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This is the million dollar question: Why is
EUROPE not growing?
Think about it.
The European union has the second largest
economy on the planet, just after the United
States.
Nevertheless, of the World’s 50 largest
companies, only 8 come from European soil.
While the New York stock exchange is on fire,
European stock markets are going down: this
includes Frankfurt, Paris and Madrid.
And what about the tech giants?
We’ve all heard of Google, Apple and Amazon
to name a few… but what’s their EU equivalent?
Well…
Germany has SAP, which is a database software
company…
Sweden has Spotify… but let’s face it,
none of those are a match for Facebook or
Uber.
And this is especially worrisome if we consider
that the entire World is on the rise.
Yes, my dear viewers, if we take the GDP of
all the countries on the planet, including
the wealthy and the poor, we have a 3.1% growth
rate.
This is great news for everybody.
But the European Union’s growth rate hardly
reaches 2.5%.
And believe me, this is not good news for
Europeans.
Slower growth means less jobs and less money
for everyone.
At the end of the day, if an American or a
Chinese company can take on the market, sooner
or later, European firms will go bankrupt.
So good luck finding a well paid job!
This is why many politicians believe the EU
has to bet on bigger companies.
And it’s in this context that we found this
headline from the beginning of 2019.
EU blocks Alstom-Siemens rail merger due to
‘serious competition concerns’
To summarise, ALSTOM is a French high speed
train manufacturer.
Have you ever seen the French TGVs?
Those trains that appeared in movies like
‘Mission Impossible’?
Those were manufactured by ALSTOM.
SIEMENS, on the other hand, is a German behemoth
with a train manufacturing division.
Had they been merged and they would have become
the second largest train company on the planet.
And you might wonder… what’s the first?
Of course, that would be a Chinese firm.
So, again, Europe wants to compete with China
in technology.
So now you might be wondering…
Why did they ban this merger?
And this is where we get to one of the oldest
economic dilemmas.
The foundation of the free market is free
competition.
This means, if many companies are competing
for clients, they’ll end up offering better
goods and services… at a lower price.
Now what happens when a company becomes so
large that they can smash all of the others?
In this case, we would have a monopoly!
For example, let’s say ALSTOM and SIEMENS
merged.
In this moment, the Spanish Government wants
to buy new high speed trains.
Well, if there’s only one company capable
of meeting those high standards… why would
that company lower their price?
At the end of the day… they’re the only
choice on European soil!
And that’s not all!
If this company could take all the contracts…
what would be the incentive for other entrepreneurs
to compete in the train industry?
In other words… this would be the opposite
of a free market.
On the other hand, we can argue that, if two
companies want to merge… who is the EU to
say no to that?
That doesn’t sound very free market either.
As you can see, this is a hell of a dilemma.
And it’s also one of the biggest ideological
debates of our time.
This is not the classical fight between socialism
versus capitalism.
In fact, we can say this is a fight between
two views on capitalism.
What we’ll call French capitalism versus
German capitalism!
So the question now is… was it a good idea
to block this SIEMENS ALSTOM merger?
What’s the difference between French and
German capitalism?
Does Europe really need big companies?
Today we’re going to answer to all of these
questions but, before we do, let’s take
a look back at the history.
FRENCH CAPITALISM vs GERMAN CAPITALISM
If you’ve been following VisualPolitik for
a long time, you might remember this video
we made about France.
France is a country famous for croissants,
baguettes and economic dirigisme.
Since the times of CHARLES DE GAULLE, French
capitalism has worked like an army.
Of course they have private companies and,
somehow, competition among them.
But, for decades, the French economic playbook
said that the Government must help and promote
their big corporations.
This is why starting a company in this country
can be as hard as you can imagine but hey!
If you’re a big company, the State will
roll the red carpet out under your feet.
In fact, do you remember this list with the
World’s 50 biggest companies?
So from those 8 european companies, 3 are
French.
And this is not by chance.
German capitalism is the opposite.
Of course, Germany has regulations and taxes.
But the aim of those is to protect a greater
good: the environment, labor rights or competition…
Want an example?
Let’s talk about energy policy.
If you remember, in this other video we explained
how Germany is totally against nuclear power
and how they’re closing all their plants.
This means that producing energy in this country
is very expensive.
But on the other hand, no other country relies
more on nuclear plants than France does.
Theoretically, this would mean that the energy
bills here should be way cheaper than those
in Germany, right?
Well… not at all!
If you check expatistan.com, you’ll see
that if you lived in Paris, you would pay
about the same amount as living in Munich,
which is one of the most expensive German
cities.
Why?
Because of things like this.
French consumer group says EDF monopoly boosts
power prices
The truth is Germany has lots of energy companies
competing on the same playing field.
Nobody has the Government as a shareholder.
OK, there is a small exception here, which
would be E.ON.
But we’re talking about only 2% of the capital
held by a regional government.
The rest of the companies are fully state-free.
And they have no privileges whatsoever.
France is a different animal.
Here they have a big behemoth called EDF.
70% of their capital is owned by the French
government.
This means a big helping hand from the Government
and almost monopolistic conditions.
Of course, it’s not all bad.
