotism This paper explores the legislative, regulatory and discursive dimensions of French economic patriotism. Economic patriotism is conceived here not as a sui generis French phenomenon, but a broader trend within contemporary advanced economies. The French government’s coining of the term in mid-20051 is not, in one sense, the point. The notion is interesting because it is closely related to, albeit slightly distinct from, a much longer established set of practices and approaches to economic policy such as neo-mercantilism, economic nationalism, and protectionism. These are revealing of enduring and intriguing contradictions within state/market interactions in the context of internationalised liberal market capitalism, and thus of broader political economic significance. The phenomenon of economic patriotism is understood here not in the narrow or exclusively French sense (i.e. ‘what Nicolas Sarkozy says and does’). Rather, French policy developments will be analyzed as an iteration of a wider genus of political economic activity in contemporary Europe which seeks, by a number of means, to advance the perceived economic self-interest of particular groups and actors (firms, workforces, or sectors) defined according to their territorial status. The first section will define the concept and briefly trace its origins to what Colin Crouch has called paradox of globalised neo-liberal democracy, namely how governments pursue the political economic interests of their citizenry (in order to get re-elected) under conditions of complex economic interdependence, given the ‘institutionally incomplete’ nature of national economic governance regimes. The second section will set out how forms of economic patriotism are partly shaped by national institutional and social configurations, with particular reference to state traditions and traditions of political economic thought. This will be illustrated with reference to how corporate governance and company Law in United Kingdom, France and Germany is shaped by particular political traditions which one might call neoliberal, dirigiste, and ordo-liberal respectively. The third section explores briefly the relation between the discourse and practice of economic patriotism, highlighting how the political discourse of economic patriotism generates shared understandings which can legitimate particular forms of economic interventionism. The remainder of the paper explores the particularities of French economic patriotism with particular emphasis on corporate governance and takeovers. The central argument of the paper is that the paradox of neo-liberal democracy generated by the liberal international markets, overlapping economic governance regimes, and nationally delimited political mandates presents new problems of economic and corporate governance for French policy elites. In response, new forms of political intervention in economic and corporate activity are prevalent in France (and elsewhere). Through these new modes of intervention, economic patriotism is inscribed within contemporary processes of market-making, and the re-regulatory activity framing European markets. These modes of intervention combine neo-liberal

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Dominique de Villepin argued against a possible hostile take-over of the French company Danone by PepsiCo on 27 July 2005. The concept was present in Bernard Carayon, Patriotisme économique : de la guerre à la paix économique (Monaco: Editions du Rocher, 2006). The notion had previously been employed in France but became central to national and international debates in the aftermath of de Villepin’s speech. See Christophe Jakubyszyn, “Dominique de Villepin en appelle au " patriotisme économique," Le Monde, 29 July 2005.

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and protectionist elements but are geared towards advancing the economic interests of particular territorially defined groups – at times French, at times European. Defining Economic Patriotism2 The paper forms part of a wider project3 which explores what the politics of economic patriotism tell us about the persistent tensions between neo-liberal market integration and national economic policies. Consistent with that wider project, this paper defines economic patriotism as ‘economic choices which seeks to discriminate in favour of particular social groups, firms, or sectors understood by the decision-makers as ‘insiders’ because of their territorial status’ (Clift & Woll 2009: 15). Economic patriotism implies that the interests of the homeland should weigh more heavily than individual interests in the economic choices of consumers, producers, workers or politicians. The asymmetric targeting within economic policy choices can be either implicit or explicit. While economic patriotism, in its original French usage, referred to noisy political initiatives aimed to sway public opinion, it can also happen without extensive political communication. In both cases, it is nonetheless possible to clearly identify the targeted benefactors of the policy (and conversely, those disadvantaged). The concept of economic patriotism draws on neo-mercantilist political economic thought. One economic policy response to increased international competition, including from new players in the global political economy, builds on a longestablished tradition of neo-mercantilism, drawing on the economic nationalist theories of political economy advanced by Friedrich List (see List 1856; Crane 1998; Levi-Faur 1997). Helleiner (2002) underlines the potentially diverse policy content of a neo-mercantilist strategy, which is in no way limited to protectionism and/or strategic economic interventionism to promote industry. Like the broader project, this paper explores how economic patriotism is inscribed within contemporary processes of market-making, or the re-regulatory activity framing markets in contemporary Europe. This expands the focus beyond traditional industrial policy to incorporate a broader range of legislative, regulatory, discursive and other interventions to shape markets and their outcomes. Economic patriotism contains policies that are generally referred to as neo-mercantilism, but is not restricted to them. ‘Economic nationalism’ can, under certain circumstances, refer to liberal economic policies and institutions, hence Helleiner’s (2002: 308) notion of ‘liberal economic nationalism’. Similarly, economic patriotism can co-exist with (and indeed be actively pursued within) a broadly neo-liberal single European market. There may be a 21 st century ‘liberal economic patriotism’ analogous to the 19 th century British economic nationalism rooted in the liberal institutions of the gold standard and free trade (Helleiner 2002: 320-22). Put differently, we are agnostic about the nature of policy instruments or regimes chosen and are concerned primarily with the political objectives and outcomes.

