The French Way (45 page)

In 1998 he unveiled an expensive plan to push the country into “the Information Society.” The plan targeted sectors like electronic commerce, public services, and schools. State intervention, eager global IT companies including firms like America Online, and a cooperative populace closed the gap quickly. Within a few years almost every large enterprise used the Web. Within a decade the French public enjoyed access to the Internet that was comparable to that in the United States, and they logged on for more hours than other Europeans. And French firms like Thomson and France Telecom had become dominant players in Europe's IT sector. Anxious about America and others speeding ahead, France used the state and global private enterprise to catch up.

France also needed to find ways to commercialize the inventiveness of its science and technology labs. New high-tech companies would offer an opportunity to reduce unemployment through job creation afforded by small firms. But the government effort, headed by the dynamic and pragmatic ministers Strauss-Kahn and Allegre, did not want to upset the nation's social contract that depended on wage equality, risk-sharing, and job security.

The answer, according to Gunnar Trumbull, was to construct a “homegrown analog to Silicon Valley.”
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To develop this sector France needed to imitate the Americans by providing venture capital for startups, incentives for entrepreneurs, encouragement to engineers and scientists from research labs to assist the private sector, and more relaxed regulation of investment. Strauss-Kahn, who had made frequent trips to California and consulted with Americans, turned away from traditional means of technological innovation—through state-sponsored research channeled to large-scale industrial corporations—toward promoting private venture capital that would in turn finance small start-up companies in leading technologies.

Even though the French were inspired by Silicon Valley, they fostered technological innovation differently. The state continued to play a guiding role. The government created a new institutional framework by creating special funds and offering tax incentives to induce investment
in innovative companies, sponsoring technological “incubators” and industrial parks, and introducing new legal arrangements to assist start-ups. Allegre created networks of research institutes and private firms that identified technology spinoffs that could be funded. A special state agency monitored innovation and certified which companies were suitable for investment, thus alleviating risk. At the same time, policy makers adopted measures to ensure that these private enterprises would not damage social solidarity. For example, stock options were designed to reward technological innovation rather than stockholder interests—in contrast to American usage. And schemes for promoting private investment and venture capital were created in ways that did not endanger the nation's welfare system. In other words, France relied on state activism and found ways to encourage high-tech innovation without turning to deregulation or upsetting the social contract.

Such efforts brought some success. By the end of 2000 France had some eighty high-tech incubators or
pepinieres
, though these were small in number compared to those in the United States and the United Kingdom. The most glamorous of these installations was the science park of Sophia Antipolis near Antibes, where science and art mingled and over a thousand companies, some American, pursued research in fields like biotechnology and telecommunications. The republic advanced toward the high-tech economy, employing techniques pioneered in Silicon Valley, but it adapted them to more traditional ways of promoting innovation and guarding social solidarity.

The political record of the 1990s demonstrates that policy makers, socialist or conservative, used a trope about America to cover their reforms and avoid the appearance of embracing the New World. Those like Michel Rocard on the left and Alain Madelin on the right, who were associated with transatlantic connections, suffered politically. Orthodox members of the Socialist Party denounced Rocard and his followers as
la Gauche americaine
and Gaullist regulars hounded Madelin out of office. Given such resistance, politicians in France had to pretend Anglo-American practice had little to do with their taking up
more market-driven policies. Such reforms had to be masked—in fact, America served as a foil, as the “un-French” way.

America and the Private Sector

Business managers, or at least those who were most closely tied to global networks, proved far more willing to embrace openly American ways than were politicians. It was in the private sector that America was most appreciated. For example, Ernest-Antoine Seilliere, who led the Mouvement des Entreprises de France (MEDEF), the refounded employers association after 1997, pursued a free-market agenda with flair and furor.
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Seilliere fought for reforms that liberals on the political right sought but could not readily acknowledge. He had taught at Harvard University and was not shy about invoking the American model or criticizing his own people for their anticapitalist attitudes. Seilliere wanted the state to withdraw altogether from economic and social affairs. His message was, let the market create jobs and adapt the economy to globalization and the Euro. One journalist concluded that France had finally found its answer to Reagan and Thatcher.
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In 1999 the forceful Seilliere organized employers to take to the streets against the government's adoption of the thirty-five-hour workweek. A second example is Alain Minc, the head of a major consulting firm, who applauded the efforts of the MEDEF; he disputed the notion that competition was a kind of tyranny by arguing that the modern market faced such counterweights as the media and public opinion, which brought more pressure on economic actors than the state had exercised in the past.
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Minc boldly insisted that competition was even beneficial as a force for reform of education or health services. Versions of Minc's free-market views were shared by other globally minded CEOs like Claude Bebear of the insurance giant AXA; Jacques Maillot, founder of the travel business Nouvelles Frontieres; and Paul Dubrule, copresident of the international hotel group Accor. But these managers cannot
be made representative of the diverse world of business: they were more an exception than the rule.
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French business was Americanizing and globalizing. As two experts observed, “Whereas as recently as 1985 foreign ownership of French firms was only around 10 percent, it is estimated that more than 40 percent of French shares are now held by foreigners—mostly large U.S. and British pension funds.”
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Between 1988 and 2000 American institutional investors raised their share of equity from $128.7 billion to $1.787 trillion.
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Keen on job creation, France surrendered its past reticence about receiving foreign capital: subsidiaries of American corporations provided employment for 400,000 by the early 1990s, concentrated in sectors like IT, automobiles, petroleum, pharmaceuticals, telecommunications, electronics, chemicals, agro-food, leisure (Disney), and retailers with the arrival of chains like Toys R Us and Gap.
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France became a favored location for foreign investment. Toyota, for example, in 1998 selected Valenciennes in northern France to build a new factory; this was the largest Japanese investment in Europe since the Japanese began making cars in Britain in the 1980s. At the same time, moving capital across the Atlantic had made France a major investor in the United States so that its direct investments trailed those of the United Kingdom but virtually equaled those of countries like Japan, the Netherlands, and Germany.
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The French had arrived stateside. In 1991 AXA Insurance, directed by Claude Bebear, bought the Equitable Life Insurance Company for one billion dollars while the Michelin tire company built plants in several states and came to employ 25,000 workers in America. French companies won bids for hightech contracts with the Pentagon; Sodexho, the institutional food company, employed over 100,000 workers in the United States and, during the war in Iraq, fed U.S. Marines.
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Alcatel bought two up-and-coming California data networking firms. And in 1999 Vivendi, the water utility turned media empire, managed the biggest purchase ever of an American company in acquiring U.S. Filter, America's principal water-treatment firm, for $6.2 billion.

