by Tony Judt
What made the difference was the discipline showed by Left voters this time around in coalescing behind Mitterrand at the second round rather than abstaining in sectarian obstinacy, and the division of opinion on the Right. Of those who voted for Chirac in the initial round of the 1981 presidential election, 16 percent gave their votes to Mitterrand two weeks later—rather than re-elect the outgoing president Giscard d’Estaing: a man heartily disliked by Chirac’s Gaullist supporters. Had the Right not divided thus there would have been no President Mitterrand, no Socialist sweep in the ensuing legislative elections—and no grand soir of radical expectations.
It is worth emphasizing this because so much seemed to hang on the outcome of the 1981 election. In retrospect it is clear, as Mitterrand himself understood, that his achievement in 1981 was to ‘normalize’ the process of alternation in the French Republic, to make it possible for the Socialists to be treated as a normal party of government. But to Mitterrand’s supporters in 1981 the picture looked very different. Their goal was not to normalize the alternation of power in the future but to seize it and use it, here and now. They took for good coin their leader’s promises of radical transformation, his undertaking to sweep away not just the corruption and ennui of the Giscard years but also the very capitalist system itself. Excluded from office for so long, France’s Socialist militants had remained free to dream a dream of revolution.
For the Left had not exercised power in France for many decades; indeed, it had never exercised power untrammeled by coalition partners, uncooperative bankers, foreign exchange crises, international emergencies and a litany of other excuses for its failure to implement socialism. In 1981, as it seemed, none of these applied and there would be no excuse for backsliding. Moreover, the association of control of the state with implementation of revolutionary change was so deeply embedded in radical political culture in France that the mere fact of winning the election was itself taken as signifying a coming social confrontation.
Like Marx himself, the French Left identified all real change with political revolution in general and the great French Revolution in particular. Enthusiastic comparisons were thus made with 1871 and even 1791. Nothing Mitterrand had said in the campaign had led the more committed of his followers to think otherwise. In order to ‘dish’ the Communists and the left wing of his own party, Mitterrand had stolen their revolutionary clothes. His election campaign aroused expectations that he was now expected to fulfill.
Thus the Mitterrand years began with an ambitious and radical agenda: a blend of morally uplifting and overdue social reforms (of which the abolition of capital punishment was the most significant) with a phantasmagoric programme of ‘anticapitalist’ legislation. Wages were raised, the retirement age lowered, working hours reduced. But the core element of the programme was an unprecedented schedule of nationalizations. In its first year of office the new Socialist government of Prime Minister Pierre Mauroy took into state control, inter alia: 36 banks; two major finance houses; five of France’s largest industrial corporations (including Thomson-Brandt, the country’s major electrical and electronic products manufacturer); and Usinor and Sacilor, France’s giant iron and steel groups.
There was no pre-determined economic strategy behind these moves. There was talk of invigorating the slowing French economy by the injection of government capital; but this was not a new idea, nor a particularly Socialist one: Prime Minister Chirac, back in the mid-Seventies, had briefly entertained similarly demand-led projects for growth. The prime function of the nationalizations of 1981-82, like the exchange controls that accompanied them, was to symbolize the anti-capitalist intent of the new regime; to confirm that the elections of 1981 had really changed something more than just the personnel of government.
In reality, it was clear from the outset to those concerned that state-owned banks, for example, could only function if permitted ‘total autonomy of decision and action’, thus eliminating the regulatory and socially redistributive goals that had been adduced to justify their take-over in the first place. This pragmatic concession illustrates the broader impediment facing the Mitterrand ‘revolution’. For a year the new regime strove boldly to present a radical face to France and the world. At first this was convincing—Jacques Attali, Mitterrand’s close adviser, recorded that US officials (always on the lookout for such backsliding) claimed to see little difference between French economic policy and that of the Soviet Union.
But for France to take a ‘Socialist’ path in 1982 would have meant imposing not just exchange controls but a whole gamut of regulations cutting the country off from its commercial partners and putting the economy on a virtually autarkic footing. To take France out of international financial markets would not perhaps have been so unimaginable an undertaking as it would later become: in 1977 the market capitalization of IBM alone was twice that of the entire Paris Bourse. Of greater significance was the fact that such a move would have triggered France’s separation and perhaps even departure from the European Community, whose agreements on tariffs, markets and currency alignments—not to mention impending plans for a single market—already severely restricted the options open to member states.
These considerations appear to have concentrated Mitterrand’s thinking—aided, no doubt, by evidence of mounting panic in business circles and signs that currency, valuables and people were moving abroad with increasing urgency, precipitating an economic crisis. On June 12th 1982, the President decided upon a ‘U’ turn. Rejecting the advice of his more radical counselors, Mitterrand authorized his government to freeze prices and wages for a four-month period; cut public spending (which had been generously increased the previous year); raise taxes; give priority to the struggle with inflation (rather than print money, as he had been urged to do)—in effect adopting the economic strategy of the conservative economist Raymond Barre whose 1977 ‘Plan’, never implemented, would have introduced into France a dose of Thatcherism avant l’heure; and abandoned forthwith all reference to a ‘French path to Socialism’.