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This section draws on earlier papers co-authored with Cornelia Woll in the context of the Warwick/Sciences Po Paris ‘Economic Patriotism: The Limits of the Liberal Market’ Project which we co-organise. 3 The Warwick/Sciences Po Paris Collaborative Political Economy Project entitled ‘Economic Patriotism: The Limits of the Liberal Market’, directed by Ben Clift & Cornelia Woll

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Economic patriotism and neo-liberalism are not necessarily incommensurable or necessarily incompatible. Neo-liberal economic policies can be designed in favour of selective industries. As such, they can be part of economic patriotic regimes. To give an example, the French ‘competitive disinflation’ strategy pursued vigorously by left and right alike from the mid-1980s, which was the fulcrum of macroeconomic policy after 1983, was neo-mercantilism par excellence, but also unambiguously neo-liberal. Competition disinflation engendered a paradigm shift of priorities in macroeconomic policy, relegating full employment to a distant future aspiration, and promoting tackling inflation to priority number one. Its rationale was to achieve lower inflation in France than in Germany, and hence (given pegged exchange rates) improve French competitiveness vis-à-vis its European trading partners (see Lordon 1998; Blanchard & Muet 1993). Some scholars interpreted German macroeconomic policy in the mid 2000s as another phase of competitive disinflation (OFCE 2006). Similarly, the ‘Social VAT’ reforms recently undertaken in Germany, and under serious consideration by Sarkozy, is both a neo-liberal tax shifting strategy, and an neomercantilist economic strategy (reducing production costs, and hence the price of goods on international markets). These are examples of neo-liberal economic patriotism - neo-mercantilist in intent, yet liberal in character. Thus, the two are not mutually exclusive. Liberalisation and Europeanisation do not render neomercantilism ‘irrelevant’, but change its context, entailing a shift in the balance between dirigisme and liberalism in the pursuit of national economic interest. The concept of economic patriotism, as defined and deployed within the broader project, identifies particular and distinctive drivers behind these policy impulses (be they protectionist or liberal), namely the clash between political and economic boundaries (see Clift & Woll 2009). Economic patriotism hinges on the profound, if not necessarily self-evident, contradictions between internationalising liberal market integration and spatially limited political mandates. There is an inherent tension between liberal integrated international markets and the pursuit of national interests. Given the overlapping network of economic regimes, politicians have to face the “paradox of neo-liberal democracy” 4: pursuing the political economic interests of their citizenry (in order to get re-elected) under conditions of complex economic interdependence where their effective control is significantly circumscribed by conditions of complex economic, legal and regulatory interdependence. Large parts of economic governance are no longer within their control, and some of the most immediate beneficiaries of liberalization might be foreigners. As long as politics divides in national or regional units, economic governance of globalising markets will display a fundamental contradiction between economic and political boundaries and obligations. We prefer changing the label (from economic nationalism, or neo-mercantilism) in order to highlight these distinctive sources of economic patriotic intervention. Economic patriotism is a prism to investigate how actors negotiate compromises between abstract notions of economic prosperity and territorially bound political obligations, and how these negotiations contain and drive the reconfiguration of economic and political space. Indeed, unlike economic nationalism, economic patriotism is agnostic about the precise shape or nature of the unit claimed as patrie.
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I owe this expression to Colin Crouch and would like to thank him for a very helpful discussion of these points.

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Economic nationalism is too restrictive, because it focuses exclusively on the nationstate. This excludes local patriotism, such as the defence of regional autonomy through an agreement on labels of protected origins in the World Trade Organization, and supranational patriotism, which is exemplified by the “fortress Europe” debate.5 Studying economic patriotism therefore allows examining the multiple ways by which political and economic actors seek to resolve the above political tensions, and articulate economic policy objectives with territorial boundaries. Thus economic patriotism can imply a transfer of economic objectives from the national to the regional level, such as the European Union (EU). This can lead to liberalisation within the EU for the sake of protection towards the outside, as for example in agriculture. In the European context, economic patriotic interventionism can also be transferred to the European level and turn into pan-European patriotism, possibly entailing economic restructuring of large European firms. French exclamations of economic patriotism, for example, tend to cite the need for French and European champions in the same phrase. The Grignon Report (2004) recommended ‘European neo-Colbertism’,6 re-articulating French dirigiste industrial policy at the European level to meet the challenges of deindustrialisation and delocalisation. European-wide investment in research and development focused on strategic sectors would herald the emergence and consolidation of these ‘European champions’. Institutionally Incomplete National Governance, the EU & Economic Patriotism Present day economic patriotism is thus a response to the reconfiguration of economic governance and the interdependence of markets that could only fully develop as a consequence of increasing economic liberalization in the wake of the breakdown of Bretton Woods, the re-energising of European integration in the 1980s (see Clift & Woll 2009). The integration of markets and the concurrent weaving together of regulatory frameworks put pressure on national economic intervention to comply with international trade agreements or European competition policy. With old-style industrial policy and heavy-handed state intervention increasingly proscribed, governments had to become creative to assure traditional economic policy objectives with new means. The multiple policy instruments in support of national or regional economic actors are today more fragmented and less coherent, but no less prevalent. The novelty of modern day economic patriotism, particularly in a European context, has its roots in the interactions of overlapping economic jurisdictions, and their mismatch with political constituencies. This is integral to contemporary capitalism, and the market-making and regulatory activity which inscribes it into the global
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See for example Stephen George ‘The European Union, 1992 and the Fear of ‘Fortress Europe’ in Andrew Gamble and Tony Payne (eds.) Regionalism and World Order, (Basingstoke, Macmillan, 1996), pp. 21-54, Alan W. Cafruny and Magnus Ryner, ed., A Ruined Fortress? Neoliberal Hegemony and Transformation in Europe (Lanham, M.D.: Rowman & Littlefield, 2003), Olivier Costa, Jacques de Maillard and Andy Smith, Vin et politique : Bordeaux, la France, la mondialisation (Paris: Presses de Sciences Po, 2007). 6 Traditions of state direction of, and intervention in, economic activity in France have a long heritage, traceable at least as far back as Jean-Baptiste Colbert, minister under Louis XIV between 1661 and 1683. Colbert’s bent for state interventionism in economic affairs reached a zenith when, in 1666, he issued a règlement to the effect that the fabrics of Dijon and Selangey were to contain 1,408 threads (no more, no less), and those of Auxerre and Avalon 1, 376 (Heilbroner 1992: 24)

