Walker's World: Another French revolution?

By MARTIN WALKER, UPI Chief International Correspondent  |  July 14, 2002 at 6:20 AM
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PERIGUEUX, France, July 14 (UPI) -- As France celebrates Sunday the national day that brought the world the slogan of 'Liberty, Equality, Fraternity,' the country is poised on the brink of one of the most dramatic reforms of its economic system since the Bastille fortress was stormed in the Revolution of 1789.

The newly elected conservative government, for the first time in five years marching in step with the re-elected President Jacques Chirac, is promising a sweeping wave of privatization that would dismantle the state-guided economic system that has endured for over 340 years.

Chirac had talked airily of privatizations in the past, and the recently defeated Socialist government of Lionel Jospin had startled and dismayed many of its ideological supporters by beginning the process. But now the crown jewels of the French state's industrial strategy are to be set free.

The French government is to give up its controlling share in the country's big oil company, TotalFinaElf, swollen by state-directed mergers to join the ranks of the oil world's Big Four, behind Exxon-Mobil, Shell and British Petroleum. Successive French governments used its control to ensure that no Anglo-Saxon giant like Exxon or BP could buy up the French oil group, and used it again in 1999 to promote the Franco-French merger of Elf and Total.

With much of its oil coming from former French colonies in Africa, successive French governments had always insisted on maintaining a "golden share" of control in the company, which it claimed was key to France's African diplomacy. Now, thanks in large part to a legal ruling from the European Union's highest court but thanks also to the reformist spirit of the new government, the golden share is to go.

The man who made the announcement, former steel executive and now Finance Minister Francis Mer, is the driving force behind the new readiness in Paris to unleash the private sector. In an interview with French financial daily Les Echoes Friday, Mer said he wanted to start a new wave of privatizations this autumn. First on the list, Mer said, would be the aero-engine manufacturer Snecma, followed by Air France and the Credit Lyonnais banking group.

But by far the most significant, for what it says about the new government's readiness to relax the state's grip on the commanding heights of the French economy, are two other companies that Mer cited. First is the defense group Thales, and Paris has always in the past cited national security to justify maintaining the state's role.

Biggest of all is the giant Electricite de France, even though successive French governments have battled for years against European Union prodding from Brussels to maintain state control. This allowed EdeF to use its monopoly pricing power in France to raise the funds for a takeover spree in other EU countries that had privatized the industry -- infuriating other governments.

An optimist would say this signifies a historic break with the tradition of French state control that started with Jean-Baptiste Colbert. The celebrated finance minister of King Louis XIV in the 17th century, Colbert used the power and finances of the state to build up French industry, protected it with high tariffs, and used its profits to invest in new state-backed enterprises like the French East India Company.

Not only did he build the financial and administrative machine that allowed Louis XIV to wage war against most of Europe, but Colbert bequeathed a tradition of state economic activism and the state's responsibility to chart the nation's industrial strategy which has lasted to this day.

But a pessimist would note that France seems finally ready to let its entrepreneurs have their head just when the Enron and WorldCom scandals are casting a long shadow over the unbridled free enterprise of the 1990s, and when the drop in the world's stock markets are undermining the faith of new investors in the system.

In France, after the bruising boardroom battles that toppled Jean-Marie Messier from his perch at Vivendi and the new troubles over the collapsing values of France Telecom, Mer's determination to pass corporate control to the private sector is highly controversial.

The real test of French reform may not lie with Mer and the promises of privatization, but in another sector of the French economy entirely -- agriculture. The EU last week finally unveiled its plans for reform of the Common Agricultural Policy, the world's most expensive and protectionist system.

The reform is modest enough, to start transferring 20 percent of the annual $40 billions the EU spends on the CAP to supporting poor farmers and poor rural areas, rather than subsidizing the big and rich farmers to produce even more food surpluses.

The reform would finally cut the link between subsidies and output -- and should bring down EU food prices that are currently 44 percent higher than world market prices. It is strongly backed by backed by the Germans and British, who pay the bulk of the burden. But as big recipients, French farmers want to fight to keep the old system -- even though it makes the EU's planned enlargement into Eastern Europe financially disastrous.

The new French government is backing its farmers. Prime minister Jean-Pierre Raffarin promises "great resolve in the face of efforts to modify the CAP." So as the finance minister promises revolutionary changes this Bastille Day, his prime minister is promising reactionary resistance. The fate of France's reforms lies in the balance.

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