CHAPTER SIX

Investing in our future

In order to thrive, to act fairly towards the vulnerable in our society, and to retain our ranking in the family of nations, there is only one path for us to take: to re-establish manufacturing, and by so doing to create the conditions for a new prosperity in our country. Deindustrialisation in France is one of the causes of our adversity. The challenge is not to recreate post-war industrial France. That would make no sense. We must be fired with enthusiasm to reinvigourate the industrial dream that is at the heart of our history and our identity.

That dream was the realm of the state in the days of Colbert, it was in the forefront of the industrial revolution under Napoleon III, and it was further developed under the fourth Republic and in the first years of the fifth Republic. It has never ceased to inspire our country’s entrepreneurs and workers. It is at the very heart of our identity, because France has never regarded itself as anything other than a creative, inventive, innovative country playing a significant role in the advancement of humankind.

In the light of that aspiration, which goes back more than two hundred years, today’s realities are particularly harsh. Since 2000, we have eliminated almost 900,000 manufacturing jobs, and industry’s share of our Gross Domestic Product has fallen from 17 per cent to 12 per cent. There is therefore no more urgent task than reforging our industrial potential, which is currently jeopardised and may remain so for some time to come.

Rekindling our manufacturing dream is also a social imperative. There is no point in simply asserting that in France we are concerned with not abandoning the most vulnerable if, at the same time, we let French industry drift and go downhill without lifting a finger. Real prosperity is created first and foremost through the production of goods and services. The wealth generated can then be shared. Without production there can be no “social model”.

A precondition for attaining that goal is choosing the right economic policy. Instead, for thirty years and until recently, we have chosen to substitute public spending for economic growth. We have been very generous with social benefits, but we have never tackled the roots of mass unemployment. We have supported housing benefits, but have not sufficiently kept abreast of construction needs. In short, we have built a palliative rather than a productive model for expenditure. Today, that model has run out of steam. Our levels of debt bar us from accumulating an even-greater deficit to finance our current expenditure. Our rate of compulsory levies prohibits us from raising taxes any further. Having said that, does this mean that the state must make indiscriminate cuts in spending and withdraw from public involvement in the economy? That would be just as absurd. More than ever, we need to invest in schools, healthcare, and energy transition, to name but a few. These are domains in which the state could do better, but where nothing can be achieved without the state’s involvement.

I have therefore always been uncomfortable with the debate that pits the partisans of “revitalising” the economy against those advocating “austerity”. I believe that this dichotomy is misguided. The first group believe that it is sufficient to increase deficits as a way of supporting our economy without taking into account public finances. The other group holds that it is sufficient to make spending cuts and reduce deficits at any price, in order to boost growth. Both are wrong. Just as it would not be appropriate to aim to balance our public accounts in the current context of transition, so it would not be healthy to remain unconcerned about levels of public expenditure and their effectiveness, as well as levels of taxes and other statutory contributions.

I favour pursuing a policy of reducing our public expenditure. Rather than focusing on the deficit, our public accounts should be steered according to public-expenditure targets. We can do this without weakening growth or calling into question necessary social protection. We spend the equivalent of 56 per cent of our national wealth on this area, whereas the average expenditure for the Eurozone, with largely similar levels of protection, stands at 49 per cent. We can resolve to achieve this at a steady but sensible pace by aiming for more efficient public spending.

We must do this at the same time as prioritising real savings and ensuring that all stakeholders have a sense of responsibility, rather than the government merely shaving budgets over and over again.

Keeping in mind our priorities and the need to be fair, all sectors — the state and its agencies, local authorities, and the social welfare agencies — must play their part. Is it logical to refrain from reforming the allocation of 18 billion euros of personalised housing benefits, when they benefit recipients less than they do property owners, and feed into hikes in real-estate prices? Is it appropriate to let operating costs continue to rise (despite decentralisation initiatives), while investments shrink? Is it relevant to maintain an unemployment benefit cap in excess of 6,000 euros per month, when our system has recorded a deficit in the order of 4 billion euros? Alternative ways of addressing these questions will allow us to reduce compulsory levies.