Thanks to its public support, EDF is the World’s
third largest company in their industry.
They have a big foothold in many other countries,
including African ones.
The price for having such a big company is
paid by French consumers.
And the same goes for other industries.
For example, automobiles.
France has two big juggernauts: Renault and
Peaugeot-Citroen, two companies that merged
some years ago.
Many of you might think these are normal companies
that compete in a free market, right?
Well… this is far from reality.
In both cases, the French government is one
of the main shareholders.
In the case of Renault, the French state owns
15% of the capital.
This means more breathing space for the company,
coming straight from the taxpayer’s pocket.
Thanks to this support, Renault starts from
an advantageous position compared with other
carmakers.
But not only that!
Having so many shares, the Government can
intervene directly in the company’s affairs.
For example, Paris would never allow Renault
to fall into foreign hands.
Many times, the Government has vetoed the
closure of factories or has given grants to
develop new car models.
So what happens in Germany?
In this case, the German Government has no
stocks in any carmaker.
BMW, for example, is all in private hands.
Volkswagen is partially owned by a city hall.
But it’s completely independent from the
central government.
This means that Germany doesn’t help any
of their companies.
At least in theory.
And something similar happens in the Nordic
countries.
This is why we can find headlines like this
one.
Geely Holding completes acquisition of shares
in AB Volvo
In this case, VOLVO is one of the biggest
companies in Sweden and Geely Holdings is
a Chinese Group.
The Swedish government didn’t do anything
to stop the acquisition.
Good luck trying to do the same in France!
It’s not that they have lots of regulations
against foreign investment… it’s the fact
that if Volvo were French they would surely
be owned by the government, which wouldn’t
let this happen.
But if you wanna see French vs. German capitalism
in action, pay attention to Today’s story.
Let’s have a look!
JUGGERNAUT ON RAILS
By the way, this amazing tune you’re listening
to is from HARDBONE, a German hard rock band
that sent us their music.
…
And the song we’re playing is called ‘No
man’s land’…
There was a time when China was a corporate
no man’s land.
The country was growing like there was no
tomorrow and they needed roads, bridges and
trains.
But they didn’t have companies to build
those.
This is why in 2004 they signed a big contract
with Siemens to build high speed trains.
The problem?
The Chinese can negotiate like nobody else.
One of the conditions was that, next to the
German engineers there would be Chinese ones
learning from them.
So what was the conclusion?
Chinese people learnt how to make high speed
trains.
Years later, Siemens ended the contract and
China got what they wanted: technology.
With this technology they created their own
company, CRRC.
And this was not a normal company.
It soon became the biggest company in the
industry worldwide.
CRRC, the Chinese rail juggernaut Europe is
afraid of
The corporation brought in about 26 billion
euros in revenue in 2017.
Size really matters in the corporate World.
With all this money, CRRC can make big investments
and smash their competitors.
They’ve already won big contracts in America,
Serbia and the Czech Republic.
So… what does a French person think when
they want to face a foreign competitor?
Well… this.
Germany's Siemens, France's Alstom merge to
create new European rail champion
This new company was meant to be the second
largest in the World.
And you might wonder…
WHERE did they want to have the headquarters?
Oh, what a question!
Obviously… in Paris!
Where else?
So everybody was happy, the shareholders,
the French Government and also the German
government.
Yes, in this story, the German government
was pretty much in agreement with the French
one.
So where was the problem?
The problem was in the antitrust laws.
Basically, if two big companies merge, they
need special authorization.
In Europe, the limit to determine what is
big and what is not is 5 billion euros of
gross income and 250 million euros in income
within Europe.
If the company that comes out of the merger
surpasses those limits, then they need to
ask for permission from the European Commission,
which is short of the executive power in Europe.
And this is where our friends from Alstom
Siemens had to face this woman: Marguerite
Vestager, also known as ‘the trust buster’.
Vestager says 'no' to Siemens-Alstom mega-merger
Vestager is the EU commissioner for competition:
something like the minister for regulating
big corporations.
Despite being Danish, we can say that Vestager
in this story represents German capitalism.
Her argument was that ALSTOM-SIEMENS would
be large enough to smash the small competitors.
Don’t forget that we’re talking about
a very political industry, where most of the
contracts are paid by different governments.
So imagine who would win all the public contracts
in Germany and France.
And this is where the big dilemma started.
French Economy Minister Bruno Le Maire has
vividly defended the intended merger between
European train manufacturers Alstom (France)
and Siemens (Germany).
“The EU refusing a merger would be a big
economical and political mistake”
As you can imagine, both the French and the
German government had been lobbying in Brussels
as much as they could in order to make this
merger happen.
Their train of thought was that the Chinese
might end up manufacturing all the European
trains.
Vestager, instead, insisted that the best
way to face Chinese competitors is with innovation.
And the best way to boost innovation is to
have lots of smaller companies competing with
each other.
So now the question goes to you.
What would you have done?
Would you have accepted the ALSTOM SIEMENS
merger?
Do you think Europe needs to create big corporate
juggernauts to face foreign competition?
Please, leave your answer in the comment section
below.
Also visit our friends from Reconsider Media
dot com, the podcast that provided the vocals
in this episode that were not mine.
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