Smoke & Mirrors with Foreign Investments
This morning (Monday, May 27th 2024) I came across a LinkedIn post celebrating an "uncontestable consecration for France" celebrating consecutive investments from Amazon and Microsoft.
Joachim SAVIGNY
The post goes on to celebrate the scale of those two investments, other investments from STMicro and GlobalFoundries, and so on. I try not to err on the side of politics either on blogging and in social media, and I can understand why some people are very proud of those investments. But I also try to keep a cool head and look at the long term, hence this article.
A sanity check and note at the beginning of this article: my knowledge in economy is empirical and I am not an expert. These are my thoughts on the matter. I might be grossly off the mark. Consider this an opinion post and not an universal truth.
Understanding the Value of Investments
When announcements of this caliber are made, whether in a domestic or foreign setting, it makes sense to understand the actual scope of the investment, and what is the expected counter-value for the investing organization.
We've seen this all too often, especially in the USA, where states are fighting for Amazon, Microsoft, and others to deploy their next data center or premises. Investors know this all too well and will often bargain to get tax deductions, free land, and other benefits. The question also applies for foreign investments: what is the net value add of those investments? Will they create jobs and benefit to our own economy?
Some of the other claimed benefits are also dubious. The post claims, for example, that Microsoft will be "training 1 million French citizens to new technologies". This is a rather vague statement: how will this be done, and what will people be trained on? Is the goal to train people via already existing (and easy to translate - see also below on loss of jobs i.e. translators) online courses? These were probably already available beforehand. Unless the goal is to explain people how they can now "leverage the power of AI" by learning how to craft a prompt on ChatGPT Bing?
Finally, the post also mentions potential investments in Tech and Startups. Here also, nothing new under the sun if the goal is to go shopping for startups and other companies. It is questionable to see how the said investment is correlated to net new creation of jobs and therefore direct benefits to the economy (and, note, not to the value of shares), especially in a time when AI is starting to replace some jobs (starting with translators) at an accelerated pace?
The Trifecta of Decline
Why does this even matters to me? I'm a French citizen, albeit one who has strong Italian (Sicilian) origins, and now living for more than 22 years abroad, in Czech Republic. I could care less.
Yet, the challenge France is facing is a challenge other EU countries are facing as well: the trifecta of decline as the result of a clear lack of long-term strategic planning, a rampant and willing deindustrialization, and a long term lack of interest for research (by extension the overall education system). Let's dive into my view of the problem.
A Lack of Plan
Long-term strategic planning is essential for any country. As Dwight D. Eisenhower said: Plans are nothing, planning is everything. We could endlessly argue that a planned economy is completely incompatible about a free market economy, but we must also acknowledge that the end goal of a free market economy is to deliver value to shareholders, the investors that expect a profitable return on their money.
The free market approach is not aligned with the strategic interest of nations, which seek to develop their economy and achieve a certain level of independence and sovereignty. Even if turned into ridicule, strategic planning has the advantage of providing a start point, an end point, and guidance for any development area in a country, setting priorities for industry, infrastructures, citizen services (hospitals, public services, etc.), or research / education.
For example, France's Commissariat Général au Plan (General Planning Commission) had four objectives:
- Develop national production and foreign trade
- Increase productivity
- Ensure full employment of manpower
- Raise the standard of living and improve the environment and conditions of national life
Interestingly this institution (which existed from 1946 to 2006 and was a key factor in France's industrialization during the after-war period) ceased to establish five-year plans in 1993. A sign of things to come with Maastricht's treaty? Probably, but I disgress.
The Decline of our Industry
With a lack of guidance and disregard for the national interest comes the quest for profit maximization. It is worth mentioning that this trend was greatly accelerated by multiple waves of privatizations of key industry enterprises, leading those organizations to put profits ahead of the previous national interests, and triggering the well-known waves of delocalization which resulted in shifting most of European industrial capabilities to overseas countries, mostly in Asia.
This was true at first for the production and processing of raw materials, leaving a certain level of industrial production in Europe, but still offloading core production to overseas (see the closure of coal mines, steel mills, etc. - and yes, let's park environmental considerations aside else this will become an essay).
By lack of base industrial capabilities, Europe is gradually becoming at the mercy of its core resource providers. It's not that we were in a world of plenty, where every country had an unlimited portfolio of ores and other materials: interdependency is not a new concept (although we profited from colonialist exploitation, but again I disgress). This dependency, in turn, affects overall competitivity, and leads to either more delocalizations or, worse, to bankrupcies.
Without any lack of public policy and planning, the core tenet of value to shareholders results in the gradual and irreversible loss of sovereignty, which also results in a loss of political weight and degradation of relevancy in the world scene.
No Love for Research
We have a quote in France that goes as we don't have oil, but we have ideas. While this might have been holding true until the mid-70's, today's reality seems to be somehow different. French's investment in R&D (as a % of the GDP) roughly stagnated between 2% and 2.5% between 1996 and 2021.
Again, we can argue that initiatives to develop national technologies such as the Minitel or the "Informatique Pour Tous" plan (Computing For Everybody) might have failed, but one couldn't deny that there was a roadmap and a plan.
The problem in France with having ideas is that you need to fund them, and the public sector and university aren't just funded appropriately enough. In opposition to my claim, some sources state that the health research sector is boiling (thanks to the injection of EUR 7 billion) out of EUR 54 billion until 2030 dedicated to overall research.
The question is whether this is enough to close the gap with other leading economies, and also whether France will do what it takes to improve its school system which is running in degraded mode for years now.
Closing Thoughts
OK, I might have been a bit put off the rails by this LinkedIn post, but I have opinions indeed. Probably some experts in economy will look at this, laugh at the nonsense and debunk this. I regret not putting more time into verifying / validating my claims, but bear in mind this is a blog post that was supposed to be a couple paragraphs initially.
That's a lot of words to talk about a tiny $4 billion investment by Microsoft, but I think it is symptomatic about our perception of investments, the value they effectively bring to the table, the illusions we have, and also what a real investment in a competitive country should look like.
Instead of clapping hands because a multinational corporation valuated at 3.2 trillion USD is sprinkling a bit of magic money (it's almost half of what Microsoft paid for GitHub in 2023), we should instead look at what our countries are doing to effectively develop our economies, our strategic capabilities, increase our sovereignty, and last but not least improve the lives of ordinary citizens.