When Corporatism backfires

 

 

I could hardly contain my amusement when I heard German economics minister Michael Glos threatening the Airbus consortium with a withdrawal from German government orders if Airbus shifted jobs from Germany to France. Mr Glos\’s threat shows that he is in a real muddle over Airbus.

 

The German economics minister, and pretty much everyone else involved in this business, know fully well that it is madness to maintain two large assembly plants, one in Toulouse, France, and one in Hamburg, Germany, and several others plants in various locations. The Toulouse plant is the more efficient of the two. The reason for maintaining two separate assembly lines is political, not economic. France and Germany have been the two most important shareholders in this venture, and have decided to split the work between each other.

 

Business logic would suggest that you should close down at least some of the German plants and focus most of the production in France. I am not even sure there is a case for an assembly plant in Hamburg. But this is not about business logic. This is about politics.

 

How credible then is his threat to boycott Airbus? Now the best strategy for Germany would simply be to buy the cheapest gear it can find on world markets, whether made by Airbus, Boeing or anybody else, and leave the Airbus management and its shareholders to decide the most efficient production plants.

 

But this is not what Mr Glos is threatening. He wants to discriminate specifically against Airbus, having previously discriminated in favour of the company. It would, of course, be much smarter not to discriminate at all. But then, what would we need an economics minister for?

 

A policy to discriminate is economically inefficient. In this case, it might not even work. If Glos were to boycott Airbus, he would damage a lot of German suppliers, especially if Airbus retaliated back in equal spirit. Having invested so much political and financial capital in this venture, Germany would end up with nothing.

 

This is a lose-lose game for everybody involved, and it shows what kind of mess these once proud European aviators have gotten themselves into. Airbus has long been considered to be the most successful venture of a European industrial policy, the seeming contradiction to the libertarian dictum that governments cannot pick winners. The fact is that governments can, and to, pick winners from time to time. The problem is that those winners will eventually turn into losers when governments continue to poke around in those companies indefinitely.

 

What we are seeing at Airbus is the revenge of corporatism, one that remains cuddly all the way up to the moment when it turns nasty. This is a story that will not end well.

 

 

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