france economic patriotism

Dr. Ben Clift, University of Warwick

© Ben Clift, 2009 1

French Economic Patriotism: Legislative, Regulatory, & Discursive Dimensions

Dr Ben Clift ([email protected])

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Work in Progress: Please do not quote or cite without permission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 multi-

leveled 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.



Introduction: French Economic Patriotism

This paper explores the legislative, regulatory and discursive dimensions of Frencheconomic patriotism. Economic patriotism is conceived here not as a sui generisFrench 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, thepoint. The notion is interesting because it is closely related to, albeit slightly distinctfrom, a much longer established set of practices and approaches to economic policysuch as neo-mercantilism, economic nationalism, and protectionism. These arerevealing of enduring and intriguing contradictions within state/market interactions inthe context of internationalised liberal market capitalism, and thus of broader politicaleconomic significance. The phenomenon of economic patriotism is understood herenot in the narrow or exclusively French sense (i.e. ‘what Nicolas Sarkozy says anddoes’). Rather, French policy developments will be analyzed as an iteration of a widergenus of political economic activity in contemporary Europe which seeks, by anumber of means, to advance the perceived economic self-interest of particular groupsand 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 ColinCrouch has called paradox of globalised neo-liberal democracy, namely howgovernments pursue the political economic interests of their citizenry (in order to getre-elected) under conditions of complex economic interdependence, given the‘institutionally incomplete’ nature of national economic governance regimes. Thesecond section will set out how forms of economic patriotism are partly shaped bynational institutional and social configurations, with particular reference to statetraditions and traditions of political economic thought. This will be illustrated withreference to how corporate governance and company Law in United Kingdom, Franceand Germany is shaped by particular political traditions which one might call neo-liberal, dirigiste, and ordo-liberal respectively. The third section explores briefly therelation between the discourse and practice of economic patriotism, highlighting howthe political discourse of economic patriotism generates shared understandings whichcan legitimate particular forms of economic interventionism. The remainder of thepaper explores the particularities of French economic patriotism with particularemphasis on corporate governance and takeovers.

The central argument of the paper is that the paradox of neo-liberal democracygenerated by the liberal international markets, overlapping economic governanceregimes, and nationally delimited political mandates presents new problems ofeconomic and corporate governance for French policy elites. In response, new formsof political intervention in economic and corporate activity are prevalent in France(and elsewhere). Through these new modes of intervention, economic patriotism isinscribed within contemporary processes of market-making, and the re-regulatoryactivity framing European markets. These modes of intervention combine neo-liberal

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



and protectionist elements but are geared towards advancing the economic interests ofparticular 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 economicpatriotism tell us about the persistent tensions between neo-liberal market integrationand national economic policies. Consistent with that wider project, this paper defineseconomic patriotism as ‘economic choices which seeks to discriminate in favour ofparticular social groups, firms, or sectors understood by the decision-makers as‘insiders’ because of their territorial status’ (Clift & Woll 2009: 15). Economicpatriotism implies that the interests of the homeland should weigh more heavily thanindividual interests in the economic choices of consumers, producers, workers orpoliticians. The asymmetric targeting within economic policy choices can be eitherimplicit or explicit. While economic patriotism, in its original French usage, referredto noisy political initiatives aimed to sway public opinion, it can also happen withoutextensive political communication. In both cases, it is nonetheless possible to clearlyidentify the targeted benefactors of the policy (and conversely, those disadvantaged).

The concept of economic patriotism draws on neo-mercantilist political economicthought. One economic policy response to increased international competition,including from new players in the global political economy, builds on a long-established tradition of neo-mercantilism, drawing on the economic nationalisttheories of political economy advanced by Friedrich List (see List 1856; Crane 1998;Levi-Faur 1997). Helleiner (2002) underlines the potentially diverse policy content ofa neo-mercantilist strategy, which is in no way limited to protectionism and/orstrategic economic interventionism to promote industry.

Like the broader project, this paper explores how economic patriotism is inscribedwithin contemporary processes of market-making, or the re-regulatory activityframing markets in contemporary Europe. This expands the focus beyond traditionalindustrial policy to incorporate a broader range of legislative, regulatory, discursiveand other interventions to shape markets and their outcomes. Economic patriotismcontains policies that are generally referred to as neo-mercantilism, but is notrestricted to them. ‘Economic nationalism’ can, under certain circumstances, refer toliberal economic policies and institutions, hence Helleiner’s (2002: 308) notion of‘liberal economic nationalism’. Similarly, economic patriotism can co-exist with (andindeed be actively pursued within) a broadly neo-liberal single European market.There may be a 21st century ‘liberal economic patriotism’ analogous to the 19th

century British economic nationalism rooted in the liberal institutions of the goldstandard and free trade (Helleiner 2002: 320-22). Put differently, we are agnosticabout the nature of policy instruments or regimes chosen and are concerned primarilywith the political objectives and outcomes.