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political economy. In Europe, in many instances, the compartmentalisation of ‘national’ and ‘EU’ levels does not make sense in political economic practice. Comparative capitalism and corporate governance scholars have noted, for example, how national corporate governance regimes are today ‘institutionally incomplete’ because ‘national institutions are becoming overlain by a growing set of European and international institutions’ (Deeg & Jackson 2007: 155). A multi-levelled governance of political economic and corporate activity prevails, which spans the regional level (such as European regulation) and the global level (such as the World Trade Organisation). Economic patriotism must therefore operate within certain limits of supranational and global regulation. This ‘institutionally incomplete’ nature of national economic governance regimes exacerbates Colin Crouch’s ‘paradox of globalised neo-liberal democracy’. In policy domains such as industrial policy or corporate governance, national differences impede a European response. Supranational rules constrain or prevent policy mechanisms such as tariffs, public procurement, and favoured market access. Elements of traditional economic nationalist political economy and industrial policy have been rendered unfeasible. European competition policy has often interfered decisively to proscribe subsidies and other forms of industrial policy. Such EC activism repeatedly draws heavy criticism from national political elites and economic actors. Thus, in some instances, national traditions of economic intervention (discussed below) are in stark contrast to the policy solutions implied by EU-level integration. This helps explain why boundary issues between EC economic governance competencies and national ‘ownership’ of economic patriotic policies or areas of regulation are increasingly politically charged (as frosty EC responses to recent national fiscal stimulus and bank and automobile industry bail-out initiatives in the wake of the current financial crisis have demonstrated). The framing of such European economic patriotism can incorporate notions such as ‘developmental state Europe’ (Gamble 2006), as well as the EU ‘shield against globalisation’ (Hoeffler 2008). The ‘Lisbon Agenda’ to transform the European Economy into ‘the most dynamic and competitive knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion … by 2010’ is another, more liberal variant of this European patriotic economic discourse. Problems arise with the disjuncture between the terms in which, for example, French policy elites are thinking, namely ‘developmental state Europe’ (Gamble 2006), and the actual trajectory of European economic integration, and its governance. So far, EU-level activism has been more liberal in character than French policy elites would wish, although perhaps not a neo-liberal as the standard caricature suggests (Jabko 2005). In part as a result of this dissonance, ambitions for developmental state type actions find expression at the national level through economic patriotic discourse and deeds (see below). A focus on economic patriotism facilitates analysis of the extent to which we are witnessing a shift within the ideational processes by which ‘the European economy’ is constructed as a social and political space. Are the liberal market-oriented elements enshrined in the Single European Market being re-balanced by more regulated, co-ordinated capitalism elements in the wake of the economic difficulties of 2008-9?