What matters in the short term is to take strategic decisions that will put us on the right path. Unlike the dogmatic partisans of economic “recovery”, we need to undertake major structural reforms, systematically review public policies, and resolutely pursue the goal of reducing futile spending. And, unlike the dogmatic partisans of “austerity”, we have to accept that our economy has vital needs in a number of domains, and is still struggling to recover from the economic and financial crisis. It would be absurd to endanger our future growth just to reduce the budget deficit by 0.1 per cent of GDP, and not to take advantage of historically low interest rates — thereby failing to finance investments that would be profitable for our country. I therefore believe that we must in the very near future conduct a policy that promotes our economic growth, comprising two pillars of equal importance: public investment in key domains, and a sustainable reduction in running costs.

I consider three domains to be priorities for public investment.

The first is “human capital”, as the economists call it — that is, education and training. Once more, investment in schools, in higher education and research, but also in continuing education, is absolutely critical. It is the only way to give France the means to achieve its ambitions in the coming decades. In this domain, we are experiencing the effects of a delay that is costing us dearly. It is making us less productive, less innovative, and less competitive. It exacerbates mass unemployment and inequalities. Even from a strictly financial point of view, it is harmful, because insufficient investment in schools or in training compels us to spend even more to repair the damage done. To invest in human capital is also to finance French innovation. In the field of healthcare, for example, we have formidable innovative capacity, particularly in our public hospitals and labouratories, and in our companies.

Currently, we support these institutions with a tax credit envied all over the world because it enables companies to offset a portion of their investments in R&D against their taxes. Nevertheless, our system is still recalcitrant about allowing innovation to flourish. The procedures take too long, and the rules are too complicated. It was for this reason that the researchers who conceptualised the artificial heart — a world first for France — almost took their project abroad in the face of our complex system. Once more, we must not only invest, but also drastically simplify practices in order to support and encourage, rather than to restrict and hinder.

The second domain that needs to be a priority for state investment is environmental transition. If certain people are allowed to continue to promote their own short-term interests at any cost, we are headed for failure. This is clear in the domain of energy — where responsible citizens and businesses are not automatically compensated by free-market forces. The improved insulation and heating of existing homes, and the wider use of electricity requires public investment. But this is also true in the domain of agro-ecology, where an individual farmer does not necessarily have the means to undertake on his own a transition to a new model that might require calling upon stakeholders across the whole energy sector. It applies also to infrastructure and transportation, to enable the whole country to be better served. There, too, we will need the government to initiate, coordinate, and mobilise all our resources, while sharing long-term plans with private stakeholders. In these fields, the state must get involved and send the right messages to the right stakeholders. It must also invest in and foster innovation, step up environmental taxes, reliefs, and schemes, and support all those businesses, large and small, that will lead us towards a low-carbon, environmentally friendly economy.

The third domain is the deployment of fiber optics throughout France. After the railways, electricity, television, and the telephone, this is a national project like almost none other in our history. It is particularly vital for the most isolated areas. Today, fiber optics are indispensable for rapid modernisation across our entire economy and to enable it to turn a crucial technological corner within just a few years. In my capacity as minister, I actively guided the current policy for fiber optics deployment by telecommunications operators. I am now aware that for the most far-flung rural areas, the state itself, in addition to co-financing, must also be uncompromisingly committed, particularly where the operators fail to step up, and it must promote innovative solutions, including by way of satellite.

What I want to institute is a five-year public-investment plan. This is the only way to meet the longstanding needs of the whole country and all of our economic actors, and give them the necessary long-term view. I am hoping for swift European initiatives in this area, but I have no wish to wait for unforeseeable and potentially slow decisions.

Of course, budgetary regulation and a reduction of public expenditure must be encouraged in order to reduce our permanent deficits, which are an indicator of the dysfunctions in our administrative bureaucracy. However, regulation must not prevent us from seizing opportunities. This is why I stress in national and European debates that we need to separate the undeniable need for savings and efficiency in our operating costs, on the one hand, from the need to invest in and modernise our economy, on the other.

Europe clearly has a decisive role in this regard. If we want to build our country’s future, we must carry out radical reforms at home, while investing both in France and in Europe.

In parallel, investment initiated by companies themselves is paramount. It is in this way that innovation and the development of new activities will enable us to move towards a robust growth model. Twenty years ago, France lost the battle for robotics by halting investments in that field, believing that this would protect jobs. It was not the case. On the contrary. Germany, for its part, has five times as many robots in its factories, and has been able to keep many more jobs in industry. They now have an unemployment rate that is almost half ours. Today, France must ensure that its economy fully embraces the opportunities presented by innovation and the digital age.