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



Economic patriotism and neo-liberalism are not necessarily incommensurable ornecessarily incompatible. Neo-liberal economic policies can be designed in favour ofselective industries. As such, they can be part of economic patriotic regimes. To givean example, the French ‘competitive disinflation’ strategy pursued vigorously by leftand right alike from the mid-1980s, which was the fulcrum of macroeconomic policyafter 1983, was neo-mercantilism par excellence, but also unambiguously neo-liberal.Competition disinflation engendered a paradigm shift of priorities in macroeconomicpolicy, relegating full employment to a distant future aspiration, and promotingtackling inflation to priority number one. Its rationale was to achieve lower inflationin France than in Germany, and hence (given pegged exchange rates) improve Frenchcompetitiveness vis-à-vis its European trading partners (see Lordon 1998; Blanchard& Muet 1993). Some scholars interpreted German macroeconomic policy in the mid2000s as another phase of competitive disinflation (OFCE 2006). Similarly, the‘Social VAT’ reforms recently undertaken in Germany, and under seriousconsideration by Sarkozy, is both a neo-liberal tax shifting strategy, and an neo-mercantilist economic strategy (reducing production costs, and hence the price ofgoods on international markets). These are examples of neo-liberal economicpatriotism - neo-mercantilist in intent, yet liberal in character. Thus, the two are notmutually exclusive. Liberalisation and Europeanisation do not render neo-mercantilism ‘irrelevant’, but change its context, entailing a shift in the balancebetween dirigisme and liberalism in the pursuit of national economic interest.

The concept of economic patriotism, as defined and deployed within the broaderproject, identifies particular and distinctive drivers behind these policy impulses (bethey protectionist or liberal), namely the clash between political and economicboundaries (see Clift & Woll 2009). Economic patriotism hinges on the profound, ifnot necessarily self-evident, contradictions between internationalising liberal marketintegration and spatially limited political mandates. There is an inherent tensionbetween 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 oftheir citizenry (in order to get re-elected) under conditions of complex economicinterdependence where their effective control is significantly circumscribed byconditions of complex economic, legal and regulatory interdependence. Large parts ofeconomic governance are no longer within their control, and some of the mostimmediate beneficiaries of liberalization might be foreigners. As long as politicsdivides in national or regional units, economic governance of globalising markets willdisplay a fundamental contradiction between economic and political boundaries andobligations.

We prefer changing the label (from economic nationalism, or neo-mercantilism) inorder to highlight these distinctive sources of economic patriotic intervention.Economic patriotism is a prism to investigate how actors negotiate compromisesbetween abstract notions of economic prosperity and territorially bound politicalobligations, and how these negotiations contain and drive the reconfiguration ofeconomic and political space. Indeed, unlike economic nationalism, economicpatriotism is agnostic about the precise shape or nature of the unit claimed as patrie.

4 I owe this expression to Colin Crouch and would like to thank him for a very helpful discussion ofthese points.



Economic nationalism is too restrictive, because it focuses exclusively on the nation-state. This excludes local patriotism, such as the defence of regional autonomythrough 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 whichpolitical and economic actors seek to resolve the above political tensions, andarticulate economic policy objectives with territorial boundaries.

Thus economic patriotism can imply a transfer of economic objectives from thenational to the regional level, such as the European Union (EU). This can lead toliberalisation within the EU for the sake of protection towards the outside, as forexample in agriculture. In the European context, economic patriotic interventionismcan also be transferred to the European level and turn into pan-European patriotism,possibly entailing economic restructuring of large European firms. Frenchexclamations of economic patriotism, for example, tend to cite the need for Frenchand European champions in the same phrase. The Grignon Report (2004)recommended ‘European neo-Colbertism’,6 re-articulating French dirigiste industrialpolicy at the European level to meet the challenges of deindustrialisation anddelocalisation. European-wide investment in research and development focused onstrategic sectors would herald the emergence and consolidation of these ‘Europeanchampions’.

