Study of the effects of privatization policies on the economy: The French example

Résumé du document

The public sector in France, which represents the firms that are controlled by the government, has been for a very long time a huge sector, with staff that represented in the 80s more than 10% of the whole labor market. Given the importance of this public sector in France, I am interested in identifying the reasons that justify the 90s trend to end with the nationalisation era and to enter a new cycle based on the privatization of the companies that had been previously taken under control by the government. First, it is necessary to identify briefly the main steps of the two privatization periods: 1986-1993 and 1997-2000. Then, it is interesting to focus on the economic and financial consequences of these measures. This study will especially focus on the importance of such a policy in the development of the stock exchange market, and the opening to world markets that occurred consequently, especially in capital markets. Just to conclude, I will explore the future of privatisation in France trying to understand why it may be adapted to some sectors but not to all of them.

So as to get a better understanding of the functioning of the French public sector and of the privatisation policies that were implemented in the last few decades, we need first to define the concepts that we are going to use and to discuss.

Nationalisation consists the property transfer of a firm to the national collectivity, either exchanging it with indemnisation, or as a sanction . Concretely, national collectivity is commonly represented by the government and therefore it becomes the new owner in case of nationalisation. Getting shares in a firm is a policy close to privatization but there is no public ownership in that case.

Privatization deals with either the property transfer from a public owned firm to individuals, or with the introduction of a new management style in a company that would then be ruled according to market rules (that assumes that the firm looks for the best possible profits). In this study, we will principally deal with the first aspect (from public ownership to private ownership) but Renault is a good example of a firm that was nationalised in 1945 but that has always been ruled according to the market rules. In the most common sense – the first definition – privatisation occurs as a part, even a small one, of a firm's social capital. And then the firm adopts a new logic: to satisfy its individual private owner and therefore, maximize profits.

In 2004, it was recorded by the INSEE that among the 1,300 firms that are public owned, 170 firms have been privatised and have been taken under the control of private entrepreneurs. Therefore, it has also recorded that the French Public Sector is now employing some 4% of the whole workforce. It seems important to note at this stage that the decrease in the number of public owned firms is much less important in the sector of equipment goods and intermediary goods than in the tertiary sector, energy one and transports one. For instance, the Government still has a major part in EDF-GDF (Electricite-Gaz de France/French Electricity and Gas provider).

Extraits

[...] As the public sector has always had a traditional crucial part in the economy, the challenge is all the more crucial too. The two main privatisation policies that occurred in France transformed not only the companies repartition between private and public sectors, but above all transformed the part played by the government in the economy. Indeed, the main strategic and most famous successful public firms have been transferred to private ownership. Privatisations have a huge impact on the economy structure; the effects on interior competition are often presented as obvious, but it is not that simple. [...]

[...] 305-360 (1999), Privatisation trends Financial Market Trends 72, OCDE, pp. 129-145 (2005), Bilan et enjeux des privatisations en France Notes et études documentaires n°5024 Alternatives Economiques Annual CD-Rom 2002 Global Development Finance, The World Bank Le Monde, Tuesday 9th April 2002 Appendix Privatisations in the OCDE between 1990 and 2000 (in Billion Le Monde, 9th april 2002 Le Monde, 9th april 2002 Alternatives Economiques Annual CD-Rom 2002 Insee : French national institute of statistics and surveys E.Cohen, C.Henry : Service Public, Secteur Public - CAE La DF, Paris JUVIN M., Les privatisations en France, pp. [...]

[...] Getting shares in a firm is a close policy to privatization but there is no public ownership in that case. Privatization deals with either the property transfer from a public owned firm to individuals, or with the introduction of a new management style in a company that would then be ruled by the respect of market rules (that assumes that the firm looks for the best possible profit). In this study we will principally deal with the first aspect (from public ownership to private ownership) but Renault is a good example of a firm that has been nationalised in 1945 but that has always been ruled according to the market rules. [...]

[...] Part of this increase is due to the increasing rates in this period, but the introduction of privatised firms contributed mainly to it Market liquidity Privatizations also have a positive impact on the dynamism of the stock exchange. Indeed, the entrance on the market of important firms, and often among the leaders of their markets, increases the market liquidity and attracts new investors, especially foreigners. In the case of the Paris stock exchange, the daily transactions volumes were around 4 to 5 billion Francs in 1994 while they were only between 200 and 300 million Francs in 1981, before the privatization policies (multiplied by twenty on that period!) Diversification The introduction into the stock exchange market and the capital opening of big firms that were previously public owned offers to investors a larger choice of important liquid assets. [...]

[...] The privatization movement that included them totally privatized 8 of the 15 banking groups. Indeed, this policy came out from the willingness of government to proceed to the opening of stock exchange markets, since they had already spread all over the big economies. Moreover, at that time, government was not any more committed into a post war recovery and boost policy; therefore, it was not any more focusing on the importance of controlling the credit activities, but was mainly implementing policies so as to raise funds to cover the debt. [...]