[I went to Luxemburg in January 2007 on an official visit, and met ministers, bankers and businessmen amongst others. This report of the visit was published in Business World of 15 January 2007.]
Lakshmi Mittal’s acquisition of Arcelor put Luxemburg on Indians’ mental map. I had never been to Luxemburg before; from photographs I had imagined the Arcelor headquarters to be a chateau – a country house to which you drove up along a long shaded avenue. So I was surprised to find it situated in the center of Luxemburg, close to the railway station.. I had expected ‘Mittal-Arcelor’ to be emblazoned in bold on it; instead, I found that the building still bears the name ‘Arbed’ in big stucco lettering at the top (Arbed was Luxemburg’s steel company which was merged with Usinor of France and Aceralia of Spain to form Arcelor in 2001). The new name of the company is found at the entrance in small letters. I had imagined Lakshmi Mittal looking out of its windows on his green, wooded domain; actually, he looks out on busy noontime traffic. That is, when he visits the four-story office mansion built almost a century ago. He does it often; Arcelor-Mittal no doubt engages much of his attention these days. But he has not converted the office into his residence; he stays in a hotel.
Why the Mittal-Arcelor affair made such big news in India is clear – Lakshmi Mittal is of Indian descent, and all true Indians wanted to take up cudgels for him – verbally. But why did it stir people so in Luxemburg? Luc Frieden, minister of justice, the budget and the treasury, said it was because the father or uncle of almost everyone had once worked in Arbed. Jeannot Krecké, minister of the economy, commerce and sports, attached importance to the survival of manufacturing industry. (They do have thick portfolios, these Luxemburg ministers; after all, there are only 15 of them.) Arbed is to Luxemburgers what the Tata Steel is to India. It is an icon; whatever happens to it will reverberate in the local polity – even though Arbed today employs just 6,000 people out of the country’s work force of 311,000, and produces just 4 million tons of steel.
There is also a local way of doing things into which the hostile bid for Arcelor did not fit. Luxemburg has a small share of Arcelor’s equity, and prefers to have a voice in the board. Its government likes to resolve issues by consultation. It also favours shared decision taking, for which it has tripartite bodies in which it brings together workers and employers. Mittal’s reputation as a capitalist buccaneer caused some trepidation at the outset. But both the government and the Mittals (Lakshmi and his son Aditya) have been talking and learning each other’s ways. Luxemburg has a small and approachable government; it acts quickly, and looks for solutions friendly to business. When Luc Frieden drafts a law, he talks to businesses and institutions to learn what they would like to see in it.
I am sure that if Mittal thinks about it, Luxemburg’s ways must contrast to its favour with those of Indian governments. Their slow, opaque, ponderous ways may not so much affect services which require little of land, logistics or investment. But in manufacturing industry, costs depend a great deal on the infrastructure provided by the government. And timing is important in a competitive industry; it makes all the difference how quickly one can go into production. In quality of government, Luxemburg with its small, agile government would score higher than India.
All of manufacturing employs only 11 per cent of Luxemburg’s labour force. Despite – or perhaps because – of the fading of industry, Luxemburg has the highest national income per head in Europe, more than twice that of France, Britain or Japan. Admittedly, the figure involves a bit of sleight of hand, for many people come every day and work in Luxemburg, which is only 82 km long and 57 km wide. Germans call their Turkish workers guest workers, although they have been guests for over 40 years; German guests in Luxemburg, however, commute to work in the morning and go back to their homes across the border every evening, as do workers from France and Belgium, the other countries encircling Luxemburg. A third of Luxemburg working population is non-resident. Foreign workers speed along six-lane highways. As they enter the city, street signs tell them how many parking spaces are available in which underground car park.
Underground activity goes quite far back in Luxemburg’s history. For it is settled on a sandstone cliff overlooking the confluence of the Alzette and Petrusse rivers. Luxemburgers built a castle; but the Austrians, who were visiting Luxemburg in the 18th century, had an even better idea. They tunneled through the cliffs and opened bastions overlooking the valley; this underground fortress was indestructible and made Luxemburg a formidable obstacle to the imperial armies of France as they fought for the mastery of Europe over centuries. Wars between roughly balanced empires are impossible to win decisively. When people despair of winning, their thoughts turn to God. So religion was Luxemburg's major industry in the Middle Ages; buildings of ancient monasteries in the centre are a conspicuous reminder of it. Luxemburg is close to the heart of Europe.
Whereas at one time this made it the tramping ground of armies, today it is bringing to Luxemburg the august institutions of the European Union. Brussels is the home of the European Commission and the fount of its unceasing Directives. But EU is a federation built from the bottom up; so its members have multiplied its institutions, and strewn them across member countries. Luxemburg, being central and beautiful, has got more than its fair share. It could not accommodate the new European armies of bureaucrats in its old palaces, so it has given over the next hill to them. There they have built imposing glasshouses; European Investment Bank, European Court of Justice, Eurostat are amongst the institutions on this hill.
