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Andrews John, The Economist - 22 ottobre 1994
The commercial assets of the EU.


Carving gracefully through the dazzling sky of C south-west France, an Airbus A340 is Put through its paces. On the tarmac, other aircraft, slim A320s and bulky A310s, glisten in their fresh airline liveries, newly rolled out from the hangars that contain yet more airframes in various states of completion. The spirit of corporate pride at Airbus's Toulouse headquarters is almost tangible: Airbus aircraft are glamorous symbols of effective European co-operation in high technology.

The feeling is much the same thousands of miles away on America's Pacific coast: a new Boeing 777 climbs on its test flight high above Seattle; the 747s - the original jumbo-jets-roll profitably off the Everett assembly line; and the workforce applauds yet more examples of America's high-tech superiority. And the passengers for these aircraft? Whether they fly in a Boeing or an Airbus, few will notice any difference.

If they are European taxpayers, perhaps they should. Airbus is constituted under French law as a Groupe~t d'Intérêt Economique, which means that its accounts are available only to its four shareholders: France's state-owned Aérospatiale and Germany's Deutsche Aerospace Airbus (each with a 37.9% holding); privatised British Aerospace (20%); and Spain's state-owned CASA (4.2%). Whereas Boeing's profitability is a matter of public record ($1.2 billion net profit last year on revenues of $25.4 billion), Airbus's is invisible, hidden in the books of its shareholders. How, then, does one judge the success of Europe's best-known high-technology consortium?

By the amount of its subsidies, say Boeing folk, whose guesstimates start at $26 billion. By the excellence ofthe products and their share ofthe market, counters the team in Toulouse, adding that Boeing has enjoyed subsidies of its own from defence-contracting and federal research projects.

Both sides have a point. Since its first airliner entered service 20 years ago, Airbus has gained 30% ofthe market, compared with Boeing's 60%; in the next decade Airbu shopes to win a 50%share.Given that Boeing is America's single biggest exporter and that 80% of Airbus sales are beyond the national boundaries of its shareholders, the argument is a constant irritant in transatlantic relations-the Americans and Europeans are, indeed, still quarrelling over a subsidies agreement concluded two years ago.

Over time, the subsidies issue may fade. Airbus is making profits on its A32o and may well do so on other models, too. Moreover, aerospace is a murky and incestuous world: probably half of any Airbus by value will go to contractors and engine makers in America, and they can lobby Washington as much as Boeing can. The real issue is whether Airbus's progress has been worth the taxpayers' investment. Lady Thatcher always had her doubtsbut in the end her government, like its predecessor, stumped up the necessary "launch aid". By contrast, the Germans had rather fewer misgivings, and the French and Spanish none at all.

Some will say the difference is yet another example of Anglo-Saxon perversity, forgetting that Lady Thatcher's predecessors, both Labour and Conservative, were often very willing to pour the state's money into industrial ventures. in fact, the difference was doctrinal: Thatcherism decreed that governments had no business picking industrial winners-not least because, the Airbus example notwithstanding, they usually picked losers.

That Thatcherite dogma was surely right. The sectors in which Europe leads or matches the rest of the world-pharmaceuticals, retailing, fashion, recorded music-are precisely those in which governments have interfered least. Where they have interfered most, they have usually failed. Look at Europe's history of loss-making state-owned airlines and steel companies, or at Groupe Bull, France's struggling, state-controlled computer maker. Some inefficient state companies, such as Belgium's telephone utility, have made profits-but only by being monopolies. And some state companies, such as France Télécom, have given good service-but at prices which would have been too high in a free market.

Perhaps the dogma is a mite simplistic: some transport economists argue that the heavily subsidised French rail system is a much better deal for French taxpayers than the lightly subsidised British system is for British ones. Meanwhile, Airbus apologists will argue that it is a special case: aerospace is a business with lots of high-tech spin-offs, plenty of "value-added", and significant for defence.

Maybe. But it is worth remembering that aerospace sales are smaller than those of, say, cigarettes. In order to prosper, Europe needs to compete across the board, and grow new firms and industries. Ron Woodard, president of Boeing's Commercial Airplane Group, notes that the net worth of Bill Gates's Microsoft, a software company that did not even exist 20 years ago, is bigger than Boeing's, and yet "you could put all their assets in one of our parking lots."

It is a good point. Europe's real problem is that it has no Microsofts, even though European brains are presumably as good as American ones, and its schools are arguably better. Why is Palo Alto in California crammed with the "start-up" companies that may provide tomorrow's Microsoft or Intel, while France's Sophia Antipolis science park, nestling in pine-clad hills just above the Côte d'Azur, is still struggling after 25 years to produce a home-grown Apple alongside such foreign residents as AT&T and Digital Equipment Corporation?

The answer is not an absence of raw material. Europe is full of small and medium-sized enterprises, ie, those with fewer than 500 employees. The European Commission reckons they provide 70% of Eu jobs, including 29% provided by firms with fewer than ten employees. in the computer business there are almost 6,000 small companies. Yet somehow it is hard to see them sprouting rapidly to become the size of Microsoft, Apple or Compaq.

As for Europe's bigger computer companies, such as Italy's Olivetti and Germany's Siemens Nixdorf, they are having a hard time adjusting to a slowing market. As one EU official publication delicately puts it: "The key weakness in Europe seems to lie in its inability to integrate research, development and innovation in an overall strategy which both exploits and orients them." That sentence could have been written for Philips of Holland: a brilliant innovator of electronic gadgets which others, notably the Japanese, have then gone on to exploit more successfully.

The wrong mood

The explanation for this mismatch of talent and commercial success lies in a mix of history, geography and culture. For all its size, America has a common language and a well-defined view of the way the world should work. The "American dream" inspires New Yorkers in the same way as Los Angelenos. if you fail with one American start-up, then you move on to another. By contrast, the EU is a patchwork of individual nations, with different cultural values from one another-if your European start-up fails, don't bother to try again-and mutually incomprehensible languages (nine official ones at the moment, with more to come).

One result is that while a Californian whizz-kid, of whom there are many, will face few obstacles in selling to Floridians, his Danish equivalent, a rare species, will have real problems in selling to Italians. And despite a wave of privatisations, the age of national champions in Europe is not quite over: France seems obsessed with keeping Groupe Bull alive; Italy protects private-sector Fiat by limiting Japanese car imports; almost every government, except the holier-than-thou British (who privatised British Airways a decade ago), protects and subsidises its flag-carrying airline.

If the European Union lived up to its political rhetoric, none of this would be happening. State aids would be disappearing; national borders would no longer equal market borders; and Europe's inherent creativity would be inspiring entrepreneurs by the thousand. Unfortunately, rhetoric and reality have yet to coincide.

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