Institutionally Incomplete National Governance, the EU & Economic Patriotism

Present day economic patriotism is thus a response to the reconfiguration of economicgovernance and the interdependence of markets that could only fully develop as aconsequence of increasing economic liberalization in the wake of the breakdown ofBretton Woods, the re-energising of European integration in the 1980s (see Clift &Woll 2009). The integration of markets and the concurrent weaving together ofregulatory frameworks put pressure on national economic intervention to comply withinternational trade agreements or European competition policy. With old-styleindustrial policy and heavy-handed state intervention increasingly proscribed,governments had to become creative to assure traditional economic policy objectiveswith new means. The multiple policy instruments in support of national or regionaleconomic 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 theirmismatch with political constituencies. This is integral to contemporary capitalism,and the market-making and regulatory activity which inscribes it into the global

5 See for example Stephen George ‘The European Union, 1992 and the Fear of ‘Fortress Europe’ inAndrew 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 Hegemonyand Transformation in Europe (Lanham, M.D.: Rowman & Littlefield, 2003), Olivier Costa, Jacquesde Maillard and Andy Smith, Vin et politique : Bordeaux, la France, la mondialisation (Paris: Pressesde 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 and1683. Colbert’s bent for state interventionism in economic affairs reached a zenith when, in 1666, heissued a règlement to the effect that the fabrics of Dijon and Selangey were to contain 1,408 threads (nomore, no less), and those of Auxerre and Avalon 1, 376 (Heilbroner 1992: 24)



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 andinternational institutions’ (Deeg & Jackson 2007: 155). A multi-levelled governanceof political economic and corporate activity prevails, which spans the regional level(such as European regulation) and the global level (such as the World TradeOrganisation). Economic patriotism must therefore operate within certain limits ofsupranational and global regulation. This ‘institutionally incomplete’ nature ofnational economic governance regimes exacerbates Colin Crouch’s ‘paradox ofglobalised neo-liberal democracy’.

In policy domains such as industrial policy or corporate governance, nationaldifferences impede a European response. Supranational rules constrain or preventpolicy mechanisms such as tariffs, public procurement, and favoured market access.Elements of traditional economic nationalist political economy and industrial policyhave been rendered unfeasible. European competition policy has often interfereddecisively to proscribe subsidies and other forms of industrial policy. Such ECactivism repeatedly draws heavy criticism from national political elites and economicactors. Thus, in some instances, national traditions of economic intervention(discussed below) are in stark contrast to the policy solutions implied by EU-levelintegration. This helps explain why boundary issues between EC economicgovernance competencies and national ‘ownership’ of economic patriotic policies orareas of regulation are increasingly politically charged (as frosty EC responses torecent national fiscal stimulus and bank and automobile industry bail-out initiatives inthe 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 againstglobalisation’ (Hoeffler 2008). The ‘Lisbon Agenda’ to transform the EuropeanEconomy into ‘the most dynamic and competitive knowledge-based economy in theworld capable of sustainable economic growth with more and better jobs and greatersocial cohesion … by 2010’ is another, more liberal variant of this European patrioticeconomic 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 itsgovernance. So far, EU-level activism has been more liberal in character than Frenchpolicy elites would wish, although perhaps not a neo-liberal as the standard caricaturesuggests (Jabko 2005). In part as a result of this dissonance, ambitions fordevelopmental state type actions find expression at the national level througheconomic patriotic discourse and deeds (see below). A focus on economic patriotismfacilitates analysis of the extent to which we are witnessing a shift within theideational processes by which ‘the European economy’ is constructed as a social andpolitical space. Are the liberal market-oriented elements enshrined in the SingleEuropean Market being re-balanced by more regulated, co-ordinated capitalismelements in the wake of the economic difficulties of 2008-9?



Economic Patriotism and National Traditions of Legislative and RegulatoryIntervention

