France Nationalizes Its Banking and Industrial Sectors Summary

  • Last updated on November 10, 2022

Through nationalization of banking and some industrial sectors, France moved toward a mixed economy.

Summary of Event

In the 1930’s, faced with economic depression, several Western countries experimented with innovative policies. Governments intervened in the economy in order to promote recovery. Solutions varied, but the concept that national governments should intervene in the economy and exert countercyclical pressures remained, becoming a prominent feature of post-World War II economic policy. Between 1936 and 1946, France chose to enact the nationalization of credit and some industrial sectors to help build a mixed economy that ultimately would become compatible with private business practices. [kw]France Nationalizes Its Banking and Industrial Sectors (1936-1946) [kw]Banking and Industrial Sectors, France Nationalizes Its (1936-1946) [kw]Industrial Sectors, France Nationalizes Its Banking and (1936-1946) Banking;nationalization Nationalization;French banking France;nationalization of banking [g]France;1936-1946: France Nationalizes Its Banking and Industrial Sectors[09090] [c]Government and politics;1936-1946: France Nationalizes Its Banking and Industrial Sectors[09090] [c]Trade and commerce;1936-1946: France Nationalizes Its Banking and Industrial Sectors[09090] [c]Business and labor;1936-1946: France Nationalizes Its Banking and Industrial Sectors[09090] [c]Banking and finance;1936-1946: France Nationalizes Its Banking and Industrial Sectors[09090] Blum, Léon Gaulle, Charles de Thorez, Maurice

French leaders considered nationalization to be part of the solution to France’s economic woes in the 1930’s. The principal advocates of nationalization were the Socialists, the Communists, and the left-wing trade union Confédération Générale du Travail (CGT). All three were influenced by Henri de Man, a Belgian Marxist who called for a mixed economy, one between socialism and capitalism on the political and economic spectrum. De Man and his French followers were not interested so much in government ownership as in governmental control of investment. Through nationalization of credit, the state could provide cheaper and easier credit for small businesses, which could then increase wages and contribute to growth. Small businesses supported nationalization of France’s credit structure.

The Left, however, was divided concerning the role nationalization should play. The Socialists, led by Léon Blum, saw nationalization not so much as an instrument to achieve socialism but as a means of promoting greater worker welfare within a capitalist structure. The Socialists envisioned indemnification of private owners upon nationalization. The Communists, led by Maurice Thorez, expressed disbelief in the improvement of workers’ welfare while a capitalist economy was still in place. They saw nationalization and planning as measures to be taken only after revolution.

In 1936, the Front Populaire (Popular Front), Popular Front (France) an electoral alliance of Socialists, Communists, and Radicals, took over the government. Its program included nationalization on a limited basis. The Popular Front was far more active in the field of social and labor legislation, enacting a number of social welfare measures, reducing the workweek to forty hours, and granting the right to collective bargaining. These measures alarmed the business community and contributed to considerable capital flight abroad.

Only the Bank of France and the armaments industry were initially directly affected by nationalization. They were followed in 1937 by the railway. Government control of the Bank of France was popular because of the bank’s deflationary policies and its proclivity to favor large firms when extending credit. The government stopped short of outright nationalization and instead enacted administrative reform as a means to introduce strong state representation on the bank’s executive boards. Further steps were envisioned but never taken, and the bank did not change its policies markedly. Effective nationalization instead hit the armaments industry. This too caused panic in the business community. The Schneider firm, as one case, walled off the newly nationalized armament section of its plant from the remainder of it. It appears, however, that nationalization of armaments improved national defense, government control over mobilization, and production centralization.

There are a number of reasons the Popular Front government led by Blum enacted such a limited nationalization program. The government feared losing the confidence of businesspeople and the middle class at a delicate political juncture, when Europe seemed to be swept by fascism. France did not appear to be immune to that danger. An excessively radical program might have brought economic conflict with Western democracies. Finally, Blum would do nothing to create an efficient state apparatus of economic control if such creation might facilitate formation of a fascist government in the future. These preoccupations reflected growing fears of resurgent Nazi Germany and of possible armed conflict. The latter issue preoccupied the Popular Front far more than did nationalization.