Businesses, large and small, artisanal or industrial, should build up their profit margins to facilitate greater investment. For that purpose, they need a long-term view and stability. They have to be able to make future plans and investment forecasts, devise their company policy, and set out to conquer new markets. In France today, companies spend too much time trying to understand continual changes in the laws. While our economy is being transformed at great speed, and while the economic climate is increasingly uncertain, public authorities have a responsibility not to be a source of concern and paralysis.

Sometimes even positive measures are ineffective because instability makes firms hesitant. How can one explain the fifty amendments enacted in the Labour Code since 2000? How can one justify the fact that even in the course of a five-year presidential term the regulations in a given sector or tax obligations can be changed over and over again?

So let us establish some basic principles: once a reform has been initiated, we should not modify the measures taken, but should allow them to be applied before we assess them; let us make a commitment not to modify a particular tax several times in the course of a five-year presidential term. Whole sections of our economy have been disrupted by changes in regulations that have weighed down business activity, despite good reasons for the changes. In several sectors of our economy — such as housing, agriculture, and the hotel and restaurant sectors — we have changed the regulations far too often. I do not want us to add new rules before reviewing those that are already in place and are not proving useful. Let us invite stakeholders and all French citizens to identify regulations that have become outdated. We also require sound judgment and consistency from public officials in the field.

In a dairy that I visited a few kilometres from Aurillac, the young farmer managing it told me that two years earlier he had been required to invest in a footbath at the entrance to the cowshed. The same state department then reversed their instruction a few months later, and informed him that the footbath should be dismantled because it had created problems to do with hygiene. The regulation had been promulgated without explanation, and then amended, again without explanation. That little joke cost him three months’ income. How can the state retain its credibility in such circumstances? How likely are businesses to invest in the appropriate improvements when they are undermined in a manner that is both inexplicable and authoritarian?

To invest in innovation, companies need to reconstitute their profit margins and thus reduce costs of labour, energy, and capital. In that respect, the current five-year presidential term will have marked a turning point, particularly with regard to labour costs. The CICE (Tax Credit for Competitiveness and Employment) and the Responsibility and Solidarity Pact will have returned to companies some room for manoeuvre, and will have stopped the hemorrhaging of jobs.

In this domain, I want matters to be clear. I wish to reduce those business levies that are detrimental to competitiveness, and to support investment in manufacturing. To achieve this, amongst other things, I will transform the CICE into a scheme for the reduction of contributions, and I will decide other ways to reduce or eliminate the amount of employer payments. Savings on public expenditure, and tax incentives — on pollution and consumption, in particular — will be established to finance this strategy.

Under those conditions, businesses will be able both to hire staff and invest, which are the two priorities for our economy.

As regards innovation, stable regulations and reductions in contributions are admittedly not the be-all and end-all. We have to encourage and develop our entrepreneurial forces. We often talk about start-ups, and implicit in this term is a lot more than a passing fad. A new model is emerging for business and entrepreneurs — the catalyst of economic transformation and cultural change.

Up to now, France has harboured a paradox that could be fatal for our future. On the one hand, we stigmatise failure; on the other hand, we marginalise success. The fear of failure is etched into the minds of our children. At school, we compel children to conform to a single model of excellence, and some fail. The result is that our young people lose self-confidence, and they become scared to take risks. This is why I believe that it is incumbent upon us to impress on people’s minds that if a person fails it is first and foremost because they have tried. And that if a person has failed they have a considerable advantage over someone who has never tried: they have acquired experience. At the same time, we have to place a value on success — it is the other side of the same coin. We have to learn to salute and celebrate people who succeed in all walks of life. So let us shine a light on all French successes, whether entrepreneurial, social, intellectual, sporting, or cultural.

In my opinion, there are two simple prerequisites for entrepreneurship to succeed and develop in France. First, a tax system that rewards risk-taking and wealth acquired through talent, work, and innovation, rather than through dividends and property investment. Our tax system — and I include here the current wealth tax — should no longer penalise those who achieve success in their own lifetimes and invest in businesses and innovation.

Then we need a system of financing that enables our businesses to raise large amounts of capital rapidly. That is indispensable in a knowledge economy.