National institutional and social configurations, which one might call neo-liberal,dirigiste, and ordo-liberal in United Kingdom, France and Germany respectively, arelikely to shape the discourse and policy choices of economic patriotism. This isbecause, as Matthew Watson notes, economic policy ‘reflects the body of law alreadyin operation nationally’ and ‘the reproduction in law of different national approachesto the task of market-making’.7 The importance of intellectual traditions in shapingforms of economic patriotic interventionism can be illustrated by examining howeconomic 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 cruciallythe operation of capitalism in any given setting, distinct traditions explain starkdifferences in company law in Britain, France and Germany. In Britain, the liberaltraditional was extremely influential on both side of industry, leading to a laissez faireapproach to the company. The Manchester School of liberal economic thought drewon, and perhaps distorted, Lockean norms of property rights, to arrive at acontractualist logic, and an absolutist conception of corporate property rights. In thisconception the function of company law was to protect property rights, and no quidpro quo or social obligation could be expected in return for the enormous privileges ofthe licence to operate, and limited liability.8 As Gamble and Kelly put it,

although the huge legal privilege of limited liability had been granted, theexponents of laissez-faire were very unwilling that anything substantial shouldbe conceded in return for it, in the shape of accountability, disclosureprovisions or particular governance structures to ensure that companies actedin accordance with the public interest. Having given companies a basicframework, the laissez faire proponents argued, the State needed to leave themto manage their own affairs, having no desire or business to force on ‘theselittle republics’ any particular constitution.9

The subsequent evolution of English company law demonstrates that laissez-faire principles proved to have greater influence in shaping the constitution of thecompany. In relation to accountability, disclosure, or internal organisation orconstitution of the firm, no requirements were stipulated. The interests of smallinvestors or the working class were not reflected in the limited liability legalsettlement 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 aprivate association, in France and Germany there was more of a notion of limitedcompanies being public bodies. As such, they could be called upon to fulfil functions

7 This discussion draws on the paper ‘Economic Patriotism and National Traditions of EconomicThought’, presented by Matthew Watson at the economic patriotism workshop at the University ofWarwick, 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 Kellyand Andrew Gamble, ed., The Political Economy of the Company (Oxford Hart, 2000).pp. 33-4Quoting Hunt, p. 135



other than profit-making, which Martin Höpner studies as a form of “cross-subsidizing.”10 The market-making legal fabric of these political economies reflectsdifferent traditions of economic thought. In France, the notion of social interest of thefirm, l’intérêt social, has always been pervasive. As the Viénot report on Frenchcorporate governance notes, this intérêt social simply does not exist in Anglo-Saxonlaw, yet it plays a key role in French company law;

In Anglo-Saxon countries the emphasis is for the most part placed on theobjective of maximising share values, whilst on the European continentand France in particular the emphasis is placed more on the human assetsand 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 anautonomous economic agent pursuing its own ends, distinct notably fromthose of its shareholders, employees, creditors (including tax authorities),suppliers and customers, but which correspond to their common generalinterest, which is to ensure the prosperity of the company12

As if to demonstrate how far removed from the English company lawparadigm the intérêt social can be, Alcouffe notes that it is partially derived from theencyclicals of the Catholic Church, rooted in the ideas of Thomas Aquinas. Regardingthe aim of the company, these stipulate that it

is not merely the acquisition of profit but is the very existence of thecompany as a community of people who in their different ways search tosatisfy their fundamental needs and who constitute a group peculiar to theservice of the community as a whole.13

In Germany, a constitutional approach to economic lawmaking used public authorityto delineate the rights and obligations of private actors within firms, and thus“German lawmakers constitutionalized shareholder representation through publicauthority”.14 Company law has, since the 1870s, required two-tier boardarrangements, with a managing and a supervisory board drawn from all sides of thecompany, and extensive worker representation and consultation. This constitutionalistapproach inscribed the protection of the public interest, and the corporatist ethosestablishing the rights and obligations of all social partners, into the very make-up andinstitutional and governance structure of the company. This has given rise to whatJackson terms Germany’s “non-liberal” corporate governance, which spans marketregulation, financial regulation and company law.15

10 Martin Höpner, "Determinanten der Quersubventionierung. Ein Vorschlag zur Analysewirtschaftlicher 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 AffairesInternationales, Vol. 8, (1995), pp. 933-45.. at p. 935.12 Ibid.13 Quoted in C. Alcouffe, "Judges and CEOs: French Aspects of Corporate Governance," EuropeanJournal 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. 121-170 in Wolfgang Streeck and Kozo Yamamura, ed., The Origins of Nonliberal Capitalism: Germanyand Japan (Ithaca: Cornell University Press, 2001)., p. 132.15 Ibid.in ed.



Thus, in part, the form that the particular French brand of the broader phenomenon oneconomic patriotism takes is shaped and influenced, though not determined, byFrench state traditions of economic interventionism.