The President’s Communist allies and some of his Socialist colleagues were deeply shocked. But they should not have been surprised. The supreme pragmatist, Mitterrand grasped readily enough that it was unthinkable for France even to contemplate choosing between remaining in the Western economic (and political) orbit and casting itself out into a doubtfully sustainable middle route between capitalism and Communism. Making a lasting virtue out of passing necessity, he duly re-fashioned himself as a leading ‘Europeanist’. France would build a better society through European unification rather than against it. Rather than struggle against capitalism France would invent a superior version.
By 1984 Mitterrand had removed the four Communist ministers in his government; publicly proclaimed the virtues of a ‘mixed’ economy; appointed a young and technocratic prime minister, Laurent Fabius; handed the management of economic affairs, finance, and the budget to Jacques Delors, with instructions to stabilize the French economy251; and even, in a prominent speech in April of that year, called for a French modernization ‘à l’américaine’.
Mitterrand had France on his side—in 1983 only 23 percent of his own Socialist voters regretted his failure to ‘put Socialism into practice’. Whether they wanted him to ‘modernize’ with quite so much enthusiasm is less certain, but modernize he did. Without explicitly abandoning the less controversial of his early reforms—administrative decentralization, the overhaul of social security, the securing of workplace rights for women and a long-awaited reform of the judiciary—Mitterrand devoted the rest of his long reign (he retired in 1995 after two seven-year presidential terms, dying at the age of eighty the following year) to expensive public works of questionable aesthetics and utility; the re-establishment of French international initiative252; . . . and to overseeing the restoration into private hands of the many services and industries he had only recently taken into public control.
The initial drive to privatize France’s huge public sector was undertaken b
y the conservative parliamentary majority that emerged victorious from the 1986 elections. But successive governments of all stripes pursued the same goal—indeed, the Socialist governments of Mitterrand’s final years were by far the most energetic privatizers of all. The first assets to be sold into private hands, following the British model of public offerings, were the major banks and TF1, one of three national television channels. There followed public holding companies, insurance concerns, chemical and pharmaceutical corporations and the giant oil conglomerates Total and Elf.
In contrast to Mrs. Thatcher and her heirs, however, the French were cautious about selling off public utilities, or ‘strategic’ firms like the Renault car company (only recently saved from bankruptcy by a huge capital grant from the state in 1985). In markets as in gardens, the French were suspicious of unplanned growth. They preferred to retain a certain capacity to intervene, typically by keeping a portion of even privatized firms in state hands. Privatization itself, in France, was thus a distinctly regulated affair—controlling shares were carefully directed towards enterprises and businesses on whom the state could rely, and international investors remained for many years understandably suspicious. Nevertheless, by French standards the changes were momentous, bringing the country sharply back into line with European and international developments.
This is perhaps an appropriate moment to say something about the privatization wave that broke upon the shores of Western Europe in the 1980s and was to roll across the continent in the course of the following decade. It did not come altogether out of the blue. British Petroleum had been progressively sold off, beginning in 1977, as we have seen; the West German government had dispensed with the chemical combine Preussag by a public share issue as early as 1959 and sold its shares in Volkswagen a few years later; even the Austrian state had sold 40 percent of its shares in two nationalized banks in the course of the 1950s and relinquished its sizeable holding in Siemens in 1972.
But these were sporadic, and—as it were—pragmatic privatizations. What happened in the nineteen-eighties was something quite different, pressed upon governments from two quite distinct directions. In the first place, accelerating developments in technology—notably in telecommunications and the financial markets—were undermining the old ‘natural’ monopolies. If governments could no longer harness the airwaves, or the movement of money, for their own exclusive use, it made little sense for them to ‘own’ them. There remained a powerful political or social case for the state retaining part of a given sector—a public television channel, say, or the post office; but competition was now unavoidable.
In the second place, governments were being driven to sell public assets out of short-term economic necessity. Pressed by inflation, the oil crisis of 1979-80, large annual deficits and growing government indebtedness, finance ministers looked upon the sale of publicly-owned assets as doubly beneficial. The state would offload loss-making industries or services; and the monies thus raised would help balance the budget, albeit on a one-time basis. Even if an industry or service remained in partial public-ownership (the state typically keeping the unprofitable parts that private buyers didn’t want), the injection of cash from share sales could be applied to future investment. For this reason even many public sector managers were enthusiastic partisans of such partial sales, having long resented the diversion of their profits to help make good national budgetary shortfalls.
There was considerable variation in the form and extent of European public ownership and control. The public industrial sector was smallest in Holland, Denmark and Sweden, most extensive in Italy, France, Spain and Austria. Excluding health and social services, the share of the workforce in the early eighties directly employed by the state varied from 15 percent in West Germany to 28 percent in Italy and nearly one in three in Austria. In some countries—Austria, Spain and Italy—the public sector was organized into huge industrial holding companies, of which Italy’s IRI was the largest.253
Elsewhere the state’s interest was filtered through a National Investment Bank and Industrial Guarantee Fund—as in the Netherlands—or its Belgian equivalent, the Société Nationale d’Investissement. The steel industry alone was supported in a wide variety of ways: in Britain the Treasury habitually wrote off the debts of state-owned companies; in France the government provided loans at low rates of interest and intervened politically to favor local producers over foreign competition; in West Germany private sector steel manufacturers received direct cash subsidies.
