A FIRST VISIT TO LUXEMBURG

[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.]

LUXEMBURG EXPERIENCED

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.

INDIAN AND EUROPEAN DEMOCRACY

[January 2007, when I went to Luxemburg, was a time when West Bengal government was facing strong resistance from people it had displaced from land it had handed over to the Tatas for a car factory. This column, published in the Calcutta Telegraph of 13 March 2007, reflects my thoughts about how the Indian democracy differed from - was less constructive than - the European.]


THE POINT OF DEMOCRACY

A couple of months ago I spent some time in Luxemburg. I could not meet the Prime Minister because he was away in Brussels conferring with his fellow European Prime Ministers. But I conferred with four ministers including the foreign minister and the minister of the economy.
I went to Luxemburg with considerable skepticism about the EU experiment. Continuing to maintain the paraphernalia of parliaments and ministries in every member country after they had all joined the EU seemed extravagant to me. The numerous EU institutions housed in vast buildings looked like bureaucracy run riot. Sprinkling the institutions all over Europe seemed designed to waste people’s time and transport facilities. And the innumerable committees holding meetings, tying up so many ministers and bureaucrats, and taking years to come to the most modest decisions, seemed an extraordinarily inefficient way of running a government to me.
One of the things I discussed with the Luxemburg ministers was their reaction to Lakshmi Mittal’s takeover of Arcelor. One of them had reacted adversely. The Indian press had gone to town over this, reading in his hostility parochialism, racism, xenophobia, Indophobia and every other sin. I asked the ministers the reasons for the hostility. They denied every emotion that we Indians had attributed to them; and upon reflection, I realized that the emotions had been attributed without any evidence at all, and certainly without talking to anyone in the Luxemburg government. The Indian press had embroidered an explosive, emotional story around a single statement that supported none of the pyrotechnics, and avoided all on-the-ground investigation.
The ministers’ responses could be summarized to say that Mittal had surprised them: that he had not talked to any of them. This response sounded strange to the liberal in me. After all, enterprises should be freely transferable, and Mittal had a perfect right to take over Arcelor if he could marshall the money and persuade enough of Arcelor’s shareholders to sell their shares. The US government would not have expected Mittal to talk to it if he wanted to take over a similar steel company in the US; nor probably the British government. So while I was in Luxemburg, I was a bit mystified by this insistence on talking.
Then, the reason slowly dawned on me as I watched the proceedings over Singur sitting in Calcutta. There were a number of parties involved: the West Bengal government, the residents of Singur who were going to be replaced, their political leaders, Mamata Banerjee, and the Tatas. It struck me that throughout the Singur affair, these parties talked to everyone except one another. They were aggrieved, agitated or in conflict; they could have sorted out their differences only by talking. But they never talked to one another. Instead, they held public meetings and talked to people who thought like themselves; they organized processions and shouted slogans at a random selection of people who happened to be within shouting distance; they talked to the press, which converted their differences into banner headlines. They did everything within their power to magnify their differences; they never sat down together and look to bridge their differences. After Mamata had gone on hunger strike, Buddhadev offered to talk with her. But she was not interested in talking; she only wanted the Singur takeover to be nullified. Ratan Tata too offered to talk at a very late stage in the proceedings; but he sounded choosy about whom he would talk to, so no one took up his offer. The entire Singur affair was settled by the muscle power of the government; although West Bengal is a democracy, its method of resolution of differences was no different from that of the British government that preceded it, or indeed of a pure dictatorship.
Why did it never occur to the elected government to settle differences by talking to the affected and to political opponents? Evidently because its concept of democracy does not involve peaceful resolution of political problems. The way the communists look at it, the role of democracy is simply to decide who is to rule West Bengal for five years. Once elections have answered that question, the electors are taken to have given the government power to decide such questions as compulsory transfer of land from some farmers to some industrialists.
This view of democracy is not peculiar to West Bengal or to the communists. It is impossible to watch the proceedings of the West Bengal assembly. But I often watch the proceedings of Parliament when I feel my level of cheerfulness is dangerously high; Parliament is a wonderful antidote for cheer. I watched Lalu Yadav present the railway budget. I only watched, because I could hardly hear him. He was made inaudible by half a dozen members of Samajwadi Party, who stood in the well of Parliament and went on shouting the same monotonous slogan again and again, protesting against the threat that the central government might throw out the Samajwadi Party government in Uttar Pradesh and impose President’s rule. SP may be considered a party of hooligans. But I have seen members of the Bharatiya Janata Party similarly sabotage proceedings with slogans about Bofors. This is a relatively mild form of sabotage; some weeks earlier, members of the Trinamool Congress Party went about wrecking furniture in the West Bengal assembly. Clearly, these venerable vandals must think that they are doing something useful – that they are exercising their democratic right of protest, or carrying out their duty of protesting against injustice. Just as the West Bengal government believes that an electoral victory gives them the right to compulsory acquisition of anyone’s land, the protesting MPs think that their own election to Parliament gives them a right to stop Parliament from working.
If that is what they think, then what of democratic dialogue? Parliaments are debating societies above anything else; their entire procedure is designed to facilitate orderly discussion. They have formulated elaborate rules about how debate is to be conducted; and they have a speaker who uses those rules to lead an orderly debate. Speakers have extraordinary authority in other Parliaments. Long ago, when I lived in Canada, I used to watch the Canadian Parliament on television. Whatever pandemonium was going on in that Parliament, the speaker had only to stand up, and everyone fell silent.
So I am no longer sure that those European politicians are wasting their time. Arcelor is a big employer in Luxemburg; its steelworkers were liable to be worried and upset by a hostile takeover. The Luxemburg ministers instinctively felt it to be their duty to manage the takeover – a major event in their polity – peacefully and smoothly. They took it as their job to find solutions to public problems that were the most acceptable to those involved and affected; and they found the solutions by talking, negotiating, cajoling. This is what European democracy is about. I think we, the world’s greatest democracy, have missed out on something somewhere. We may be the world’s greatest talking shop. But we talk past one another, and not to one another. Democracy is a ritual for us, not the problem-solving instrument that it is for the Europeans.