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Economic Patriotism and National Traditions of Legislative and Regulatory Intervention National institutional and social configurations, which one might call neo-liberal, dirigiste, and ordo-liberal in United Kingdom, France and Germany respectively, are likely to shape the discourse and policy choices of economic patriotism. This is because, as Matthew Watson notes, economic policy ‘reflects the body of law already in operation nationally’ and ‘the reproduction in law of different national approaches to the task of market-making’.7 The importance of intellectual traditions in shaping forms of economic patriotic interventionism can be illustrated by examining how economic policy relates to the legal context within which it is pursued. Indeed, economic laws reveal the footprints of these different traditions of economic thought. For example, in the case of corporate governance and company law, which crucially the operation of capitalism in any given setting, distinct traditions explain stark differences in company law in Britain, France and Germany. In Britain, the liberal traditional was extremely influential on both side of industry, leading to a laissez faire approach to the company. The Manchester School of liberal economic thought drew on, and perhaps distorted, Lockean norms of property rights, to arrive at a contractualist logic, and an absolutist conception of corporate property rights. In this conception the function of company law was to protect property rights, and no quid pro quo or social obligation could be expected in return for the enormous privileges of the licence to operate, and limited liability.8 As Gamble and Kelly put it, although the huge legal privilege of limited liability had been granted, the exponents of laissez-faire were very unwilling that anything substantial should be conceded in return for it, in the shape of accountability, disclosure provisions or particular governance structures to ensure that companies acted in accordance with the public interest. Having given companies a basic framework, the laissez faire proponents argued, the State needed to leave them to manage their own affairs, having no desire or business to force on ‘these little republics’ any particular constitution.9 The subsequent evolution of English company law demonstrates that laissezfaire principles proved to have greater influence in shaping the constitution of the company. In relation to accountability, disclosure, or internal organisation or constitution of the firm, no requirements were stipulated. The interests of small investors or the working class were not reflected in the limited liability legal settlement which was legislated in Britain in the middle of the 19th Century. In contrast to the British case, where the company is seen as primarily a private association, in France and Germany there was more of a notion of limited companies being public bodies. As such, they could be called upon to fulfil functions
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This discussion draws on the paper ‘Economic Patriotism and National Traditions of Economic Thought’, presented by Matthew Watson at the economic patriotism workshop at the University of Warwick, February 2008. 8 Bishop Carleton Hunt, The Development of the Business Corporation in England, 1800-1867 (Cambridge, MA: Harvard University Press, 1936), Leonard James Tivey, The Politics of the Firm (New York: St. Martin's Press, 1978), Leslie Hannah, The Rise of the Corporate Economy (London: Methuen, 1983). 9 Andrew Gamble and Gavin Kelly, "Three Politics of the Company’," in J. E. Parkinson, Gavin Kelly and Andrew Gamble, ed., The Political Economy of the Company (Oxford Hart, 2000).pp. 33-4 Quoting Hunt, p. 135

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other than profit-making, which Martin Höpner studies as a form of “crosssubsidizing.”10 The market-making legal fabric of these political economies reflects different traditions of economic thought. In France, the notion of social interest of the firm, l’intérêt social, has always been pervasive. As the Viénot report on French corporate governance notes, this intérêt social simply does not exist in Anglo-Saxon law, yet it plays a key role in French company law; In Anglo-Saxon countries the emphasis is for the most part placed on the objective of maximising share values, whilst on the European continent and France in particular the emphasis is placed more on the human assets and resources of the company 11 The report defines the social interest of the company as, the greater interest of the body itself … the company considered as an autonomous economic agent pursuing its own ends, distinct notably from those of its shareholders, employees, creditors (including tax authorities), suppliers and customers, but which correspond to their common general interest, which is to ensure the prosperity of the company12 As if to demonstrate how far removed from the English company law paradigm the intérêt social can be, Alcouffe notes that it is partially derived from the encyclicals of the Catholic Church, rooted in the ideas of Thomas Aquinas. Regarding the aim of the company, these stipulate that it is not merely the acquisition of profit but is the very existence of the company as a community of people who in their different ways search to satisfy their fundamental needs and who constitute a group peculiar to the service of the community as a whole.13 In Germany, a constitutional approach to economic lawmaking used public authority to delineate the rights and obligations of private actors within firms, and thus “German lawmakers constitutionalized shareholder representation through public authority”.14 Company law has, since the 1870s, required two-tier board arrangements, with a managing and a supervisory board drawn from all sides of the company, and extensive worker representation and consultation. This constitutionalist approach inscribed the protection of the public interest, and the corporatist ethos establishing the rights and obligations of all social partners, into the very make-up and institutional and governance structure of the company. This has given rise to what Jackson terms Germany’s “non-liberal” corporate governance, which spans market regulation, financial regulation and company law.15

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Martin Höpner, "Determinanten der Quersubventionierung. Ein Vorschlag zur Analyse wirtschaftlicher Liberalisierung," Berliner Journal für Soziologie, Vol. 16, No. 1 (2006), pp. 7-23. 11 M. Viénot, "Rapport sur le conseil d’administration des sociétés cotées," Revue de Droit des Affaires Internationales, Vol. 8, (1995), pp. 933-45.. at p. 935. 12 Ibid. 13 Quoted in C. Alcouffe, "Judges and CEOs: French Aspects of Corporate Governance," European Journal of Law and Economics, Vol. 9, No. 2 (2000), pp. 134-5. 14 Gregory Jackson, "The Origins of Nonliberal Corporate Governance in Germany and Japan," p. 121170 in Wolfgang Streeck and Kozo Yamamura, ed., The Origins of Nonliberal Capitalism: Germany and Japan (Ithaca: Cornell University Press, 2001)., p. 132. 15 Ibid.in ed.

