European High-Tech Policy a Poor Model
Can a nation that worships Jerry Lewis and Mickey Rourke really teach America a thing or two about industrial policy? Mais oui, mon ami . . . particularly if you’re interested in how not to do it.
Consider Groupe Bull, France’s state-sponsored computer giant. To call Bull the “Jerry Lewis of global computing companies” would be unfair. For one, Lewis is a much better performer. For another, he has never cost French taxpayers billions of francs. Then again, Bull’s performance certainly qualifies as slapstick.
The company, which just announced losses of more than $1 billion on its roughly $6.5-billion annual revenue, blends technological me-tooism with lackluster marketing. It is totally dependent on the French government for its survival.
“I am absolutely convinced that Bull will survive the crisis it faces,” insists Chairman Francis Lorentz, who swears the company will break even in 1992.
Of course, what’s a crisis if you don’t have to pay? Bull is counting on a $1-billion injection of fresh capital from the government plus an additional billion-dollar subsidy for research and development. In polite European circles, this type of industrial policy is known as “champagne socialism.” In less polite company, Groupe Bull is little but a high-tech welfare courtesan that does a far better job of making promises than making computers.
France has desperately wanted to be a global leader in l’informatique . Roughly two decades ago, a pair of French intellectuals wrote an influential book “The Computerization of Society,” arguing that, just as France supports French culture, it should also support a French computer industry. Under President Francois Mitterrand’s government, the French have launched a slew of computational initiatives ranging from the money-losing but interesting Minitel electronic telephone terminals to the money-losing and uninteresting Groupe Bull.
Part of Groupe Bull’s problem is that huge state-run companies are unlikely to nimbly respond to the hyperspeed changes of the computer marketplace. What’s more, France’s informatique policies seem more defensive than opportunistic. In contrast to the Japanese industrial policy initiatives, which stress low-cost, high-volume innovation in computer technologies, French efforts reek of protectionist nationalism. Rather than actually create new markets, Groupe Bull is simply a multibillion-dollar mechanism to assure a French presence in the computer industry.
But why pick on France? The reality is that the entire European effort to compete in computer technology has been a fiasco. American companies such as International Business Machines, Digital Equipment and Compaq Computer dominate the $100-billion European computer market. The Japanese are also coming on strong, with Fujitsu acquiring 80% of England’s ICL and Mitsubishi gobbling up Apricot Computers.
European computer companies have been absolutely abysmal competitors. The merger of Germany’s Siemens and Nixdorf has yielded an unwieldy organizational blob. One analyst reports that Siemens/Nixdorf sales per employee is roughly $125,000 a year. That contrasts to Compaq’s sales per employee of $400,000. By virtually all measures--financial to technological--European computer firms are less productive than their Japanese or American counterparts. It’s ironic that as European companies are consolidating, American and Japanese companies are boosting investments in small, entrepreneurial companies in order to capture emerging innovations.
Sure, there have been a bunch of European Community efforts such as Esprit and Jessi designed to pool the Continent’s technical expertise and build stronger regional computer companies. Without exception, they’ve failed. Instead of offering new visions of computing technology, they’ve generated imitations with an accent. In fact, the French have gotten ICL kicked out of the Jessi semiconductor research initiative since it was acquired by the Japanese.
The lesson here is simple: European countries should give up on the insanely expensive and failed belief that they can be soup-to-nuts competitors in the global computing marketplace. They should concentrate on their strengths. The French are superb in software, and their digital switching technologies for telecommunications are world-class. German firms are world-class at computerized machine tools and process automation systems. The British also have a flair for software development. Europe still has an opportunity to profitably participate in the global computing industry, but not by trying to imitate IBM and Fujitsu.
In America, we can still have meaningful debates about competing in semiconductors and computer manufacturing because we have companies that, for better and for worse, still help define the state of the art in those areas. Europe has already lost that battle and to continue to throw billions in good money after billions of bad is a recipe for industrial disaster.
So America has a lot to learn from Europe’s failed industrial policies in computing. Government shouldn’t be an owner or equity partner. Policies should promote potential market opportunities--not existing ones. Industrial consolidation doesn’t guarantee that corporate costs will be better managed or that innovations will flow.
The most important lessons are obvious: First, don’t get into the situation that Europe’s firms did. Second, that billions of dollars of government aid can guarantee marketplace success is Bull.
