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

Industry and Innovation, Aug 2001 by Serfati, Claude

Because of the magnitude of public funds channeled to defense contractor groups through defense (DTPs) and civilian programs (CMTPs), one might have expected defense-restructuring issues to be addressed in connection with an overhaul of the governmental technology policy. During the 1990s, scholars in economics of technical change and innovation stressed that technology policies be less oriented in "military technology and national prestige projects" and more committed to policies stimulating institutional learning (Datum et al. 1995). What happened in France was at odds with these findings. While governmental financial commitment diminished because of budgetary constraints in recent years, TDPs and TCPs still account for the bulk of public funds allocated to (a handful of) companies, as "incentives"-oriented public funding remains at low levels (MERT 2000).

A further blow to claims regarding the need to reinforce military-commercial synergies was given by Dassault's chairman, when he expressed his wish to split his company into two separate entities, with the military business going to MatraAerospatiale, and the civilian business being floated to set up a company in its own right (MacKenzie 1999). This was all the more surprising since the aeronautical industry is widely held to be genuinely "dual-use" oriented. Indeed, as was the case for US consolidation, European defense mergers could lead to a further entrenchment in military business and increased momentum gained by the "supply side" over the customers, a fact that could ground the race to consolidation despite its dubious economic benefits. In the USA, benefits gained (for the taxpayers) from industrial consolidation are challenged (Oden 1999). Likewise, the conventional wisdom explanations of the benefits for European defense industry mergers (i.e. increased economies of scale, expanded market access, diversification of political risks, improved planning of R&D efforts, and enhanced access to innovate technology) are queried by authors such as Gholz (2000). Finally, what happens on both sides of the Atlantic reflects how large the gap is between what is happening in reality, i.e. the erecting of a "wall of separation" between military and commercial capabilities (Markusen and Yudken 1993), and the official discourse made at length on the need to strengthen the links between military and commercial technologies, to promote "dual-use technologies" and such.

Privatization: the growing role of institutional investors

A striking feature of the "capitalism a la franfaise" is that it is made up of crosscapital participation, resulting in strong autonomy vis-a-vis financial markets and based upon a significant state ownership. The privatization programs which began in 1986 and went on unabated since then, transferred back a large part of the industrial capabilities nationalized in 1981 to private shareholders. Rather amazing in a country once known to protect its national interests, in 1999, the Paris stock market capitalization controlled by foreign institutional investors was as high as 40 percent, a high level in comparison with other European markets." The privatization programs concerning defense contractors began in 1995 and floating their capital resulted in the entry of institutional investors.12