But while European bureaucracy may provide the cream, it is finance that is Luxemburg’s dominant industry. It has an extraordinary concentration of financial service providers. It is host to 155 banks – only 15 of them local. It has 95 insurance companies, and 271 reinsurance companies. It has 946 investment companies, 1046 unit trusts and 15 other undertakings for collective investment (UCIs) as they are locally called. At the beginning of 2006, the combined assets of Luxemburg’s UCIs were over E1.5 trillion – twice India’s national income. The main business of its financial sector is to attract the savings of people in neighbouring countries, principally Germany and Belgium, and to offer them an enormous variety of avenues for financial investment through companies whose solvency is assured. Switzerland has been in this business for much longer; it specializes in investment services for the world’s super-rich. Luxemburg caters more to the middle classes. To this end, it is home to a large number of mutual funds which offer standardized combinations of investments to cater to savers who cannot afford to go to the private bankers of Zurich. It also has branches of all major Swiss banks, which found it to be a good point of entry into EU territory. Initially, investors were attracted by lower taxes; but the difference is now dwindling. Similar funds are available in the home countries of investors, but Luxemburg has kept its lead. Serge Kolb, Deputy Governor of the Central Bank of Luxembourg, attributes it to low costs, greater choice of funds and better knowledge. But as Fernand Grulms of ABBL, the Bankers’ Association of Luxembourg put it, Luxemburg’s command of languages is also important. A large proportion of the work force speaks German, French and English; and the financial institutions combine expertise on the regulations of neighbouring countries. The government is small, approachable, and friendly to business. So it is really the quality of administration and client service that gives Luxemburg an edge. This is why Indian companies have for long found Luxemburg a good place to raise capital. Immediately after they were allowed to do so, 31 Indian companies issued GDRs in Luxemburg in 1994; since then, Luxemburg has been a favourite destination of Indian companies floating GDRs or raising bonds.
But Luxemburg may become attractive to Indian business for another reason. The European Union is a market of 500 million people with high incomes, as Jean Asselborn, Luxembourg’s minister of foreign affairs and immigration, points out. Indian companies are buying and setting up subsidiaries in EU. If they wanted to establish their presence, Luxemburg would be a strong candidate. It is a small city, consisting largely of offices; only 75,000 people live in the city. But it offers all the conveniences of a city, including a concert hall, an opera house and museums of classical and modern art. It is easy to get into and out of; one can enjoy country life in one of the villages in the neighbourhood and drive into Luxemburg for work. One’s children would grow up speaking French, German and Luxemburgish. Paris, London and Amsterdam would be within driving distance. And for those who get homesick, there are at least five Indian restaurants – Star of Asia, Swagat, Himalaya, Everest and Khana Khazana. No wonder Lakshmi Mittal chose a Luxembourg company to buy into.
Why the Mittal-Arcelor affair made such big news in India is clear – Lakshmi Mittal is of Indian descent, and all true Indians wanted to take up cudgels for him – verbally. But why did it stir people so in Luxemburg? Luc Frieden, minister of justice, the budget and the treasury, said it was because the father or uncle of almost everyone had once worked in Arbed. Jeannot Krecké, minister of the economy, commerce and sports, attached importance to the survival of manufacturing industry. (They do have thick portfolios, these Luxemburg ministers; after all, there are only 15 of them.) Arbed is to Luxemburgers what the Tata Steel is to India. It is an icon; whatever happens to it will reverberate in the local polity – even though Arbed today employs just 6,000 people out of the country’s work force of 311,000, and produces just 4 million tons of steel.
There is also a local way of doing things into which the hostile bid for Arcelor did not fit. Luxemburg has a small share of Arcelor’s equity, and prefers to have a voice in the board. Its government likes to resolve issues by consultation. It also favours shared decision taking, for which it has tripartite bodies in which it brings together workers and employers. Mittal’s reputation as a capitalist buccaneer caused some trepidation at the outset. But both the government and the Mittals (Lakshmi and his son Aditya) have been talking and learning each other’s ways. Luxemburg has a small and approachable government; it acts quickly, and looks for solutions friendly to business. When Luc Frieden drafts a law, he talks to businesses and institutions to learn what they would like to see in it.
I am sure that if Mittal thinks about it, Luxemburg’s ways must contrast to its favour with those of Indian governments. Their slow, opaque, ponderous ways may not so much affect services which require little of land, logistics or investment. But in manufacturing industry, costs depend a great deal on the infrastructure provided by the government. And timing is important in a competitive industry; it makes all the difference how quickly one can go into production. In quality of government, Luxemburg with its small, agile government would score higher than India.