Why is it that a firm such as Uber is now the leading taxi company in France, when we have French competitors offering more or less the same service? It is because Uber has already managed to raise tens of billions of dollars, whereas the French firms have only raised tens of millions. Clearly, the problem in France is a lack of fast access to major capital funding.

To conclude, there will be no investment in the future of our country if the state does not guarantee equitable protection and require the same compliance with regulations by all. For this, we need a competition policy — a crucial instrument that, in my view, we have wrongly, too often, and artificially set against manufacturing policy. The rules of competition enable the smallest and newest businesses to enter a market if they fight for a place, work hard, and innovate. Without competition, room is reserved exclusively for those who have been around for a long time and who come to understandings and accommodations with one another. Competition protects against collusion, and fosters freedom — it is essential.

How can farmers innovate or invest in transforming their methods and equipment if we do not protect them from the supermarkets and if we do not make sure there is fair competition to ensure that certain major retail chains do not collude to reduce the producer’s profit margin? Competition is indispensable for innovation.

The state also has a responsibility to provide a long-term vision.

To elabourate by using the same example: in order to survive, farmers often need to modernise and to purchase equipment in order to produce at lower cost and to increase the value of what they produce. As in every economic sector, farmers need stability to stay committed over a period of years. For them, particularly, if the market is not regulated to assist them to overcome price fluctuations, it becomes problematic to invest. The state must guarantee stability in the long-term, through sectoral agreements to protect crucial innovation.

Unfair competition from foreign countries obviously hampers innovation and the hiring of staff. It is also vital to ensure compliance with the rules of the game and, along with the European Union, to vigorously combat any unfair competition. This is where European economic sovereignty is critical. When giant corporations from Asia and America do not play by the rules of the game, and when a strategic sector needs to be protected, public authorities must have their say and must assume their responsibilities. In my capacity as minister, I made every effort to ensure that the European Union would get its voice heard by the Chinese players in the steel industry and would better protect the iron and steel businesses in our country. I defended artisan workers and small-business owners in the face of competition from the Internet giants, and even more importantly pleaded the case for the new economy to be conceived of as a growth opportunity for them.

This means lifting the obstacles that hinder the development of these businesses, beginning with the multiplicity of rules and levies that are not imposed on powerful corporations such as Google, Apple, Facebook, and Amazon.

Certain sectors cannot be left to the whims of the market. The protection of our national sovereignty must be tackled with our eyes open, and the full range of instruments available for government intervention must be mobilised: direct support, government shareholdings, authorising inward investment … As regards defense-related sectors, there are obvious strategic challenges for our military sovereignty. The state directly supports the development of military programs, in particular in its role as customer. In this sector, it must retain its equity in several key enterprises, and closely monitor changes in the shareholders of private companies. When raw materials or energy are the issue, the state must also be on the front line, because the stakes are at once our country’s energy independence, robust environmental choices, operating costs for all our businesses, and purchasing power for our citizens. This is why more recently the state has been deemed to have a legitimate role in restructuring the nuclear sector, which alone enables the production of decarbonised electricity at particularly competitive prices. And it is also why it will be legitimate in the future to support the diversification of our energy mix, so as not to be dependent on a single technology.

It is for these reasons that I could never accept the ready-made solutions of adherents either to the doctrine of Colbert’s mercantilism, on the one hand, or to that of the liberals, on the other. For the former, the state gives direction, decides on everything, leads, and implements: these people wish for the return of the Plan Calcul. For the latter, the market cannot be wrong, and the best industrial policy would be to have no industrial policy at all. For my part, I subscribe to neither of these solutions: not the arguable efficiency of the former, nor the dangerous over-simplified approach of the latter.

Fair protection and ensuring compliance with rules is thus the role of the state if we want our businesses to invest in our future. The challenge is immense. For ten years now, France has been contending with the aftermath of the global economic crisis that began in 2008. We have been obsessed, sometimes justifiably, by short-term considerations, trade or budgetary deficits, margins or interest rates. In many respects, these indicators have improved: we have reduced our budget deficit and considerably improved our competitiveness. However, in reality we have been improvising with globalisation for thirty years, without finding our rightful place — that of an economy of excellence, entrepreneurship, and innovation, at the forefront of great digital, cultural, and environmental transformations.