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Thus, in part, the form that the particular French brand of the broader phenomenon on economic patriotism takes is shaped and influenced, though not determined, by French state traditions of economic interventionism. Discourse and Practice in Economic Patriotism In analysing the discursive dimensions of economic patriotism, this paper aligns with recent social constructivist scholarship in international and comparative political economy, and shares with it a recognition of the independent, causal and constitutive role of ideas, of the ideational, in shaping political economic outcomes and practices (Hall 1993; Ruggie 1998; Blyth 1997, 2002; Rosamond 2002; Hay 2004; Sinclair 2005; Abdelal, Blyth & Parsons forthcoming; Woll 2008). As one leading constructivist summarises the approach, ‘the building blocks of international reality are ideational as well as material’ (Ruggie 1998: 33). Economic or political actors’ preferences are not purely materially determined. Rather, they are shaped by the interplay of material and ideational factors, because ‘the ways in which actors make sense of their self-interest result from interactions with their social surroundings’ (Woll 2008: 10). Thus economic rationality is socially constructed (Woll 2008: 3-5, 7-12). The deployment of the discourse of economic patriotism is part of a process wherein ‘economic ideas provide agents with an interpretive framework, which describes and accounts for the workings of the economy by defining its constitutive elements and “proper” (and therefore “improper”) interrelations.’ (Blyth 2002: 11). Thus the political discourse of economic patriotism generates shared understandings which can legitimate particular forms of economic interventionism. After thirty years of the resurgence of neo-liberal economic ideas, and the ensuing liberalisation and deregulation on both national and global levels, the shift in balance between state and market in favour of the latter has been sedimented into a dominant market-oriented political economic orthodoxy, or a constructed ‘neo-liberal reason’ (Peck 2008). Nevertheless, political influence over the economy endures. Indeed, economic patriotism entails understandings about the liberal market economy which are deployed strategically by political actors seeking to create a sense of economic imperatives that accompanied a particular conception of political economic space (Hay & Rosamond 2002; Rosamond 2002). Thus economic patriotic discourse must be understood as part of a set of ideational processes by which ‘the market economy’ is constructed (and reconstructed) as a social and political space. It is at least possible that it is part of a process of challenging prevailing understandings of acceptable economic interventionism. Therefore, if we want to understand economic patriotism, we need to both distinguish between patriotic political discourse to actual political intervention structured around territorial objectives, and explore the inter-connections that link the two. In exploring the relation between political rhetoric with actual intentions or political intervention, this paper interrogates the extent to which economic patriotic discourse amounts to something more than ‘cheap talk’ about national intentions in the era of globalisation. Are economic patriotic ideas becoming (albeit weakly) sedimented into commonsense understandings of the economy. French Economic Patriotism: Legislative, Regulatory, & Discursive Dimensions The remainder of this paper will explore French economic patriotism with particular emphasis on corporate governance and takeovers. In this area there is a long-standing © Ben Clift, 2009 9

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tendency for French policy elites to attempt to keep a controlling proportion of the capital of French major firms in the hands of national investors. It is worth recalling that, although economic patriotism focuses on intentional actions of policy elites, part of the reasons for outcomes in the realms of French corporate governance and takeovers consistent with economic patriotic preferences is not intentional policy engineering, but a by-product of the historical development of French capitalism. Thus a set of prior conditions (legacies) in firm organisation, and patterns of financing provide a conducive environment in which to protect France’s industrial patrimony. These include concentrated ownership and the prevalence of dominant shareholder, blockholding practices, double voting rights, voting ceilings and shareholder pacts. Concentrated ownership remains the prevalent in French capitalism, in contrast to the dispersed ownership patterns in the UK and US (O’Sullivan 2003). Of France’s 20 largest companies, 8 still have a controlling shareholder. Three are subject to ‘pyramid control … an ownership structure in which the controlling shareholder exercises control of one company through ownership of at least one other listed company’ (Enriques & Volpin 2007: 117). Family ownership remains a prevalent phenomenon within French capitalism (Philippon 2007: 14, 51-70; Tibi 2004), and is another variant of concentrated ownership. Furthermore, France has lacked a culture which invested in financial savings instruments such pension funds or mutual funds. Companies have not traditionally looked to financial markets for investment. Thus, from the ‘supply’ and ‘demand’ sides, financial markets as a source of capital for enterprises remained underdeveloped. The historic reliance on institutionally allocated credit (orchestrated through the state) rationed industrial investment. This led the French economy to be caricatured as ‘capitalism without capital’ (Stoffaes, 1989: 122). Such a configuration helps explain why there are a number of very large French corporations, and many smaller firms, but a comparative lack of medium-sized firms. Non-recourse to financial markets probably hindered the growth of French firms. This industrial profile also has an impact on the takeover markets, reducing the number of targets for anyone but the richest bidders. All of these insert a significant degree of ‘viscosity’ within a putative French market for corporate control. Yet this sand in the wheels of such corporate dealing is not related to strategic design by French ‘economic patriotic’ state managers, or featherbedding management, or dominant shareholders (see Clift 2008a, 2009). Discursive French policy elites have been talking up the limits of the possible in terms of economic intervention for a long time. (Chirac –social fracture, Jospin, ). Europe is presented in such discursive interventions as primarily the site and means of French ‘response’ to globalisation – which is not something to be submitted to fatalistically, but to be mediated, contested, framed, and directed. Thus heroic declarations proclaiming the political direction of economic activity are a familiar part of the French political terrain. Such discourse is not always followed by action. When French president Nicolas Sarkozy urged French automakers to locate their plants at home rather than the Czech Republic in February 2009 (see below), © Ben Clift, 2009 10

