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This is the million dollar question: Why is EUROPE not growing?
Think about it.
The European union has the second largest economy on the planet, just after the United
States.
Nevertheless, of the World’s 50 largest companies, only 8 come from European soil.
While the New York stock exchange is on fire, European stock markets are going down: this
includes Frankfurt, Paris and Madrid.
And what about the tech giants?
We’ve all heard of Google, Apple and Amazon to name a few… but what’s their EU equivalent?
Well…
Germany has SAP, which is a database software company…
Sweden has Spotify… but let’s face it, none of those are a match for Facebook or
Uber.
And this is especially worrisome if we consider that the entire World is on the rise.
Yes, my dear viewers, if we take the GDP of all the countries on the planet, including
the wealthy and the poor, we have a 3.1% growth rate.
This is great news for everybody.
But the European Union’s growth rate hardly reaches 2.5%.
And believe me, this is not good news for Europeans.
Slower growth means less jobs and less money for everyone.
At the end of the day, if an American or a Chinese company can take on the market, sooner
or later, European firms will go bankrupt.
So good luck finding a well paid job!
This is why many politicians believe the EU has to bet on bigger companies.
And it’s in this context that we found this headline from the beginning of 2019.
EU blocks Alstom-Siemens rail merger due to ‘serious competition concerns’
To summarise, ALSTOM is a French high speed train manufacturer.
Have you ever seen the French TGVs?
Those trains that appeared in movies like ‘Mission Impossible’?
Those were manufactured by ALSTOM.
SIEMENS, on the other hand, is a German behemoth with a train manufacturing division.
Had they been merged and they would have become the second largest train company on the planet.
And you might wonder… what’s the first?
Of course, that would be a Chinese firm.
So, again, Europe wants to compete with China in technology.
So now you might be wondering…
Why did they ban this merger?
And this is where we get to one of the oldest economic dilemmas.
The foundation of the free market is free competition.
This means, if many companies are competing for clients, they’ll end up offering better
goods and services… at a lower price.
Now what happens when a company becomes so large that they can smash all of the others?
In this case, we would have a monopoly!
For example, let’s say ALSTOM and SIEMENS merged.
In this moment, the Spanish Government wants to buy new high speed trains.
Well, if there’s only one company capable of meeting those high standards… why would
that company lower their price?
At the end of the day… they’re the only choice on European soil!
And that’s not all!
If this company could take all the contracts… what would be the incentive for other entrepreneurs
to compete in the train industry?
In other words… this would be the opposite of a free market.
On the other hand, we can argue that, if two companies want to merge… who is the EU to
say no to that?
That doesn’t sound very free market either.
As you can see, this is a hell of a dilemma.
And it’s also one of the biggest ideological debates of our time.
This is not the classical fight between socialism versus capitalism.
In fact, we can say this is a fight between two views on capitalism.
What we’ll call French capitalism versus German capitalism!
So the question now is… was it a good idea to block this SIEMENS ALSTOM merger?
What’s the difference between French and German capitalism?
Does Europe really need big companies?
Today we’re going to answer to all of these questions but, before we do, let’s take
a look back at the history.
FRENCH CAPITALISM vs GERMAN CAPITALISM
If you’ve been following VisualPolitik for a long time, you might remember this video
we made about France.
France is a country famous for croissants, baguettes and economic dirigisme.
Since the times of CHARLES DE GAULLE, French capitalism has worked like an army.
Of course they have private companies and, somehow, competition among them.
But, for decades, the French economic playbook said that the Government must help and promote
their big corporations.
This is why starting a company in this country can be as hard as you can imagine but hey!
If you’re a big company, the State will roll the red carpet out under your feet.
In fact, do you remember this list with the World’s 50 biggest companies?
So from those 8 european companies, 3 are French.
And this is not by chance.
German capitalism is the opposite.
Of course, Germany has regulations and taxes.
But the aim of those is to protect a greater good: the environment, labor rights or competition…
Want an example?
Let’s talk about energy policy.
If you remember, in this other video we explained how Germany is totally against nuclear power
and how they’re closing all their plants.
This means that producing energy in this country is very expensive.
But on the other hand, no other country relies more on nuclear plants than France does.
Theoretically, this would mean that the energy bills here should be way cheaper than those
in Germany, right?
Well… not at all!
If you check expatistan.com, you’ll see that if you lived in Paris, you would pay
about the same amount as living in Munich, which is one of the most expensive German
cities.
Why?
Because of things like this.
French consumer group says EDF monopoly boosts power prices
The truth is Germany has lots of energy companies competing on the same playing field.
Nobody has the Government as a shareholder.
OK, there is a small exception here, which would be E.ON.
But we’re talking about only 2% of the capital held by a regional government.
The rest of the companies are fully state-free.
And they have no privileges whatsoever.
France is a different animal.
Here they have a big behemoth called EDF. 70% of their capital is owned by the French
government.
This means a big helping hand from the Government and almost monopolistic conditions.
Of course, it’s not all bad.