Discourse and Practice in Economic Patriotism

In analysing the discursive dimensions of economic patriotism, this paperaligns with recent social constructivist scholarship in international and comparativepolitical economy, and shares with it a recognition of the independent, causal andconstitutive role of ideas, of the ideational, in shaping political economic outcomesand practices (Hall 1993; Ruggie 1998; Blyth 1997, 2002; Rosamond 2002; Hay2004; Sinclair 2005; Abdelal, Blyth & Parsons forthcoming; Woll 2008). As oneleading constructivist summarises the approach, ‘the building blocks of internationalreality are ideational as well as material’ (Ruggie 1998: 33). Economic or politicalactors’ preferences are not purely materially determined. Rather, they are shaped bythe interplay of material and ideational factors, because ‘the ways in which actorsmake sense of their self-interest result from interactions with their socialsurroundings’ (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 processwherein ‘economic ideas provide agents with an interpretive framework, whichdescribes and accounts for the workings of the economy by defining its constitutiveelements and “proper” (and therefore “improper”) interrelations.’ (Blyth 2002: 11).Thus the political discourse of economic patriotism generates shared understandingswhich can legitimate particular forms of economic interventionism. After thirty yearsof the resurgence of neo-liberal economic ideas, and the ensuing liberalisation andderegulation on both national and global levels, the shift in balance between state andmarket in favour of the latter has been sedimented into a dominant market-orientedpolitical economic orthodoxy, or a constructed ‘neo-liberal reason’ (Peck 2008).Nevertheless, political influence over the economy endures. Indeed, economicpatriotism entails understandings about the liberal market economy which aredeployed strategically by political actors seeking to create a sense of economicimperatives that accompanied a particular conception of political economic space(Hay & Rosamond 2002; Rosamond 2002). Thus economic patriotic discourse mustbe 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 possiblethat it is part of a process of challenging prevailing understandings of acceptableeconomic interventionism. Therefore, if we want to understand economic patriotism,we need to both distinguish between patriotic political discourse to actual politicalintervention structured around territorial objectives, and explore the inter-connectionsthat link the two. In exploring the relation between political rhetoric with actualintentions or political intervention, this paper interrogates the extent to whicheconomic patriotic discourse amounts to something more than ‘cheap talk’ aboutnational 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 particularemphasis on corporate governance and takeovers. In this area there is a long-standing



tendency for French policy elites to attempt to keep a controlling proportion of thecapital of French major firms in the hands of national investors. It is worth recallingthat, although economic patriotism focuses on intentional actions of policy elites, partof the reasons for outcomes in the realms of French corporate governance andtakeovers consistent with economic patriotic preferences is not intentional policyengineering, but a by-product of the historical development of French capitalism.Thus a set of prior conditions (legacies) in firm organisation, and patterns of financingprovide 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 thedispersed ownership patterns in the UK and US (O’Sullivan 2003). Of France’s 20largest companies, 8 still have a controlling shareholder. Three are subject to‘pyramid control … an ownership structure in which the controlling shareholderexercises control of one company through ownership of at least one other listedcompany’ (Enriques & Volpin 2007: 117). Family ownership remains a prevalentphenomenon within French capitalism (Philippon 2007: 14, 51-70; Tibi 2004), and isanother variant of concentrated ownership.

Furthermore, France has lacked a culture which invested in financial savingsinstruments such pension funds or mutual funds. Companies have not traditionallylooked to financial markets for investment. Thus, from the ‘supply’ and ‘demand’sides, financial markets as a source of capital for enterprises remainedunderdeveloped. The historic reliance on institutionally allocated credit (orchestratedthrough the state) rationed industrial investment. This led the French economy to becaricatured as ‘capitalism without capital’ (Stoffaes, 1989: 122). Such a configurationhelps explain why there are a number of very large French corporations, and manysmaller firms, but a comparative lack of medium-sized firms. Non-recourse tofinancial markets probably hindered the growth of French firms. This industrialprofile also has an impact on the takeover markets, reducing the number of targets foranyone but the richest bidders.

All of these insert a significant degree of ‘viscosity’ within a putative French marketfor corporate control. Yet this sand in the wheels of such corporate dealing is notrelated to strategic design by French ‘economic patriotic’ state managers, or feather-bedding management, or dominant shareholders (see Clift 2008a, 2009).