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many suspected that he counted on European officials to make his suggestions inconsequential by pointing to EU obligations. Even in cases where discourse is not followed up by action, the discursive deployment of economic patriotism is potentially more than simply a disingenuous instrument of political campaigning. It is part of a process of discursive reconstruction of the limits of the possible in terms of political intervention in economic activity. The idea of ‘Developmental State Europe’ (Gamble 2006: 43), remains central to this in France, with EU institutions and policies pursing industrial protection, industrial innovation, and the enhancing of European industrial capacity. Sarkozy has talked of ‘a Europe which protects’, required in order to avoid protectionism. Only Europe, he claimed, is capable of managing the powerful market, and transforming globalisation from within (Sarkozy 2006). In his presidential programme, Sarkozy affirmed ‘Europe must protect within globalisation’, and he added flesh on these bones promising to rehabilitate the notion of community preferenceto protect European products, markets and firms in WTO trade negotiations ‘le droit pour l’Europe, lorsque c’est son intérêt, notamment à l’OMC, de préférer et donc de protéger ses produits, ses entreprises, ses marchés.’ (Sarkozy, 2007). Europe, too was designated as a site for resistance to delocalisation. As the unsuccessful French government attempts to block the Arcelor-Mittal takeover in 2006 demonstrated, such talk is not always backed up by deeds. Yet talk of economic patriotism in relation to protecting the industrial patrimony in France is not necessarily cheap. The French State’s public discourse on hostile takeovers also plays a role, but not that often attributed to it. With a few specific exceptions, the French state lacks the policy mechanisms to back up its rhetorical hostility to takeover. Nevertheless, its vociferous critique can act as a dissuasive measure. The perception of the interventionist French state which ‘economic patriotic’ discourse reinforces does not entirely marry with the reality (as in the case of Arcelor), but it may suffice to ward of less determined and less well-informed foreign bidders (as in the case of Pepsico & Danone in 2005). There clearly is a gap between the rhetoric and the reality of economic patriotism. Nevertheless, such constant reaffirmation of the legitimacy of such political intervention in the economy to advance the interests of territorial insiders (be they French or European) is part of a process of the reconstruction of economic realities. It has consequences in terms of changing what is politically imaginable in terms of actual policy, and serves in this way to expand the room to manoeuvre and the limits of the possible within the supranational regulatory constraints noted earlier. This connection of the discursive to the real policy outcomes is illustrated in the following sections on the legislative and discursive dimensions of French economic patriotism. Legislative There have been significant instances of intentional economic patriotic legislative intervention in recent years. A desire to carve out scope for volontariste interventionism in relation to ‘strategic’ sectors has long been prevalent in France, and various laws have sought to carve out scope to act in relation to ‘protected’, or ‘strategic’ sectors Laws in 1996 and 200316 specified that French state approval is required for takeover or investment in ‘strategic sectors’ such as national defence,
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96/109) and Decree in 2003 7 March accompanying ordinance

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public health or public order, including casinos. High profile examples of interventionism include Aventis, and Alstom. This theme was revisited between September and December 2005 when the De Villepin government introduced further legislation giving itself the right to intervene in any takeovers in strategic sectors.17 The revision to French monetary code required governmental authority for takeovers in 11 ‘sensitive’ sectors (see Menucq 2006: 230). The EC took issue with the French government over these sensitive sector protections,18 on grounds of impeding the free movement of capital. In particular, the EC objected to the interpretation of casinos as strategic sectors given the fight against money laundering. Attempts by the hotel chain Accor to gain protection were not welcomed by Brussels, but the sensitive sectors law still prevails in other areas. Thus, for all the derision about ‘strategic yoghurt policy’, this is a significant feature of French industrial policy, and economic patriotic interventionism. The Breton Law of July 2005 created an obstacle to certain hostile takeovers in requiring a bidder for a target ‘parent company’ to also bid for overseas subsidiaries (in which the target holds more than a one-third stake). This was in effect designed to render a takeover of Renault much more difficult, since a bidder would also be required to bid for Nissan (whose stock market capitalisation is twice that of Renault) at the same time. This kind of targeted, specific protection remains a feature of French takeover regulation. One of the more interesting economic patriotic legislative interventions came as a result of EU market-correcting regulatory ambitions for the market for corporate control. These have been largely ineffectual, with a failed directive in 2001, then a watered down directive passed in 2004 which involved rules not so much being circumvented, as not being brought into being. Paradoxically, the most significant shift away from an open, liberal takeover regime in France was introduced as a direct result of the supposedly liberal-oriented 2004 EU Takeover directive. Its transposition into French law in March 2006 included policy transfer of U.S. poison pills,19 the ‘bons Breton’ increasing the range of defensive measures open to target boards (once shareholder approval has been secured). This ironically expanded the range of antitakeover defences available to target boards (Clift 2009). The current financial crisis and global economic downturn has provoked a further spate of economic patriotism and economic interventionism. The focus in this instace is less on takeover, and more on the threat of delocalisation. This was recently illustrated with Sarkozy’s February 2009 plan de relance rescue package for the French economy in general and the car industry in particular (in the face of delocalisation by Peugeot of French car production to Czech factories). Sarkozy’s ‘car pact’ involves, at its heart, a 6.5 bn euro commitment to help car producers Renault
17 18

Decree 2005/1739 European commission IP/06/438, ‘Free movement of capital: Commission scrutinises French law establishing authorisation procedure for foreign investments in certain sectors’. 4/04/2006
19

Defence mechanisms in company statutes allowing target boards to attempt to derail bids. The classic poison pill involves ‘rights or warrants issued to shareholders that are worthless unless triggered by a hostile acquisition attempt. (Monks & Minow 2004: 236).

