Outlook: Same tired old policies as Germany bails out MobilCom

State aid for cash-strapped companies is back in fashion, so much so that it is hard to recall a time when it was being so liberally doled out. In Britain, there's Railtrack and British Energy, in France there's Air France and France Telecom, and in Germany there's, er, MobilCom. You'd be forgiven for thinking MobilCom, an obscure and almost wholly useless German mobile phone operator, an odd choice for a state funded bail-out, but then in less than a week there's an election and, for Gerhard Schröder at least, this is not a time to be championing the sometimes brutal consequences of free market capitalism.

The MobilCom bail-out is a depressingly familiar tale from Europe's biggest and these days hopelessly mired economy. You can argue all you like about the way Railtrack was de-privatised, but there isn't a railway in Europe that doesn't run without massive state subsidy and few would dispute that the experiment of privatisation was a miserable failure. Some of the same strategic considerations also apply to British Energy. If Britain wants a nuclear component in its energy mix, someone's got to pay for it. Whether it is through higher bills or the tax system may not make much odds.

As for France Telecom, well nothing has yet been announced, but it is already plain that this is going to be the big daddy of all state bail-outs, rivalling even that of Credit Lyonnais. It was the last French government that presided over France Telecom's headlong rush towards the abyss, and to some extent caused it by privatising the company and then refusing to contemplate any dilution of its controlling equity stake. So it could reasonably be argued that it is now incumbent on the French state to come to the company's rescue, even if that means laying waste to the health of the public finances. Again, there are strategic reasons why no national government could stand idly by while its main telecoms infrastructure company went to the wall.

But MobilCom? An also-ran in the German mobile phones market, it has never made a profit and its 3G licence, for which it paid a huge sum of money, is completely worthless. Outside the company's 5,500 employees, no one would miss MobilCom one jot if it were suddenly to disappear. Yet the German government thinks that stripped of debt there is a "basically sound" business in there somewhere which is worth rescuing.

Taken to its logical extreme, this line of argument would have the public sector pay down the debt of all financially stressed companies on the basis that their prospects would be transformed if only there was no cost of capital. Eventually governments would find themselves having to pay off the debts of all companies in order to level the competitive playing field once more. The fact that no government is ever going to do that makes the European Commission a good deal less tolerant than it used to be of state aid, for its consequences are always anti-competitive. State aid is usually politically corrupting too.

Even so, progress is painfully slow. Industrial and agricultural aid among the EU's 15 member states fell by a little over €20bn between 1996 and 2000 to €82bn, but at very nearly 1 per cent of total GDP, that's still a shockingly large figure. On state aid to the manufacturing sector, Germany and France remain two of the worst offenders, with a level of aid that runs at well over double the relative UK equivalent (figures drawn from the European Commission's state aid scoreboard, spring 2002 update). This latest slew of corporate rescues will presumably put the numbers straight back up again.

Both countries lean culturally to the view that state aid is a form of long-term investment. Michel Bon, outgoing chairman of France Telecom, put the standard French argument on these issues at the weekend when he said that the government should support France Telecom financially since to sell down Orange shares now while markets were weak would be to ruin the company's future for a pittance. The thing to do was to shore up the company until things recover, he said. Mr Bon understands the capital markets better than most, but what an absurd point of view. By supporting insolvent companies, governments are only subsidising inefficiency, recklessness and failure.

MobilCom is perhaps the most ludicrous example of Continental Europe's failure to grasp the nettle of free market reform. It makes no sense what so ever to prop up a struggling telecoms venture of such limited significance, even for the sake of procuring a few votes. If we could be sure that Mr Schröder's likely successor, Edmund Stoiber, was made of sterner stuff, there might be reason for hope. But in all likelihood he would be doing exactly the same thing.

There's little sign of Mr Stoiber wanting to address the power of the unions, reform Germany's costly social policies, or really in any serious way interfere with the country's beloved Rhineland economic model. If he harbours such ambitions, he keeps them to himself. Instead, everyone seeks scapegoats in the world economy, 11 September, the floods, immigration, government incompetence, or even the euro. Countries no more than companies or individuals can for ever live on borrowed time. Such is the erosion of Germany's competitive advantage that, if it doesn't watch out, it may soon be unable to afford the elaborate social safety nets it fights so hard to defend.

Welch's retirement

Jack "Neutron" Welch, former chairman of General Electric, was spot on when on a recent visit to Britain he tore into Wall Street for the "fraudulent" iniquities of the dot.com bubble. What he did not talk about was the mote in his own eye, and had he not been caught with his trousers down, none of us might have been any the wiser.

It has taken the inevitable nastiness of his recent divorce for the extraordinary lar- gesse of his retirement package to emerge fully into the limelight, and pretty shabby it is too. This was not just the chauffeur-driven car, secretary and small office by the boardroom that grateful companies occasionally make available to high-achieving former executives. There was an apartment on Central Park, free use of the company jets, a cook, fresh-cut flowers every day and other perks with an apparent value of $2m to $2.5m every year, all on top of the pension and gold watch.

Mr Welch says the deal was disclosed in SEC filings (if it was no one noticed) and that in any case it was in lieu of bonuses dating back to 1996, but for one of America's great corporate heroes this is a less than adequate explanation. Enron and WorldCom have dramatically exposed the failings in US standards of public disclosure, from directors' share sales and remuneration to off-balance sheet finance and dubious accounting practices. Mr Welch is no Bernie Ebbers or Ken Lay, but he championed some of the practices which are now seen as at the heart of the mischief.

One of those was the "rank and yank" policy of firing 10 per cent of your executives each year so as to encourage a will to win. Taken to extremes at Enron, it produced such a climate of fear that no one challenged the judgement of superiors. A company that started out decent enough became rotten to its core. No one is saying that anything remotely similar happened at General Electric but, as Mr Welch seems to acknowledge by saying he'll pay all the money back, great reputations in business are built as much on moral authority as outstanding achievement, and Mr Welch has just lost a bit of his.

jeremy.warner@independent.co.uk