Discursive

French policy elites have been talking up the limits of the possible in terms ofeconomic intervention for a long time. (Chirac –social fracture, Jospin, ). Europe ispresented 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 afamiliar part of the French political terrain. Such discourse is not always followed byaction. When French president Nicolas Sarkozy urged French automakers to locatetheir plants at home rather than the Czech Republic in February 2009 (see below),



many suspected that he counted on European officials to make his suggestionsinconsequential by pointing to EU obligations. Even in cases where discourse is notfollowed up by action, the discursive deployment of economic patriotism ispotentially more than simply a disingenuous instrument of political campaigning. It ispart of a process of discursive reconstruction of the limits of the possible in terms ofpolitical intervention in economic activity. The idea of ‘Developmental State Europe’(Gamble 2006: 43), remains central to this in France, with EU institutions and policiespursing industrial protection, industrial innovation, and the enhancing of Europeanindustrial capacity. Sarkozy has talked of ‘a Europe which protects’, required in orderto avoid protectionism. Only Europe, he claimed, is capable of managing the powerfulmarket, and transforming globalisation from within (Sarkozy 2006). In hispresidential programme, Sarkozy affirmed ‘Europe must protect withinglobalisation’, and he added flesh on these bones promising to rehabilitate the notionof community preferenceto protect European products, markets and firms in WTOtrade negotiations ‘le droit pour l’Europe, lorsque c’est son intérêt, notamment àl’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 takeoverin 2006 demonstrated, such talk is not always backed up by deeds. Yet talk ofeconomic patriotism in relation to protecting the industrial patrimony in France is notnecessarily cheap. The French State’s public discourse on hostile takeovers also playsa role, but not that often attributed to it. With a few specific exceptions, the Frenchstate lacks the policy mechanisms to back up its rhetorical hostility to takeover.Nevertheless, its vociferous critique can act as a dissuasive measure. The perceptionof the interventionist French state which ‘economic patriotic’ discourse reinforcesdoes not entirely marry with the reality (as in the case of Arcelor), but it may sufficeto ward of less determined and less well-informed foreign bidders (as in the case ofPepsico & 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 politicalintervention in the economy to advance the interests of territorial insiders (be theyFrench or European) is part of a process of the reconstruction of economic realities. Ithas consequences in terms of changing what is politically imaginable in terms ofactual policy, and serves in this way to expand the room to manoeuvre and the limitsof the possible within the supranational regulatory constraints noted earlier. Thisconnection of the discursive to the real policy outcomes is illustrated in the followingsections on the legislative and discursive dimensions of French economic patriotism.

Legislative

There have been significant instances of intentional economic patriotic legislativeintervention in recent years. A desire to carve out scope for volontaristeinterventionism 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 isrequired for takeover or investment in ‘strategic sectors’ such as national defence,

16 96/109) and Decree in 2003 7 March accompanying ordinance



public health or public order, including casinos. High profile examples ofinterventionism include Aventis, and Alstom.

This theme was revisited between September and December 2005 when the DeVillepin government introduced further legislation giving itself the right to intervenein any takeovers in strategic sectors.17 The revision to French monetary code requiredgovernmental authority for takeovers in 11 ‘sensitive’ sectors (see Menucq 2006:230). The EC took issue with the French government over these sensitive sectorprotections,18 on grounds of impeding the free movement of capital. In particular, theEC objected to the interpretation of casinos as strategic sectors given the fight againstmoney laundering. Attempts by the hotel chain Accor to gain protection were notwelcomed 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 ofFrench industrial policy, and economic patriotic interventionism.

The Breton Law of July 2005 created an obstacle to certain hostile takeovers inrequiring 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 torender a takeover of Renault much more difficult, since a bidder would also berequired 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 Frenchtakeover regulation.

One of the more interesting economic patriotic legislative interventions came as aresult of EU market-correcting regulatory ambitions for the market for corporatecontrol. These have been largely ineffectual, with a failed directive in 2001, then awatered down directive passed in 2004 which involved rules not so much beingcircumvented, as not being brought into being. Paradoxically, the most significantshift away from an open, liberal takeover regime in France was introduced as a directresult of the supposedly liberal-oriented 2004 EU Takeover directive. Its transpositioninto 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 (onceshareholder approval has been secured). This ironically expanded the range of anti-takeover defences available to target boards (Clift 2009).