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and PSA Peugeot-Citroën (with innovation and clean technology R&D) in return for commitments on ‘doing everything possible to avoid redundancies’ and not closing plants whilst in receipt of the state loans. Sarkozy’s pact also entails a doubling (to 2bn euros) of financial support for the car manufacturers, doubling financial support for sub-contractors to 600m euros. Plans to help French car industry equipment suppliers rise to the competitive challenge of low cost producers and become European or global champions underpin the investment fund, jointly financed by the French State, Renault and PSA. The pact also removed the ‘professional tax’ on productive equipment. This built on earlier measure taken in December 2008 to offer refinancing to PSA and Renault, and to incentivise buying cleaner French cars.20 The significant increases in funding support, Sarkozy made abundantly clear throughout the negotiations, were conditional upon commitments to preserve jobs, not to close any factories in France. Furthermore, he intimated a further conditionality that supported firms could not delocalise production outside France for products to be sold on the French market. Sarkozy said; "Qu'on délocalise pour gagner un nouveau marché au Brésil, je le comprends parfaitement mais qu'on fasse fabriquer ailleurs qu'en France des voitures qu'on vend ensuite en France, c'est plus difficile à accepter" Regulatory The regulatory tentacles of economic patriotism reach far and wide, reflecting in part the legacy of a tradition of dirigisme and ‘colbertist’ state interventionism noted above. In the post-war era, the French state, with its extensive range of holdings in a number of large French firms, as well as a much wider set of informal links to elites throughout France’s ‘financial network economy’ (Morin 1998; 2000). Through such links, by a variety of cajolery and moral suasion, the French state induced the emergence of a set of inter-linked relationships in major French firms cemented by cross-shareholdings and interlocking board memberships. These were known as the noyaux durs (Schmidt 1996). The reach of the French state’s tentacles into France’s corporate fabric has been weakened since the 1980s as a result of privatisation, the internationalisation of French capitalism, and the liberal EU economic governance and competition regime discussed above. Nevertheless, even after 25 years of the decline of dirigisme (see e.g. Levy 2006), certain economic sectors remain subject to high degrees of regulation. Thus the potentialities of economic patriotism interventionism vary in nature and degree across sectors. Firstly, there are certain sectors subject to a high degree of regulation, such as banking and defence, where public authorities will have a final say – for example - over the acceptability of a takeover bid. It is noteworthy that here have been no foreign takeovers of large French banks recently. In January 2008, Société Générale was embroiled in what, in retrospect, looks like a modest banking crisis. Sarkozy and Gordon Brown shared a press conference discussing responses. Sarkozy was asked only one question at the press conference, about whether the bank would be allowed to fall into foreign hands in a takeover. Sarkozy talked (standing next to Gordon Brown) of the need to resist move to
20

‘L'Etat débloque 7,8 milliards d'euros pour le secteur automobil’ LE MONDE 09.02.09 13

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protectionism, but did not rule out French state intervention to prevent foreign takeover. Within a day, his spokespeople had said there would be French state intervention to prevent foreign takeover. Sarkozy and his advisors saw it as another opportunity to try to orchestrate a restructuring of the French big banks. Unlike in the case Mittal-Arcelor in early 2006, the French State has more regulatory levers to pull in the banking sector than in many others. In certain cases the French state sought to leave the traces of the prior ‘protected capital’ era. Thus, in the negotiating of some privatisations, the French government was careful to retain ‘golden share’ holdings vested with sufficient voting rights to fend off potential takeover (Knudsen 2005: 510). This means of protecting its ‘national champions’ eventually attracted the EC’s disapproving attention, and in the ECJ Golden shares case of 4 June 2002,21 the French State was forced to sell off its ‘golden share’ in Elf-Aquitaine (Ipekel 2005: 345). Whilst most Golden shares have gone, some remain,22 notably in industries of special strategic interest such as Thalès and Aérospatiale-Matra-EADS. Golden shares thus remain an element in the range of opaque defensive mechanisms impeding the development of a market for corporate control, though they are now much less significant in France than in Italy. It is no accident that such ‘golden shares’ as do remain are in the defence sector, where the French state continues to protect its industrial patrimony jealously. Such protection operates along more liberal, market-conforming lines than before, and in the context of European partnerships such as EADS (Hoeffler 2008). In terms of the regulatory environment of takeovers in France, it is worth recalling that, contrary to the protectionist reputation of French capitalism and the French state, the takeover regime has since the late 1980s been open, even ‘liberal’. It has for nearly 20 years been fairly closely aligned with UK practice in many respects. Thus, in terms of the regulation of takeovers, France is by no means an extreme continental case of powerful obstacles to hostile takeovers. Yet these open, liberal elements coexist with a range of dissuasive measures and facets of the French corporate governance regime noted above. This list of long-standing impediments remain part of the French corporate governance climate. Many of these dissuasive aspects within French companies have not changed as French capitalism has internationalised in recent decades. Thus, the liberal takeover regime co-exists with the enduring presence of – for example – double voting rights for all those holding share for a certain period (a status acquired with 1 or 2 years ownership - a prime de fidélité). As well as double votes, and a range of voting ceilings limit the voting rights of certain investors, there is also a prevalence of shareholder pacts, notably those restricting transfer of securities. All these allow management to ‘create a friendly shareholder group’ with the effect of ‘seriously obstructing a change of control’ (Fanto 1998: 74). Both unequal voting rights and voting ceilings are much more prevalent in France than in any other major economy
21

