adaptability of the French armaments industry in an era of globalization, The

Industry and Innovation, Aug 2001 by Serfati, Claude

France's armaments industry has followed a trajectory in the postwar era that mirrors global developments. Defeat in World War 11 was followed by a period of intense national military reconsolidation. By the end of the 1950s, the development of a strong defense technological and industrial base had the stated objective of allowing France to sustain its independence of the two superpowers, and to be an alternative armaments supplier for countries keen not to be over-dependent upon the USA or the USSR. A related objective was that of national economic development, with the military technological programs launched in the early 1960s playing a pivotal role in the consolidation of key manufacturing sectors, and with the creation of "national champions" able to compete successfully in international markets.

The sweeping changes in the economic and geopolitical environment that took place in the 1990s constituted a huge challenge for the French defense industry. The falling apart of USSR and its satellite regimes brought about dramatic changes in the geopolitical setting and international relations. The USA remains the last superpower, and according to some analysts, could enjoy a domination which would be without parallel for the last two centuries. It is a far cry from those who claim that we entered a "borderless" world, in which "nation-states have become unnatural, even impossible business units in a global economy" (Ohmae 1995). It is this conflation of economic and geopolitical factors in globalization that has to be taken into account when transformations in arms industries are analyzed.' By any standards, the USA possesses in that industry a huge edge which has no correspondent in commercial industries, even in those related to defense such as aerospace. In 1998, the US arms industry turnover (domestic market plus exports) accounted for almost 50 percent of world production, and US military R&D expenditures were seven times greater than those of France, the closest competitor to the USA (SIPRI 1999).

In this paper, we analyze how the French arms industry has been adapting to the new economic and geopolitical context of the 1990s. The paper begins with a brief overview of the size of the French arms industry. Then, after addressing the institutional framework within which it is governed, we highlight the central role of military and strategic technological programs in the French technology policy, their contribution to technological performances of defense contractors and to the ones of the manufacturing industry. Our main finding is that, in the mid-1990s, defense contractors still accounted for a significant share of French technological capabilities (as measured by R&D and patents). This illustrates the point that governmental policy may be considered to be "path dependent"-something that can be explained only if the role of institutions and organizations is taken seriously into account. Meanwhile, military and strategic technological programs, the backbone of the French governmental policy fell short of stimulating the country's overall manufacturing competitiveness. As aerospace, which was the main industry benefiting from public R&D funding increased its world market share over the last decades, serious weakness persisted and sometimes worsened in some critical industries (machine-tools, computer). Likewise, for two decades, France's international technological performance, as measured by patents secured, has been declining in most industries, with the exception of the space and armaments industries.

In the last part of the paper, we trace what are the main institutional transformations of the French arms industry in recent years. Since 1997, the French arms industry has been undergoing a major restructuring, including consolidation through national and European mergers and acquisitions, changes in corporate governance through privatization and participation by foreign institutional investors in major defense contractors. These changes are all the more significant, since the institutional configuration of the arms industry had remained practically unmodified since the early 1960s. As the French system of arms production is forced to adapt to the new economic and geopolitical context, this does not mean that it is losing its distinctive features nor that its constituent institutions and organizations are dissolving in a globalization process. Globalization does not mean the end of "institutional varieties of capitalism" (Hodgson 1996), nor does it spell the end of the role of nation-state institutions. More than in other industries, in the defense industry "history and institutions matter". Policymakers and business strive to make the unavoidable changes compatible with the maintaining of some basic traits of the institutional set-up which features the French system of arms production. The current transformation of the French system of arms production lends some support to the finding that globalization is not synonymous with convergence (Amable et al. 1997).