Colbert Revived as Montebourg Pushes State Role in France Inc.

French Industry Minister Arnaud Montebourg, an unabashed admirer of Louis XIV’s mercantilist finance minister Jean-Baptiste Colbert, says he has no intention of loosening his grip on France Inc.

Over his 17 months in the job, the 51-year-old Socialist has brought a whiff of Colbertism to the Finance Ministry’s corridors, seeking greater state control over French commercial interests. He courted controversy demanding the nationalization of a part of steelmaker ArcelorMittal; blocked the sale of the YouTube-like unit of phone company Orange SA to Yahoo! Inc. and started a flag-waving “Made in France” campaign.

In a Nov. 8 interview, Montebourg said the government’s investment arm will do his bidding to keep control of many of France’s largest companies, sounding more like Colbert’s sovereign Louis XIV, who famously said, “L’etat, c’est moi,” or “I am the state.”

“The French state investment agency works when I tell it to work,” said Montebourg, who gives a speech today at the Massachusetts Institute of Technology on “A New Industrial Policy in France.” “The agency doesn’t matter; I matter. We want to keep our majority stakes, our points of influence. As a shareholder, we have the power to make demands.”

The minister is charged with re-industrializing France, boosting output and capping unemployment, which has reached about 11 percent, a 14-year high, as companies hit by Europe’s economic slump slash thousands of jobs. President Francois Hollande has in the past raised the possibility of selling some of the state’s shares in listed companies as France struggles to fund social projects after two years with barely any growth.

State Holdings

Montebourg wants the state to hang on to its holdings in companies such as GDF Suez, Electricite de France SA and Orange, giving it a say in their activities. He has also sought to exert pressure -- with mixed success -- over companies in which the state holds no stake, like carmaker PSA Peugeot Citroen and telecommunications equipment maker Alcatel-Lucent SA.

The French government owns 84.5 percent of EDF, 36.7 percent of GDF Suez and 26.9 percent of Orange.

France’s controlling stake in EDF gave Hollande leeway to direct the country’s policy on energy, deciding to shut one of the company’s nuclear plants -- an election campaign promise.

As Orange’s single-biggest shareholder and through representatives who sit on its board, France last year blocked the sale of Dailymotion SA, a YouTube rival, to Yahoo!. Montebourg summoned executives of Yahoo and Orange to the finance ministry in April, gave them a dressing down and accused Orange of selling one of France’s “crown jewels,” according to a person with direct knowledge of the discussion.

Peugeot Involvement

“We need to keep our spots as board members and our pressure points to execute our industrial policy,” Montebourg said. “The state’s holdings have become a tool for that.”

Montebourg has thrown the state’s weight around even with companies in which it holds no stake. When Peugeot Chief Executive Officer Philippe Varin unveiled a plan to shut a plant in France -- its first such closing in two decades -- and cut more than 11,000 jobs, Montebourg called it “unacceptable.”

Varin was able to convince Montebourg and the French government that the plan was crucial for the survival of Peugeot, Europe’s second-largest carmaker after Volkswagen AG, which was unprofitable, burning cash and hit by a car glut because of the region’s economic slump.

Wringing Concessions

With Peugeot getting a French government guarantee for 7 billion euros in bonds it sold to bolster its auto-financing unit, the minister was able to wring a concession out of the Paris-based carmaker: The government would have a say over strategic decisions made by the company. Louis Gallois, former head of Airbus-parent European Aeronautic, Defence & Space Co. and now the government’s competition czar, sits on Peugeot’s board as the state’s representative.

Peugeot, which has an alliance with General Motors Co., is seeking new partnerships to escape the downturn in the region and expand globally. The company is considering a deeper partnership with Chinese manufacturer Dongfeng Motor Corp., people familiar with the matter said last month.

“Our strategy is to look for alliances for Peugeot,” Montebourg said. “The company first and foremost has to define a restructuring plan and improve its costs.”

The minister has been less successful in getting a foot in the door at Alcatel-Lucent. While Montebourg said he is in discussions with Alcatel executives and unions, he has not been able to get the company to back off from planned job cuts.

Alcatel Woes

Michel Combes, who took over as the unprofitable company’s CEO in April, wants to cut 10,000 jobs, including 900 in France, as he tries to break the curse of almost seven years of failed management changes and restructurings.

The most Montebourg has been able to do is to talk about the need for national power over telecommunications.

“Like many countries, we’re looking to make sure we have control over the technological part of our telecoms networks,” Montebourg said. “It’s part of our telecoms sovereignty plan.”

Among other projects of Montebourg, who carries two iPhones -- one with the French flag on its back -- has been a “Made in France” campaign. Posing before the French flag to promote local products, he has attacked what he says is unfair trade and dumping -- where imported products are sold below cost.

Also, in line with the government’s efforts to design a state-driven industrial policy, the minister in September unveiled plans to make 34 new high-tech products, including an electric plane, an ultra-low-energy-consumption car and a faster high-speed train, within a decade in France. His goal is to recreate the 750,000 jobs destroyed in the last 10 years.

Not Alone

Montebourg likes to point out that the French government is not alone in intervening in business, alluding to the U.S. rescue of General Motors and American International Group.

His policies have done little to scare the stock market, which has rallied as the European debt crisis has eased. France’s benchmark CAC 40 Index has advanced 36 percent since Hollande’s May 6, 2012 election. That compares with a 28 percent gain in the STOXX Europe 600 Price Index.

Still, some economists say Montebourg’s piecemeal efforts do little to address the real issues companies face, like taxes.

Taxes in France have risen by 70 billion euros in the last three years and will take the tax burden this year to 46 percent of gross domestic product. That’s up two percentage points from 2011 when it was already the third-highest in the world behind Denmark and Sweden, according to the Organization for Economic Cooperation and Development.

Old Instinct

“People in the end see that if you operate in France you have the highest tax rate in Europe,” said Tomasz Michalski, an economics professor at HEC business school near Paris. “It’s unclear why Montebourg’s marketing would help that at all.”

Michalski also notes that Montebourg’s instincts are not unusual for France. Although the minister will be speaking about France’s “new” industrial policy at MIT today in Cambridge, Massachusetts, Michalski points out that Montebourg’s activist state is a rather old model for the country.

“Government intervention in France has been huge for a very long time; it’s not something new,” he said. “Montebourg is trying to sell it as such because he has to show he’s doing what it takes.”