Economist Elie Cohen takes on one of Hollande's pet projects, the Public Investment Bank. This supposed innovation, which Cohen shows is largely a recycling of old ideas, is built on yet another form of Germany-envy. The strength of German industry is the Mittelstand, the small-to-medium sized firms that specialize in high value-added production for the export market. France is weak in this area, and its PME/PMI are undercapitalized and overindebted.
But the Socialist solution, Cohen argues, threatens to reproduce the wrongheaded policies that produced the calamity of the cajas in Spain and the Landesbanken in Germany. It will foster a crony capitalism at the regional level, administered by Socialist regional governments, which will attempt to induce regional banks to invest in favored industrial projects.
Cohen does not point other differences between the German and French economies that make success in this sort of venture unlikely. The leading French export industries, apart from the luxury sector, are in capital-intensive industries such as chemicals, pharmaceuticals, high-speed rail, aviation, and nuclear power, as well as financial services and insurance. There are certainly smaller-scale high-tech niche industries that might benefit from regional aid: for instance, laser technology is well-developed in France. But is it really the case that dynamic small firms are having trouble obtaining financing? Or will the BPI be encouraged for political reasons to lend to firms in declining sectors in the name of job protection? A misguided industrial policy, abetted by a public bank subject to political influence, may well misdirect capital that could be put to better use elsewhere. The track record on this type of development strategy is not good.