France planned to reverse globalisation but is still bleeding jobs

Today, a smattering of schadenfreude is permitted to lighten the mood of all our British readers, especially after the last, rather heavy, post on the future economic needs of developed nations – the following extracts are from an article by writing in the New York Times about our old enemy France, soon to be the butt of contempt for all other EU nations due to their negotiating tactics over Brexit

“It’s a catastrophe,” said Mr. Chabance, who is worried the layoffs will fuel a broader economic malaise in the area. “The government is calling for a renewal of ‘Made in France.’ But in reality, we are going to be grappling with a stricken industrial region.”

When the coronavirus began sweeping through China and then Europe, disrupting global supply networks, Mr. Macron declared that the pandemic could be “a game changer for globalisation.” He said he wanted to create opportunities to secure supply chains and reverse a decades-long trend of companies sending production to low-cost countries. But the jobs are continuing to leave, as multinational firms relocate production from France to countries with cheaper labour and higher productivity.

At a Bridgestone factory in northern France, over 860 jobs will be cut as the Japanese tire maker moves production to Eastern Europe. Nokia, the Finnish telecommunications company, will relocate some research and development activity from hubs outside Paris and in western France to India and Poland, threatening around 1,000 positions.

In southern France, Zodiac, a maker of inflatable boats, plans to move some production to Tunisia, citing the need to save money after bringing jobs back from a plant in China just two years ago. Other companies are mulling similar moves to rein in costs.

“The Covid crisis has brutally highlighted our vulnerabilities and reinforces the urgency to succeed in a policy of industrial reconquest,” Agnès Pannier-Runacher, the Secretary of State for Economy and Finance, said. “France must once again become a great productive nation. Whether the government can succeed in restoring even a fraction of production lost from France over decades is far from clear.”

“In the context of the coronavirus, the government has talked about providing aid to bring production back to France, so people think that jobs will be returning,” said El Mouhoub Mouhoud, vice president of the University of Paris-Dauphine and a specialist on globalisation. “If anything, companies are continuing to offshore production.”

Despite political pressure, multinational firms that have closed European factories in favour of areas with cheaper labor costs appear hesitant to reverse these moves. A recent survey by the consulting company Ernst & Young found that 37% of business leaders were considering bringing manufacturing services back to Europe, down from 83% in May. As Asia recovers from the pandemic, businesses have decided “not to cause further disruptions to their supply chain,” Ernst & Young said.

Manufacturing has shrunk to 10% of the French economy from over a quarter in the 1960s. From steel mills to auto factories, the loss of hundreds of thousands of jobs to globalisation has created social distress — and proposals by a succession of politicians to fix it.

Mr. Macron wooed voters during the 2017 presidential campaign by arguing that globalisation could be a “great opportunity” if managed correctly. He promoted business-friendly policies as a way to shield France from globalisation’s threat. And there were signs that some of his policies had begun to pay off before the pandemic, especially a landmark overhaul of France’s strict labour code to create more flexibility for companies to hire and fire. Such measures helped draw pledges for billions of euros in foreign investment from companies including Coca-Cola and the drug maker AstraZeneca.

But executives say the changes didn’t address one of France’s lingering competitive drawbacks — labour costs that are higher than in other countries, thanks to steep payroll taxes levied to fund the generous social safety net.

At Europhane, a maker of industrial lighting in northern France, the parent company in Austria recently relocated production of a type of light bulb requiring significant labor to Britain, where labour costs were 25% cheaper. The bulb, used in streetlamps, represented 20% of the value of production at the French site. “The paradox in France is that we have a fantastic social security system, but it comes at a cost,” said Mr. Papoular, Europhane’s president. “The charges imposed on companies are so high that labour costs lead to uncompetitiveness.”

“Covid has led to a deterioration in the financial situation of companies,” said Patrick Artus, chief economist of the Paris-based Natixis bank. “They will try to improve their profitability and their financial situation, which will lead them to move production to the most attractive countries in terms of labor costs, taxes, regulations and skills.”

France regularly appears at the top of labour productivity comparisons with other European economies. Yet companies with far-flung operations say output can lag behind lower-cost, more productive manufacturing sites, creating another incentive to shift production.

For Mr. Chabance, managing the fallout seems a herculean task.

“The domino effect will be huge,” he said. “We’re not just talking about  layoffs at specific companies, but the job cuts that will come at small firms that supply those companies,” he said. “Two jobs here, three more there — little by little it all adds up.”

As more jobs go, he fears that skilled workers may leave the area in search of more stable employment, placing further stress on the region.

“What is happening here is diametrically opposed to the government’s promises,” Mr. Chabance said.

“We’re going to find ourselves in an industrial wasteland,” he said.

Liz Alderman is the Paris-based chief European business correspondent, covering economic and inequality challenges around Europe. 


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