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Casinos, yogurt and champagne are helping shape France's future

Casinos, yogurt and champagne are helping shape France's future

Interested in owning a casino? Or cultivating yogurt? Or making some high-quality sparkling wines?

Well, stay out of France. Even if you think it's the best country in which to do business in those fields, forget it. Unless you're French, you're banned.

When you look at the industries that France thinks are vital to its future, it's helpful to remember that surrealism was originally a French movement.

On Dec. 31, the French government published a decree that allows the state to block foreign takeovers in 11 designated industries linked with national security. It will have the power to prevent anyone buying companies in areas such as defense equipment, private corporate security, cryptology and the production of vaccines against bio-terrorism.

And casinos.

Hold on, casinos are vital to the national interest?

It seems so. Perhaps French politicians have been watching too many James Bond films where the suave spy nails the villain at the roulette wheel while sharing a martini with a Russian temptress.

Not quite. According to French Finance Minister Thierry Breton, casinos were added to the list closed to foreigners because such establishments could be used for money laundering and financing terrorism.

Of course, once you use a brush that broad, just about any industry can be added to the list. How about pizza delivery or kebab shops? Couldn't they be used to finance terrorism? And banks - aren't they sometimes unwittingly involved in money laundering?

There are some strange things regarded as vital to the security of the French state these days.

Rewind to last September. Champagne house Taittinger SA was facing a potential takeover from Belgian tycoon Albert Frere, after it had fallen into the hands of Starwood Capital Group LLC. According to Les Echos newspaper, a meeting was convened in the French president's Elysee Palace in Paris to find a way of keeping the brand in domestic ownership. The quest was for a "French solution," the newspaper said.

That's champagne off-limits. And don't even think about trying to buy a yogurt company.

Last July, market traders were excited by speculation that PepsiCo Inc. might make a takeover bid for Groupe Danone, the world's largest yogurt producer. French President Jacques Chirac immediately swung into action.

"As regards a large French company like Danone, the government and I are particularly vigilant and mobilized," Chirac said on television. "The priority for France is to protect its industrial competitiveness and the strength of its companies."

A takeover of Coca-Cola Co. would have been easier for Pepsi than a purchase of the French company. Even if Pepsi had been contemplating such a move, it was understandably frightened off.

The government continues to pour money into preserving in aspic the national identity of the French economy. In his New Year's address to the nation, Chirac announced more tax breaks to encourage companies to keep factories in France. Relocating production to countries with lower costs or more flexible labor laws is always an option for French companies.

There are two charges to be leveled at the latest French outburst of hyperactive protectionism.

The first is hypocrisy. The second, and more serious, is that the state has misunderstood how to nurture the industries that are vital to its economic future.

Nobody could dispute that France is guilty of double standards. After all, plenty of French companies have been busily acquiring international competitors.

Last year, France's Pernod Ricard SA completed the takeover of the U.K.'s Allied Domecq Plc, the owner of beverages such as Beefeater gin and Ballantine's whiskey.

Aren't those brands intrinsically British properties?

Indeed, when you pause to look at the holdings that Pernod has built up, it includes Jacob's Creek wines and Wild Turkey bourbon. Both of them are brands that are undeniably Australian and American, respectively. Likewise, how is it that Accor SA operates the Motel 6 chain in the U.S., a trademark that is about as American as Elvis Presley and hamburgers.

French companies have done well establishing themselves in global markets. Shouldn't firms from other countries have the same rights?

The French government has got it wrong. There is something comical about protecting industries such as casinos, champagne and yogurt, no matter how good Chirac's intentions are.

In a world of fast globalizing manufacturing, it is hard to see how a high-cost, regulated economy such as France can prosper, particularly now that euro membership has ruled out the option of devaluing its currency.

In time, French car manufacturers such as Renault SA may be forced to move all of its production out of France. Even the world- beating Airbus SAS may struggle to carry on assembling its planes in Toulouse.

In a post-industrial economy, the French will still be world leaders in tourism, luxury goods and food. You can't take a casino from the Cote d'Azur to New Delhi and preserve its magic. You can't make a sparkling wine in Argentina and expect it to be champagne.

That will be true whoever owns French companies. The industries in which the French lead the world will do fine, whether they are protected by the government or not. Indeed, they will do better if they are exposed to competition, instead of being shielded by the walls of Fortress France.

Matthew Lynn is a Bloomberg News columnist.