Macron Seeks Reform Reboot With Overhaul of Ailing Industry

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After a pause to respond to the Yellow Vest movement, Emmanuel Macron is restarting his economic reform efforts with a “productive pact” that the French President hopes will reverse years of industrial decline.

His finance ministry Bruno Le Maire presented an assessment of France’s industrial difficulties on Tuesday and set out a new direction for policy that aims to deliver full employment by 2025. That could include deeper tax cuts for businesses and a new economic reform bill in the fall of 2020.

The “productive pact” will be developed in the next six months in consultations with unions, businesses, lawmakers and the public.

“We’ve done lots of things in the last two years but now we need to shift gears,” Le Maire said.

Macron was elected in 2017 promising to rip up the rule book of the French economy to make it more competitive and less reliant on the state. But after a flurry of reforms to overhaul labor laws, education and corporate taxes, the Yellow Vest protests last year forced the centrist leader to shift to spending billions to boost incomes of workers.

The “productive pact” marks a return to emphasizing supply side reforms that France’s European partners have for years called for Paris to pursue with more vigor.

“It’s our own fault: we made a collective choice 20 years ago to favor consumption over production,” Le Maire said.

France has lost one million industrial jobs in 10 years and the share of industry in the economy has fallen to under 12% from nearly 17% two decades ago. German industry, meanwhile, accounts for around 23% of the country’s economic output.

It’s not the first time the French government has attempted to force through industrial change. Macron’s predecessor Francois Hollande even named a minister -- leftist firebrand Arnaud Montebourg -- in charge of the economy and a “productive recovery.” Montebourg’s spendthrift plans eventually saw him fired from the ministry and replaced by Macron.

Macron’s plan will focus on five areas: digital, innovation, industry, energy, and agriculture and food.

Le Marie said it must address France’s underlying problems that people do not work enough, industry is too heavily taxed, and there is a mismatch between the needs of business and skills and research. The pact should also aim to reduce the carbon footprint of French production and the government will review state export guarantees for heavy industry like shipbuilding, he said.

The finance minister said French industry also needs more financing and long-term investment plans could be combined with state-run innovation funds. Still, he also said France could consider strengthening rules on foreign investment to avoid start-ups being bought before they can grow.

The government may face a variety of difficulties. For a start, cutting taxes on production -- which are more than twice the EU average in France -- is a thorny issue as local authorities depend on the revenues for their budgets. Le Maire said the state could propose tax cuts for businesses that invest in research, but he acknowledged such moves would need approval during consultations.

“I’d rather take six months and try to get a coherent result than rush into it,” Le Maire said.

To contact the reporter on this story: William Horobin in Paris at whorobin@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint, Lucy Meakin

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