The only other major nationalization of the 1930’s concerned the railroad system. The Railway Act of 1937 created a mixed company, Société Nationale de Chemins de Fer Français (SNCF). State intervention in this case was prompted by the sector’s huge budget deficit. The existing network of private lines was consolidated, and operations were streamlined. The government retained 51 percent of ownership.

A second nationalization phase took place in 1945 and 1946 and was more extensive. As a result of their active role in the Resistance against Nazi occupation, the Socialists and Communists were popular at the end of World War II and dominated the political agenda. The Left reopened the issue of nationalization, which this time was more popular, supported even by France’s conservative leader, General Charles de Gaulle. De Gaulle saw nationalization as a means for the state to acquire sufficient authority to be able to promote recovery and unprecedented growth and in the process reestablish France as a major world power. Several political groups shared de Gaulle’s idea that nationalization could put the “levers of command” into the hands of the state. Little opposition to nationalization existed at the end of World War II, except in the business community.

The business community, however, was on the defensive because of widespread perceptions that it had collaborated with the German occupiers. For example, Louis Renault’s property was confiscated because he had supplied the Germans with some military materials during the occupation, and Renault became a state company.

After the war, the private sector clearly lacked sufficient capital to fuel rapid recovery unaided. As a consequence, between December, 1945, and April, 1946, nationalization was enacted by large parliamentary majorities. It affected the Bank of France and the four largest deposit banks, electricity, gas, the thirty-four largest insurance companies, and coal. After April of 1946, popular and party support for nationalization slackened considerably, as political tides began to change.

Significance

The overall impact of nationalization was relatively limited. Nationalization remained confined to a few, though important, sectors of the economy. The political influence of the Socialists, the Christian Democrats, and other moderates ensured that nationalization would not fundamentally alter the market-oriented character of the French economy.

Although after World War II there was widespread agreement that nationalization was necessary to achieve rapid economic recovery and modernization, divisions continued among the major parties about the exact role the nationalized sector should play in the economy. The Socialists conceived of the nationalized sector as a stepping-stone toward socialism. The Communists, to the contrary, still separated the issue of veritable revolution from mere nationalization of some sectors of the economy. To the Communists, nationalization was only a patriotic measure meant to reinforce the French government’s control over resources and make the country more independent as a consequence. The Movement Republicain Populaire (MRP) saw nationalization as a means to break the large trusts, but it was no panacea: It should be adopted only when government regulation proved inefficient. It continued to prefer joint public-private ownership and to ascribe a moral mission to the nationalized sector of humanizing working conditions.

Disagreement arose, moreover, concerning institutional and political control of nationalized enterprises. Socialists and Communists disagreed about whether the nationalized sectors should be strongly centralized and about who should hold managing authority. The Socialists favored a decentralized technocratic approach, as they sought efficiency above all. The Communists preferred instead strong centralized control by the government, matched within each nationalized enterprise by tripartite boards composed of state, labor, and consumer representatives. Compromises were adopted whereby the natural gas and electricity industries followed a centralized approach with strong tripartite boards. The coal industry instead was decentralized and bound to technocratic criteria.

The model that emerged was therefore one of compromise. The nationalized sector never had the authority or power to function as a “lever of command” through which the government could direct the economy. A degree of coordination within the nationalized sector was brought about only by the French Modernization and Equipment Plan (PME).

Initially, the business community bitterly criticized the nationalized sector. In the 1930’s, nationalization caused widespread capital flight abroad. In 1945-1946, deputies close to business interests sought to obstruct or influence legislation, with little success. Accusations were launched against the nationalized sectors that they were mismanaged, particularly because of the system of tripartite boards that were stacked with left-wing trade union representatives, that they increased the state’s budget deficit, and that they created a huge bureaucratic apparatus.

French premier Léon Blum addresses a crowd in Poissy, France, in 1936.

(NARA)

The first accusation by the business community was well founded. Once the early enthusiasm for nationalization had subsided, Socialists and the MRP managed in the late 1940’s to impose a managerial approach in which technocratic criteria prevailed over political ones. The bureaucratic apparatus was also streamlined.

The accusation that nationalized industries operated at a loss and drained state resources was only partially founded. The nationalized sectors had to be rebuilt after six years of war and four years of harsh Nazi occupation. Large deficits during the period of recovery and modernization were therefore inevitable. It has been argued that had the nationalized sectors been left in private hands, and given the scarcity of private capital, it would have been far more difficult to achieve as spectacular and rapid a recovery as the one that in fact took place by the end of 1949.