Given such national disparities, the forms of privatization in Europe naturally diverged significantly. In every case, however, they entailed some element of deregulation; the liberalization of markets; and the introduction of new financial instruments to facilitate the sale and re-sale of shares in partly- or wholly-privatized companies. In West Germany, where the main export sectors (cars, mechanical engineering, chemical and electronics companies) were already in private hands, the impediment to efficiency and competition came not from state control but rather from high fixed costs and labour-market regulations. Privatization in Germany, when it came, was primarily the responsibility of the Treuhandgesellschaft, the public corporation established in 1990 to dispose of former East German state-owned enterprises.254
In Italy, the chief stumbling block on the road to privatization was the vested interest not of the state but of political parties. The Christian Democrats and Socialists in particular used the state sector and public holding companies to reward colleagues and bribe supporters, often favoring them with public contracts and absorbing them into the sottogoverno or submerged power structure that underpinned their dominion. But in spite of this powerful disincentive the Italian private sector grew steadily in this period, especially among manufacturing firms employing fewer than one hundred persons—far more numerous in Italy than in Britain, France or Germany.
Already in 1976 the Constitutional Court had ended the monopoly of RAI, the state-run radio and television networks. A few years later Alfa Romeo, at that point still operated under the aegis of a public holding company, was ‘made over’ to FIAT. Within six years the major holding companies themselves—IRI, INA, ENI, and ENEL14—had all been converted to public joint-stock companies. They had no value in themselves—quite the reverse: in 1984 IRI was losing 4.5 million lire per annum for every one of its 500,000 employees. But they were able to issue bonds that were convertible to shares in the companies under their control now scheduled for privatization.
The situation in countries newly-emerged from authoritarian rule was rather different. The public sector in post-Franco Spain, for example, actually expanded. Public expenditure as a share of GNP rose steadily, as the centrists in government from 1976 to 1982 pursued the old regime’s strategy of avoiding social confrontation by simply transferring failed private companies to the state. They could hardly do otherwise—for varying reasons, nationalization in this form was the preference of workers, owners, national politicians and regional authorities alike. In any case, one of the chief general arguments for cutting the public sector—that the welfare state it incarnated was too costly to maintain—did not apply in Spain, or Portugal or Greece. There was no welfare state to dismantle.
Nevertheless, even in the absence of European-level social services and protections, the public sector—saddled with the abandoned and unprofitable refuse from Spanish capitalism’s accelerated and cosseted adolescence—was hopelessly overburdened. Already in 1976 INI (Instituto Nacional de Industria) alone had a stake in 747 (mostly unprofitable) industrial companies and a controlling interest in 379 others. Some measure of privatization and de-regulation was inevitable if Spain were ever to be solvent. As in France, it was a Socialist government that initiated this process, introducing private pension funds in 1987 and abolishing the state television monopoly two years later.
In post-revolutionary Portugal, Article 85 of the Constitution and a subsequent 1977 law explicitly forbade private enterprise in banking, insurance, transport, posts and telec
ommunications, electricity production and distribution, petroleum refining and the arms industry. The Socialist administration of Mário Soares sought in 1983 to introduce some flexibility by allowing the private sector to compete with the state in banking and insurance, and authorizing joint-stock companies to form in the steel, petroleum, chemical and arms industries. But it would be some time before the remaining protected sectors were opened even to limited competition.
Mediterranean Europe—like post-Communist Central Europe a few years later—would probably have been even slower to relinquish state controls but for the impact of the European Community/Union. The fixed currency parities of the European Monetary System (EMS) after 1979 were an early constraint—one reason why the Mitterrand governments started selling public assets was to reassure currency markets and thus maintain the franc at its agreed level in EMS. But Brussels’ chief means of leverage were the rules being drawn up for the operation of a single European market. The latter obliged all businesses—public and private alike—to conform to norms of open competition within and eventually between countries. There was to be no favoring of national ‘champions’, or hidden subsidies or other advantage for publicly-owned or controlled enterprises competing for contracts or custom.
However much these regulations were circumvented in practice, their mere existence obliged state-owned firms to comport themselves in the marketplace no differently from private ones—at which point there was little reason to maintain the state’s involvement in their affairs. The Italian response was typical of that of many other member states of the Community: in 1990 Italy adopted new regulations that echoed the relevant clauses of the Single European Act, requiring all state-owned firms to apply the principle of open and equal competition in all their dealings—except in the case of firms and undertakings where a state monopoly was ‘vital to its tasks’, a clause whose flexibility and vagueness allowed governments to adapt to European norms while staying sensitive to local pressures.