The 1990s saw French business move toward certain Americanized practices, like raising capital through the equity market or paying executives with stock options, but they did so sparingly and without embracing them fully.
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Even among those who were most receptive there were reservations and disputes.

Some French corporations adopted a more American operating style, including the requirement that English be spoken in the boardroom. The board of directors of cable TV channel Canal Plus, for example, held its Monday meetings in English to “blend cultures” with its American managers. Marc Lassus, chairman of Gemplus, the world's largest manufacturer of smart cards (cards containing computer chips that can be used to store information) illustrated an extreme case of transplanting Yankee ways. Lassus ordered his employees to speak English at work, hired American executives, adopted the informality of Silicon Valley, declared war on French unions and the welfare state, and hounded his workers to become more service-minded. “The model we have to copy is American, not French,” he declared, and, in the ultimate act of Americanization announced it was inevitable that the company move to the United States.
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The need to sell smart cards in the American market was crucial in his adopting American techniques, but even Lassus did not dare import other American tactics, like shipping jobs overseas or cutting benefits, for fear of being vilified. And some of his employees objected to his unrestrained imitation of Americans.

The transatlantic merger and transatlantic CEOs made their appearance at the end of the century. Vivendi Universal, which had begun as a water company during the 1850s, became one of the world's media giants when it acquired Universal Studios in 2000 as well as American properties in music, television, and publishing, and its chairman Jean-Marie Messier became the superstar of Americanized French managers. Messier, who enjoyed enormous power in the French movie and television industries by operating Canal Plus, the first pay-TV channel, took up residence in New York City where
Paris-Match
photographed him ice skating in Central Park. He viewed his highly publicized buyout of Seagram's, the owner of
Universal Studios, as a French rejoinder to American domination of telecommunications.
Fortune
magazine dubbed him France's “first rock-star CEO” but, as we shall see, he was not popular with all of his peers.

Financial institutions were also involved in adopting American-style techniques. In early 1999 Societe Generale (SG) and Paribas took steps toward a friendly merger, but the Banque Nationale de Paris (BNP), managed by Michel Pebereau, thwarted this effort by initiating a hostile takeover of the other two.
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By the summer a three-way battle for control of the banking sector had developed. BNP merged successfully with Paribas, but the takeover of SG became an American-style donnybrook. Even if the purpose of the merger was conventional—building a large French bank that could better compete globally—the manner of the takeover came straight from Wall Street. BNP failed to first win the approval of the Ministry of Finance, as was common practice. SG's tactics were also reminiscent of Wall Street: its head, Daniel Bouton, objecting to the takeover on grounds that BNP's bid was too low, insisted that winning value for his shareholders took precedence over national interest.
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Meanwhile SG's employees took to the streets trying to intimidate government regulators into stopping the takeover. The government, caught between two warring commercial banks, was reluctant to act in the now discredited
dirigiste
manner: it tried to mediate by calling an unprecedented hearing before the Credit Institutions Committee. To complicate matters further it became evident during the controversy that outsiders also coveted SG.

As negotiations developed, officials became anxious that blocking BNP would risk allowing SG to fall into the hands of foreign financial institutions, but they had to face the fact that BNP's bid did not meet minimum requirements for a legal takeover. In the end regulators prevented BNP's bid for SG. Critics like Jospin's interior minister, Jean-Pierre Chevenement, commented that the national interest had been ignored and warned that foreign predators would step in.
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In the end the affair exposed both how Americanized and how globalized the financial sector became by the late 1990s.

At the level of internal structure there was also change imported from abroad. Some of the largest French corporate groups were, in the words of one management expert, “directly inspired by the American ‘shareholder model.'” “The extent to which U.S. and British norms have penetrated the system is impressive and total,” Francois Morin wrote.
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Morin was referring to the way companies like the merged AXA-UAP insurance group abandoned cross-shareholding, a system of interlocking and concentrated ownership structures, and veritable networks of tight corporate financial alliances, and instead adopted market-oriented structures closer to U.S. and British models. Instead of companies holding financial stakes with one another, forming interlocking circuits of ownership and management, they turned to capital markets and accepted massive investment from North Americans, especially from pension funds like Calpers and TIAA-CREF. The old system provided mutual protection and close managerial control, but it tended to immobilize capital; the new arrangement opened companies to capital markets, both foreign and domestic, and made management yield to the demand of shareholder values. Morin observed that “the largest French firms are subject to Anglo-Saxon management and return on capital norms” and French managers admitted that it was “impossible to escape the demands made by the United States and British investors.”
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In short, the norms of top corporate management were becoming more like those of the Anglo-Americans.