After 1947, France began to enjoy the fruits of a massive American aid package to Europe, the Marshall Plan. Marshall Plan By choosing to participate in the plan, France made a clear pro-Western political choice. French politics moved toward the center, with the Left losing control and influence. As a consequence, business confidence began to return and criticism of the nationalized sector subsided.

Business criticism also diminished because the nationalized sector, by the late 1940’s, no longer appeared to be threatening the health of the private sector. To the contrary, private enterprises began to recognize some advantages to them of nationalization. Chief among these was the fact that during the difficult reconstruction period, private businesses could enjoy the low energy costs that only a subsidized national sector could provide. In addition, it became clear that credit practices were not significantly altered in France despite the nationalization of the largest deposit banks. Criteria adopted to extend or deny credit were by and large no different from before. Finally, a positive “personal” factor intervened to modify the negative attitudes of the business community. Very often, public and private enterprise managers were alumni of the same schools, knew one another, and shared the same economic philosophies. Moreover, many managers embarked on mixed careers, accepting executive positions in both private and public businesses, switching from one sector to the other with ease. By the 1950’s, the initial animosity against the nationalized sector no longer existed. France emerged as a “mixed economy” insofar as the state owned a share of the means of production and adopted economic planning, but it remained nevertheless an economy ultimately still driven by market imperatives. Banking;nationalization Nationalization;French banking France;nationalization of banking

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Colton, Joel. Léon Blum: Humanist in Politics. 1966. Reprint. Durham, N.C.: Duke University Press, 1987. Outstanding political biography of Blum by an American historian. Part 2, “The Years of Responsibility,” particularly deals with the Popular Front experience, Blum’s leadership of two cabinets, his economic philosophy, and the so-called French New Deal of the 1930’s.
  • citation-type="booksimple"

    xlink:type="simple">Ehrmann, Henry W. Organized Business in France. 1957. Reprint. Westport, Conn.: Greenwood Press, 1981. Thorough and informative book on the French business community from the 1930’s to the mid-1950’s; one of the best on the topic available in English. Presents a historical survey and then describes the post-World War II structure of French business associations. Concludes with an in-depth analysis of business attitudes and policies in France.
  • citation-type="booksimple"

    xlink:type="simple">Forsyth, Douglas J., and Ton Notermans, eds. Regime Changes: Macroeconomic Policy and Financial Regulation in Europe from the 1930s to the 1990s. New York: Berghahn Books, 1997. Collection of essays by historians, economists, and political scientists includes discussion of the nationalization of France’s banking sector.
  • citation-type="booksimple"

    xlink:type="simple">Horn, Gerd-Rainer. European Socialists Respond to Fascism: Ideology, Activism, and Contingency in the 1930s. New York: Oxford University Press, 1996. Study of developments in Europe in the years 1933-1936 provides background for the move toward nationalization in France.
  • citation-type="booksimple"

    xlink:type="simple">Kuisel, Richard F. Capitalism and the State in Modern France: Renovation and Economic Management in the Twentieth Century. Cambridge, England: Cambridge University Press, 1981. Excellent comprehensive study of twentieth century French capitalism. Traces the evolution of French state-capital relations from the late nineteenth century to the early 1950’s, explaining how France arrived at its postwar mixed economic model. Information on nationalization appears in chapters 4 and 7.
  • citation-type="booksimple"

    xlink:type="simple">Lacouture, Jean. Léon Blum. Translated by George Holoch. New York: Holmes & Meier, 1982. Provides a thorough account of Blum’s political career. Part 2, “The Tests of Power,” sets Blum’s tenure of power against the backdrop of a mounting fascist threat within France and elsewhere in Europe. Explains Blum’s policies as products of an unprecedented and dangerous political environment.
  • citation-type="booksimple"

    xlink:type="simple">Pinkney, David H. “The French Experiment in Nationalization, 1944-1950.” In Modern France: Problems of the Third and Fourth Republics, edited by Edward Mead Earle. Princeton, N.J.: Princeton University Press, 1951. Straightforward account of French nationalization after World War II provides all the basic information. Adeptly sets nationalization in the context of the postwar political climate and describes both the advantages and the disadvantages of nationalization.

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