February 22, 2013
Europe finds itself in a process of relative de-industrialisation. The share of manufacturing in the GDP keeps falling. Few are the EU countries where manufacturing accounts for 30 per cent of GDP, the global average, let alone that of China (47 per cent), the world` s industrial power house.
With a share of only 19 per cent in 2012, France scores particularly low in the EU (Germany 28 per cent and UK 22 per cent). Though the share of manufacturing is not by itself a relevant indicator of a country`s economic health, France seems to get concerned about the long-term viability of its industrial sector.
All countries see their manufacturing sectors shrink in relation to services as a logical consequence of faster industrial productivity growth, exacerbated by high labour and social costs that make it difficult to compete with emerging countries. Therefore Europe can only compete on top quality and innovative products, manufactured with a minimum of labour input.
Switzerland, Germany and Scandinavian countries have been relatively the most successful in adapting to changing global market conditions, which requires an unprecedented degree of flexibility in the work process.
Constant shifts of plant location, outsourcing and repatriation of outsourced components are essential in this dynamic. “Swatch”, the biggest European watch manufacturer, is one of the most successful operators in this new competitive game.
A constant rise and demise of companies and and plants remains the essence of the modern capitalism. The famous Austrian economist Josef Schumpeter has baptised the process as “creative destruction” more than 70 years ago.
The process is not without pains. The higher the level of specialisation and social protection the more difficult will it be to close plants and lay off labour. A forward looking social and industrial policy will smooth the adjustment process by making it gradual and providing severance payments and retraining facilities. General education focusing on the ability to perform diverse functions and adjust to ever new challenges on the work place will be crucial.
The French government does not believe these proven recipes are enough.
Confronted with rising numbers of closures and lay-offs in sectors like steel, banks, pharmaceuticals, cars and most recently tyres,it considers vetoing plant closures by profitable companies.
The French malaise seems to be part of a more profound crisis of competitiveness.
It will not be possible to combat it with legislation restricting the freedom of entrepreneurs to shift plant locations according to the necessities of the markets.
France is part of the single market. Companies can therefore switch to locations in 28 EU countries to supply French demand, if they find French legislation too coercive.
The French government should think twice before introducing ineffective administrative rules for coping with a problem that needs substantive answers, from better training to better industrial relations. It should find inspiration in neighbouring countries, most recently in Spain, on what to do to make industry more competitive and encourage young people to set up their own companies.
Europe needs a healthy industrial sector. The EU Commission and more competitive member state governments, especially Germany, should therefore advise the French government to take more effective measures than vetoes against closures to save its industrial fabric.
Eberhard Rhein, Brussels.Author : Eberhard Rhein