The current financial crisis and global economic downturn has provoked a furtherspate of economic patriotism and economic interventionism. The focus in this instaceis less on takeover, and more on the threat of delocalisation. This was recentlyillustrated with Sarkozy’s February 2009 plan de relance rescue package for theFrench economy in general and the car industry in particular (in the face ofdelocalisation by Peugeot of French car production to Czech factories). Sarkozy’s ‘carpact’ involves, at its heart, a 6.5 bn euro commitment to help car producers Renault

17 Decree 2005/173918 European commission IP/06/438, ‘Free movement of capital: Commission scrutinisesFrench law establishing authorisation procedure for foreign investments in certain sectors’.4/04/200619 Defence mechanisms in company statutes allowing target boards to attempt to derail bids. The classicpoison pill involves ‘rights or warrants issued to shareholders that are worthless unless triggered by ahostile acquisition attempt. (Monks & Minow 2004: 236).



and PSA Peugeot-Citroën (with innovation and clean technology R&D) in return forcommitments on ‘doing everything possible to avoid redundancies’ and not closingplants whilst in receipt of the state loans. Sarkozy’s pact also entails a doubling (to2bn euros) of financial support for the car manufacturers, doubling financial supportfor sub-contractors to 600m euros. Plans to help French car industry equipmentsuppliers rise to the competitive challenge of low cost producers and becomeEuropean or global champions underpin the investment fund, jointly financed by theFrench State, Renault and PSA. The pact also removed the ‘professional tax’ onproductive equipment. This built on earlier measure taken in December 2008 to offerrefinancing to PSA and Renault, and to incentivise buying cleaner French cars.20

The significant increases in funding support, Sarkozy made abundantly clearthroughout the negotiations, were conditional upon commitments to preserve jobs, notto close any factories in France. Furthermore, he intimated a further conditionalitythat supported firms could not delocalise production outside France for products to besold on the French market. Sarkozy said; "Qu'on délocalise pour gagner un nouveaumarché au Brésil, je le comprends parfaitement mais qu'on fasse fabriquer ailleurs qu'enFrance 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 partthe legacy of a tradition of dirigisme and ‘colbertist’ state interventionism notedabove. In the post-war era, the French state, with its extensive range of holdings in anumber of large French firms, as well as a much wider set of informal links to elitesthroughout France’s ‘financial network economy’ (Morin 1998; 2000). Through suchlinks, by a variety of cajolery and moral suasion, the French state induced theemergence of a set of inter-linked relationships in major French firms cemented bycross-shareholdings and interlocking board memberships. These were known as thenoyaux durs (Schmidt 1996).

The reach of the French state’s tentacles into France’s corporate fabric has beenweakened since the 1980s as a result of privatisation, the internationalisation ofFrench capitalism, and the liberal EU economic governance and competition regimediscussed 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 anddegree across sectors. Firstly, there are certain sectors subject to a high degree ofregulation, 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 herehave been no foreign takeovers of large French banks recently.

In January 2008, Société Générale was embroiled in what, in retrospect, looks like amodest banking crisis. Sarkozy and Gordon Brown shared a press conferencediscussing 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



protectionism, but did not rule out French state intervention to prevent foreigntakeover. Within a day, his spokespeople had said there would be French stateintervention to prevent foreign takeover. Sarkozy and his advisors saw it as anotheropportunity to try to orchestrate a restructuring of the French big banks. Unlike in thecase Mittal-Arcelor in early 2006, the French State has more regulatory levers to pullin the banking sector than in many others.

In certain cases the French state sought to leave the traces of the prior ‘protectedcapital’ era. Thus, in the negotiating of some privatisations, the French governmentwas careful to retain ‘golden share’ holdings vested with sufficient voting rights tofend off potential takeover (Knudsen 2005: 510). This means of protecting its‘national champions’ eventually attracted the EC’s disapproving attention, and in theECJ 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 havegone, some remain,22 notably in industries of special strategic interest such as Thalèsand Aérospatiale-Matra-EADS. Golden shares thus remain an element in the range ofopaque defensive mechanisms impeding the development of a market for corporatecontrol, though they are now much less significant in France than in Italy. It is noaccident that such ‘golden shares’ as do remain are in the defence sector, where theFrench state continues to protect its industrial patrimony jealously. Such protectionoperates along more liberal, market-conforming lines than before, and in the contextof European partnerships such as EADS (Hoeffler 2008).

In terms of the regulatory environment of takeovers in France, it is worth recallingthat, 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 fornearly 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 continentalcase of powerful obstacles to hostile takeovers. Yet these open, liberal elements co-exist with a range of dissuasive measures and facets of the French corporategovernance regime noted above. This list of long-standing impediments remain partof the French corporate governance climate.

