File photo. Photograph:( Others )
When the coronavirus began sweeping through China and then Europe, disrupting global supply networks, Macron declared that the pandemic could be “a game changer for globalization”
In recent months, Fabrice Chabance has had plenty to keep him awake at night. Two foreign-owned factories in Saint-Florent-sur-Cher, a region of 11,000 people where he is a political leader, have announced plans to move parts of their production lines to countries with lower labor costs.
Nearly 200 jobs will be lost, a grim blow to his small industrial community in the Loire Valley. Despite efforts by President Emmanuel Macron to lure manufacturing back to France, Chabance has few illusions that the globalisation that has swept jobs away will be reversed any time soon.
“It’s a catastrophe,” said 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, 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 labor 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 after bringing jobs back from a plant in China just two years ago, citing the need to save money. Other companies are mulling similar moves to rein in costs.
Government officials, led by Bruno Le Maire, the finance and economy minister, have pledged to stop the bleeding and restore job creation. At the heart of the government’s plan is a 1 billion euro ($1.2 billion) program to subsidise jobs at companies that commit to producing pharmaceuticals, electronics and other “strategic” goods on French soil.
“The COVID crisis has brutally highlighted our vulnerabilities and reinforces the urgency to succeed in a policy of industrial reconquest,” said Agnès Pannier-Runacher, the secretary of state for economy and finance. “France must once again become a great productive nation.”
So far, Pannier-Runacher said, 31 French companies have won approval to tap 140 million euros in aid to maintain the production of medicines and other goods in France rather than moving them abroad. She said the subsidies would help create around 1,800 jobs, but there was no timeline on when the hiring would start.
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.
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 globalization’s threat.
There were signs that some of his policies had begun to pay off before the pandemic, especially a landmark overhaul of France’s strict labor 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 drugmaker AstraZeneca.
But executives say the changes did not address one of France’s lingering competitive drawbacks — labor 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 André Papoular, Europhane’s president, said labor costs were 25% cheaper. The bulb, used in street lamps, represented 20% of the value of production at the French site.
Fifty-five of the firm’s 165 industrial workers were laid off, a move that Papoular said was necessary to prevent the factory from shuttering.
“The paradox in France is that we have a fantastic social security system, but it comes at a cost,” Papoular said. “The charges imposed on companies are so high that the end result is that the labor cost leads to uncompetitiveness” that allows goods made elsewhere to beat French products on price. “This is what creates the problem.”
As the pandemic whittles profit margins and accelerates losses, companies are likely to continue to look abroad for ways to cut costs, despite the government’s efforts to stem the tide.
“COVID has led to a deterioration in the financial situation of companies,” said Patrick Artus, chief economist of 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.”