No C-483/99 Commission CE c/République Française (2002) 411 Bull 430-35 Joly Bourse; France case C-483/99 commission versus French government on Elf Aquitaine.
22

see Commission Of The European Communities Brussels, 22.7.2005 Commission Staff Working Document Special rights in privatised companies in the enlarged Union, pp. 14 & 22. © Ben Clift, 2009 14

Dr. Ben Clift, University of Warwick

(Goyer 2003a: 3). Such practices are increasingly prevalent, suggesting their use as new instruments to fend off takeovers, replacing the noyaux durs (Magnier 2002: 734; Goyer 2003b 197 & Table 6.5). Thus, large French firms are using these mechanisms to dissuade takeovers. None by itself represents a particularly powerful ‘poison pill’. In theory, the bottom line is that all of the dissuasive measures are public knowledge, and therefore get factored into the price offered by the bidder, or bidders. However, their collective impact is to insert a good deal of ‘viscosity’ into the system. Other parts of the French regulatory environment are also crucial impediments. French labour law, acquis sociaux, and industrial relations context, for example. The fruits of future restructuring are often the source of returns on the investment that a takeover requires. The relative difficulty of achieving such restructuring in the French case may encourage bidders to look elsewhere for target firms. There are areas where the state is major a contractor (e.g. the health sector and pharmaceuticals). In these areas, even without specific regulatory intervention, the fact that deterioration of the quality of relations with the French state could potentially have a long term adverse effect upon returns for economic actors induces a degree of compliance and enables state policy elites to cajole actors into particular courses of action. The legacy of the expansive French state is also demonstrated in the French state’s shareholder role in large French firms. Whilst the noyaux durs of the ‘protected capitalism’ period are less prevalent than in the 1980s, they have not disappeared. Within the financial network economy, the very substantial financial assets of the Caisse des dépôts et consignation CDC have often been deployed strategically by the state, investing to buy up stakes in large French firms deemed in the national interest. Although not as central in the wake of privatisation, the French state’s shareholder role in a number of large French firms is still a feature of French capitalism. This allows to French state to realise some of its economic patriotic ambitions by playing an investing role in large French firms deemed nationally strategically important. Conclusion: Sarkozy as an anachronistic neo-liberal economic patriot. Colin Crouch’s paradox of neo-liberal democracy, generated by the liberal international markets, overlapping economic governance regimes, and nationally delimited political mandates, thus presents obstacles to the likes of Sarkozy in his pursuit of economic patriotic policy goals. Recent French governments have been developing new forms of political intervention in corporate activity and takeover markets, and in response to delocalisation, in order to protect their industrial patrimony. Much economic policy making in France combines neo-liberal and protectionist elements in pursuit of advancing the economic interests of particular territorially defined groups – at times French, at time European. Sarkozy’s anachronistic presidential platform could be interpreted in this light as a bid to develop a French ‘neo-liberal economic patriotism’ strategy for the 21st Century (Clift 2008b). The policy content of contemporary ‘economic patriotism’ is often more market-oriented than traditional neo-mercantilism, despite rhetorical flourishes occasionally suggesting otherwise. © Ben Clift, 2009 15

Dr. Ben Clift, University of Warwick

In recent decades, the changing nature of state market relations (and the constraints of European economic governance) made certain formerly favoured neo-mercantilist policies and industrial policy strategies decreasingly viable. However, the changing political economic mood generated by the current global economic downturn and financial crisis may signal a sea change in political economic ideas. The recent resurgence of Keynesian thinking could be one manifestation of this. So too could the retreat of neo-liberal ebullience, and the widespread the questioning of laissez faire and self-regulating markets. All this is a conducive environment for a resurgence of French dirigisme which will continue to inform the French variant of economic patriotism. After all, dirigisme’s moral defensibility in France remains high, even if its technical feasibility has been reduced (and this varies on a sectorally- and firmspecific basis). The multi-level governance context in Europe, and the enduring liberal bent of the European Commission, makes it difficult to negotiate a renewed emphasis on dirigisme within French economic patriotism. This has been amply demonstrated by EC displeasure at Sarkozy’s ‘car pact’ in January 2009. economic patriotism. That said, economic patriotism will continue to play a significant role in the rhetoric and practice of French economic policy. As the empirical sections of this paper, the French governance context provides a wide range of levels and mechanisms, regulatory, legislative, and discursive, through which the policy objectives of economic patriotism can be pursued.

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