All of manufacturing employs only 11 per cent of Luxemburg’s labour force. Despite – or perhaps because – of the fading of industry, Luxemburg has the highest national income per head in Europe, more than twice that of France, Britain or Japan. Admittedly, the figure involves a bit of sleight of hand, for many people come every day and work in Luxemburg, which is only 82 km long and 57 km wide. Germans call their Turkish workers guest workers, although they have been guests for over 40 years; German guests in Luxemburg, however, commute to work in the morning and go back to their homes across the border every evening, as do workers from France and Belgium, the other countries encircling Luxemburg. A third of Luxemburg working population is non-resident. Foreign workers speed along six-lane highways. As they enter the city, street signs tell them how many parking spaces are available in which underground car park.
Underground activity goes quite far back in Luxemburg’s history. For it is settled on a sandstone cliff overlooking the confluence of the Alzette and Petrusse rivers. Luxemburgers built a castle; but the Austrians, who were visiting Luxemburg in the 18th century, had an even better idea. They tunneled through the cliffs and opened bastions overlooking the valley; this underground fortress was indestructible and made Luxemburg a formidable obstacle to the imperial armies of France as they fought for the mastery of Europe over centuries. Wars between roughly balanced empires are impossible to win decisively. When people despair of winning, their thoughts turn to God. So religion was Luxemburg's major industry in the Middle Ages; buildings of ancient monasteries in the centre are a conspicuous reminder of it. Luxemburg is close to the heart of Europe.
Whereas at one time this made it the tramping ground of armies, today it is bringing to Luxemburg the august institutions of the European Union. Brussels is the home of the European Commission and the fount of its unceasing Directives. But EU is a federation built from the bottom up; so its members have multiplied its institutions, and strewn them across member countries. Luxemburg, being central and beautiful, has got more than its fair share. It could not accommodate the new European armies of bureaucrats in its old palaces, so it has given over the next hill to them. There they have built imposing glasshouses; European Investment Bank, European Court of Justice, Eurostat are amongst the institutions on this hill.
But while European bureaucracy may provide the cream, it is finance that is Luxemburg’s dominant industry. It has an extraordinary concentration of financial service providers. It is host to 155 banks – only 15 of them local. It has 95 insurance companies, and 271 reinsurance companies. It has 946 investment companies, 1046 unit trusts and 15 other undertakings for collective investment (UCIs) as they are locally called. At the beginning of 2006, the combined assets of Luxemburg’s UCIs were over E1.5 trillion – twice India’s national income. The main business of its financial sector is to attract the savings of people in neighbouring countries, principally Germany and Belgium, and to offer them an enormous variety of avenues for financial investment through companies whose solvency is assured. Switzerland has been in this business for much longer; it specializes in investment services for the world’s super-rich. Luxemburg caters more to the middle classes. To this end, it is home to a large number of mutual funds which offer standardized combinations of investments to cater to savers who cannot afford to go to the private bankers of Zurich. It also has branches of all major Swiss banks, which found it to be a good point of entry into EU territory. Initially, investors were attracted by lower taxes; but the difference is now dwindling. Similar funds are available in the home countries of investors, but Luxemburg has kept its lead. Serge Kolb, Deputy Governor of the Central Bank of Luxembourg, attributes it to low costs, greater choice of funds and better knowledge. But as Fernand Grulms of ABBL, the Bankers’ Association of Luxembourg put it, Luxemburg’s command of languages is also important. A large proportion of the work force speaks German, French and English; and the financial institutions combine expertise on the regulations of neighbouring countries. The government is small, approachable, and friendly to business. So it is really the quality of administration and client service that gives Luxemburg an edge. This is why Indian companies have for long found Luxemburg a good place to raise capital. Immediately after they were allowed to do so, 31 Indian companies issued GDRs in Luxemburg in 1994; since then, Luxemburg has been a favourite destination of Indian companies floating GDRs or raising bonds.
But Luxemburg may become attractive to Indian business for another reason. The European Union is a market of 500 million people with high incomes, as Jean Asselborn, Luxembourg’s minister of foreign affairs and immigration, points out. Indian companies are buying and setting up subsidiaries in EU. If they wanted to establish their presence, Luxemburg would be a strong candidate. It is a small city, consisting largely of offices; only 75,000 people live in the city. But it offers all the conveniences of a city, including a concert hall, an opera house and museums of classical and modern art. It is easy to get into and out of; one can enjoy country life in one of the villages in the neighbourhood and drive into Luxemburg for work. One’s children would grow up speaking French, German and Luxemburgish. Paris, London and Amsterdam would be within driving distance. And for those who get homesick, there are at least five Indian restaurants – Star of Asia, Swagat, Himalaya, Everest and Khana Khazana. No wonder Lakshmi Mittal chose a Luxembourg company to buy into.
