Posted Sunday, April 14, 2002; 15.05GMT
How did France get here? As a rich but medium-sized economy, it has always had much to offer the rest of the world, particularly in industries that require serious know-how. Take the water business, which is dominated worldwide by Suez and its French competitor Vivendi Environnement, formerly Générale des Eaux. Both firms specialize in concessions, or deals to invest in and run a city's waterworks over a long contract of, say, 30 years, without actually owning the assets. Contrary to France's image as a strictly state-led economy, Mestrallet says, "We French invented the concept of private management for public services." Once the two rivals had split much of the domestic market between them, foreign markets were the logical next step. Cities including Buenos Aires and Casablanca now get their water from Suez. (Selling water for profit in poor countries has, incidentally, made Suez a natural target for globalization foes outside France.) "Suez had to catch the growth where it was, and it was on the international market only," says Mestrallet.

France's openness to foreign capital — if not to actual foreign takeovers — is more surprising. Ironically, it's a product of the French exception. The Socialist government of Lionel Jospin has privatized more assets than the six previous governments combined, but maintaining France's social safety net was part of the bargain. The French pay high taxes — some 45% of gdp in recent years — to support generous public health-care and pension benefits; they don't need to play the market to win a secure retirement. Though stock ownership is on the rise, less than 13% of the French hold shares, compared to 23% of Britons.

Those privatized companies had to go somewhere for capital, and they've largely turned to American and British fund managers. It has radically changed the job of the French executive. "These guys are from the civil service, and they were used to talking to ministers," says Elie Cohen, an economist at Paris' Institute of Political Studies. "Now they have to deal with some small guy from Wall Street."

The state still holds big chunks of some of France's key companies: just over 25% of Renault, 22% of Thomson Multimedia and 55.5% of France Télécom. But executives at most such firms insist the state is just another investor. "I have never received an order from the government as a shareholder," says Thomson CEO Thierry Breton, who was appointed by the government to revive the consumer electronics firm in 1997. "I propose, and then we discuss." Considering the Jospin government's track record, that's probably true. Renault, for one, has arguably been freer to cut jobs than Volkswagen, which counts the state government of Lower Saxony among its shareholders. The influence of Wall Street and London can be a mixed blessing. Just look at France Télécom. The company's shares have lost half their value over the past year, largely as a result of its towering 160.7 billion debt pile, amassed during the telecom boom as boss Michel Bon invested in foreign businesses including Orange, cable operator NTL and MobilCom in Germany, and snapped up high-priced 3G licenses outside of France. Some financial analysts blame the state: they say France Télécom might have tended its balance sheet better if it didn't have one big, reliable shareholder backing it up. But the real problem is that Bon and company fell for the same market hysteria as the rest of the industry. "France Télécom doesn't make silly choices because it is state-owned," says economist Cohen, who used to sit on France Télécom's board. "NTL and MobilCom are silly choices made by silly management." Whoever holds the shares, French corporate life remains distinctive. Orange notwithstanding, French corporations have been slower than their Germanic rivals to adopt English as their lingua franca. "The difficult thing," says Michel de Virville, general secretary in charge of human resources at Renault, "is to make sure that our guy in Hungary, who speaks only English and Magyar, can call and the telephone will be answered in English." But French managers may have one advantage over the Anglophones when they do business abroad: they aren't as arrogant. "We French disagree on so many things among ourselves that we are accustomed to not thinking there is one single way," says Bertrand Collomb, CEO of Lafarge, which has operations from Poland to Korea.

France could even teach some of its economic rivals a thing or two about open markets. Consider the case of Electricité de France. In spite of President Jacques Chirac's stand in March against opening up the residential electricity market to competition, France's industrial energy market — the one EDF competitors like Mestrallet are really interested in — will be wide open by 2004. Mestrallet compares that situation to the U.S., where 50 separate states can say yes or no to deregulation. "The U.S. started deregulating energy 20 years ago," he says. "Today I would say we are catching up. We are moving faster and in a more continuous way."

An American might be surprised to hear all this, but then again so would many French. The globalization debate in France flares up over emotionally charged, one-off stories, such as last year's layoffs at Danone or Jean-Marie Messier's move to New York. But overall, corporate France's own active role in globalization has been a low-profile affair, perhaps because neither left nor right want to talk about it. The politicians "haven't really got the French to buy into globalization," says Brookings' Gordon. "In fact they've often done the opposite, with endless speeches about the need to tame it and contain it." This is fine as long as the economy keeps growing, but in leaner times the public could be far less willing just to let France's increasingly foreign-held companies follow the market's lead. Even if globalization is a done deal in France, the debate over it is far from settled.

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