In setback Macron gets political lesson in capitalism
The hunt for a scapegoat for the collapse of the merger talks between Fiat Chrysler Automobiles NV and Renault SA is in full cry.
There’s furious leaking on all sides: The Italians blame the French, the French blame Fiat and the reluctance of Renault’s partner Nissan Motor Co Ltd. to bless the deal. A lot of people on both sides blame Bruno Le Maire, Emmanuel Macron’s finance minister, whose eleventh-hour request for more time to bring Nissan on board was the final straw for Fiat.
While it’s too simplistic to lay all of the culpability at the feet of Le Maire and Macron (did Fiat really think it could stitch together a huge, politically sensitive cross-border car deal in just 15 days?), it has become worryingly common for overconfident Parisian technocrats to slip up on problems of their own making. There are lessons here for Macron when it comes to handling France’s web of government holdings, including its 15 percent ownership of Renault.
For a start, French politicians would do better to align their rhetoric with reality. Promising to fight for every industrial job in France, as Le Maire has done, is a great message for voters; but in the confines of a boardroom, or a shareholder meeting, it’s hard to back up such talk with only a 10 or 15 percent equity stake. Macron himself acknowledged back in 2016 the limits of the state in stopping management from taking decisions: “It’s not because the government has 20 percent of the voting rights that it can stop closures.” He’s less upfront these days.
Beyond the French blunders over the Renault-Nissan alliance, Air France-KLM and now Fiat are examples of Paris overplaying its hand when seeking to exercise control. There’s also deeper confusion over what purpose state investment actually serves. There are too many competing strategies at work across too many state-backed firms (France has 1,800 of them!), from building national champions, to protecting jobs, to blocking foreign takeovers. This does nothing for the performance of these companies: The return on equity of most French state holdings averaged 2.8% between 2010 and 2015, versus 10% for the SBF 120 index of the country’s most actively traded stocks, according to France’s national audit body.
Nor has state intervention done much to avoid the blight of de-industrialization. The share of manufacturing in the French economy fell from 19 percent in 1975 to 10 percent in 2015. There needs to be a rethink on exactly why and when taxpayer funds should be used. Restricting it to companies facing crisis or bankruptcy, or those with technology worth subsidizing, would be one idea.
There also needs to be some faith in management’s ability to just do its job. It’s true that in this case Renault’s new boss, Jean-Dominique Senard, may have been too hasty in pushing the Fiat deal. But the state is never far behind in these situations. Look at Carlos Ghosn’s plans for a Renault-Nissan merger, a project reportedly encouraged by Paris, which in part led to his downfall. Too often, an antagonism sets in between the state and management, usually over compensation, strategy or political meddling.
You’d have to question the very idea of having a state investor. Banker David Azema, who for a time had the job of overseeing the French portfolio of holdings, said in 2017 that it was impossible for the government to be an effective shareholder. The business cycle differs completely from the electoral cycle and the media scrum, he said. On top of the pressure of politics, and the confusion of goals, French state shareholders are generally too risk averse and prone to procrastination.
Macron really needs to get back to his eminently sensible 2017 campaign promise: Sell down more French stakes and reinvest in low-carbon technology.