Thanks to its public support, EDF is the World’s third largest company in their industry.
They have a big foothold in many other countries, including African ones.
The price for having such a big company is paid by French consumers.
And the same goes for other industries.
For example, automobiles.
France has two big juggernauts: Renault and Peaugeot-Citroen, two companies that merged
some years ago.
Many of you might think these are normal companies that compete in a free market, right?
Well… this is far from reality.
In both cases, the French government is one of the main shareholders.
In the case of Renault, the French state owns 15% of the capital.
This means more breathing space for the company, coming straight from the taxpayer’s pocket.
Thanks to this support, Renault starts from an advantageous position compared with other
carmakers.
But not only that!
Having so many shares, the Government can intervene directly in the company’s affairs.
For example, Paris would never allow Renault to fall into foreign hands.
Many times, the Government has vetoed the closure of factories or has given grants to
develop new car models.
So what happens in Germany?
In this case, the German Government has no stocks in any carmaker.
BMW, for example, is all in private hands.
Volkswagen is partially owned by a city hall.
But it’s completely independent from the central government.
This means that Germany doesn’t help any of their companies.
At least in theory.
And something similar happens in the Nordic countries.
This is why we can find headlines like this one.
Geely Holding completes acquisition of shares in AB Volvo
In this case, VOLVO is one of the biggest companies in Sweden and Geely Holdings is
a Chinese Group.
The Swedish government didn’t do anything to stop the acquisition.
Good luck trying to do the same in France!
It’s not that they have lots of regulations against foreign investment… it’s the fact
that if Volvo were French they would surely be owned by the government, which wouldn’t
let this happen.
But if you wanna see French vs. German capitalism in action, pay attention to Today’s story.
Let’s have a look!
JUGGERNAUT ON RAILS
By the way, this amazing tune you’re listening to is from HARDBONE, a German hard rock band
that sent us their music.
…
And the song we’re playing is called ‘No man’s land’…
There was a time when China was a corporate no man’s land.
The country was growing like there was no tomorrow and they needed roads, bridges and
trains.
But they didn’t have companies to build those.
This is why in 2004 they signed a big contract with Siemens to build high speed trains.
The problem?
The Chinese can negotiate like nobody else.
One of the conditions was that, next to the German engineers there would be Chinese ones
learning from them.
So what was the conclusion?
Chinese people learnt how to make high speed trains.
Years later, Siemens ended the contract and China got what they wanted: technology.
With this technology they created their own company, CRRC.
And this was not a normal company.
It soon became the biggest company in the industry worldwide.
CRRC, the Chinese rail juggernaut Europe is afraid of
The corporation brought in about 26 billion euros in revenue in 2017.
Size really matters in the corporate World.
With all this money, CRRC can make big investments and smash their competitors.
They’ve already won big contracts in America, Serbia and the Czech Republic.
So… what does a French person think when they want to face a foreign competitor?
Well… this.
Germany's Siemens, France's Alstom merge to create new European rail champion
This new company was meant to be the second largest in the World.
And you might wonder…
WHERE did they want to have the headquarters?
Oh, what a question!
Obviously… in Paris!
Where else?
So everybody was happy, the shareholders, the French Government and also the German
government.
Yes, in this story, the German government was pretty much in agreement with the French
one.
So where was the problem?
The problem was in the antitrust laws.
Basically, if two big companies merge, they need special authorization.
In Europe, the limit to determine what is big and what is not is 5 billion euros of
gross income and 250 million euros in income within Europe.
If the company that comes out of the merger surpasses those limits, then they need to
ask for permission from the European Commission, which is short of the executive power in Europe.
And this is where our friends from Alstom Siemens had to face this woman: Marguerite
Vestager, also known as ‘the trust buster’.
Vestager says 'no' to Siemens-Alstom mega-merger
Vestager is the EU commissioner for competition: something like the minister for regulating
big corporations.
Despite being Danish, we can say that Vestager in this story represents German capitalism.
Her argument was that ALSTOM-SIEMENS would be large enough to smash the small competitors.
Don’t forget that we’re talking about a very political industry, where most of the
contracts are paid by different governments.
So imagine who would win all the public contracts in Germany and France.
And this is where the big dilemma started.
French Economy Minister Bruno Le Maire has vividly defended the intended merger between
European train manufacturers Alstom (France) and Siemens (Germany).
“The EU refusing a merger would be a big economical and political mistake”
As you can imagine, both the French and the German government had been lobbying in Brussels
as much as they could in order to make this merger happen.
Their train of thought was that the Chinese might end up manufacturing all the European
trains.
Vestager, instead, insisted that the best way to face Chinese competitors is with innovation.
And the best way to boost innovation is to have lots of smaller companies competing with
each other.
So now the question goes to you.
What would you have done?
Would you have accepted the ALSTOM SIEMENS merger?
Do you think Europe needs to create big corporate juggernauts to face foreign competition?
Please, leave your answer in the comment section below.
Also visit our friends from Reconsider Media dot com, the podcast that provided the vocals
in this episode that were not mine.
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