Many of these dissuasive aspects within French companies have not changed asFrench capitalism has internationalised in recent decades. Thus, the liberal takeoverregime co-exists with the enduring presence of – for example – double voting rightsfor all those holding share for a certain period (a status acquired with 1 or 2 yearsownership - a prime de fidélité). As well as double votes, and a range of votingceilings limit the voting rights of certain investors, there is also a prevalence ofshareholder pacts, notably those restricting transfer of securities. All these allowmanagement to ‘create a friendly shareholder group’ with the effect of ‘seriouslyobstructing a change of control’ (Fanto 1998: 74). Both unequal voting rights andvoting 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 CommissionStaff Working Document Special rights in privatised companies in the enlargedUnion, pp. 14 & 22.



(Goyer 2003a: 3). Such practices are increasingly prevalent, suggesting their use asnew instruments to fend off takeovers, replacing the noyaux durs (Magnier 2002: 73-4; Goyer 2003b 197 & Table 6.5). Thus, large French firms are using thesemechanisms to dissuade takeovers. None by itself represents a particularly powerful‘poison pill’. In theory, the bottom line is that all of the dissuasive measures arepublic knowledge, and therefore get factored into the price offered by the bidder, orbidders. However, their collective impact is to insert a good deal of ‘viscosity’ intothe system.

Other parts of the French regulatory environment are also crucial impediments.French labour law, acquis sociaux, and industrial relations context, for example. Thefruits of future restructuring are often the source of returns on the investment that atakeover requires. The relative difficulty of achieving such restructuring in the Frenchcase may encourage bidders to look elsewhere for target firms.

There are areas where the state is major a contractor (e.g. the health sector andpharmaceuticals). In these areas, even without specific regulatory intervention, thefact that deterioration of the quality of relations with the French state could potentiallyhave a long term adverse effect upon returns for economic actors induces a degree ofcompliance and enables state policy elites to cajole actors into particular courses ofaction.

The legacy of the expansive French state is also demonstrated in the French state’sshareholder role in large French firms. Whilst the noyaux durs of the ‘protectedcapitalism’ period are less prevalent than in the 1980s, they have not disappeared.Within the financial network economy, the very substantial financial assets of theCaisse des dépôts et consignation CDC have often been deployed strategically by thestate, 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 shareholderrole in a number of large French firms is still a feature of French capitalism. Thisallows to French state to realise some of its economic patriotic ambitions by playingan 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 liberalinternational markets, overlapping economic governance regimes, and nationallydelimited political mandates, thus presents obstacles to the likes of Sarkozy in hispursuit of economic patriotic policy goals.

Recent French governments have been developing new forms of political interventionin corporate activity and takeover markets, and in response to delocalisation, in orderto protect their industrial patrimony. Much economic policy making in Francecombines neo-liberal and protectionist elements in pursuit of advancing the economicinterests of particular territorially defined groups – at times French, at time European.Sarkozy’s anachronistic presidential platform could be interpreted in this light as a bidto develop a French ‘neo-liberal economic patriotism’ strategy for the 21st Century(Clift 2008b). The policy content of contemporary ‘economic patriotism’ is oftenmore market-oriented than traditional neo-mercantilism, despite rhetorical flourishesoccasionally suggesting otherwise.



In recent decades, the changing nature of state market relations (and the constraints ofEuropean economic governance) made certain formerly favoured neo-mercantilistpolicies and industrial policy strategies decreasingly viable. However, the changingpolitical economic mood generated by the current global economic downturn andfinancial crisis may signal a sea change in political economic ideas. The recentresurgence of Keynesian thinking could be one manifestation of this. So too could theretreat of neo-liberal ebullience, and the widespread the questioning of laissez faireand self-regulating markets. All this is a conducive environment for a resurgence ofFrench dirigisme which will continue to inform the French variant of economicpatriotism. After all, dirigisme’s moral defensibility in France remains high, even ifits technical feasibility has been reduced (and this varies on a sectorally- and firm-specific basis).

The multi-level governance context in Europe, and the enduring liberal bent of theEuropean Commission, makes it difficult to negotiate a renewed emphasis ondirigisme within French economic patriotism. This has been amply demonstrated byEC displeasure at Sarkozy’s ‘car pact’ in January 2009. economic patriotism. Thatsaid, economic patriotism will continue to play a significant role in the rhetoric andpractice of French economic policy. As the empirical sections of this paper, theFrench governance context provides a wide range of levels and mechanisms,regulatory, legislative, and discursive, through which the policy objectives ofeconomic patriotism can be pursued.



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