France’s failed socialist experiment is turning into a tragedy
01-19-2014
France’s failed socialist experiment is turning into a tragedy
by Allister Heath
FRANCE is still France – and that, tragically, is why that great country and its wonderful people are doomed to decline further this year, and why even more successful French business folk, entrepreneurs and professionals will move to London over the next 12 months. While many other countries are recovering strongly, France is sinking again, its economy shrinking at an accelerating rate. I was born and grew up in France and so feel especially strongly about its catastrophic misgovernment.
Its composite purchasing managers’ index (PMI) fell from 48.0 in November to just 47.3 in December (a number below 50 signals contraction; above that expansion). France’s key services sector’s activity index fell to a six-month low. By contrast, Spain is bouncing back, Germany is growing strongly, Ireland is buoyant and the Eurozone as a whole’s composite PMI increased from a reading of 51.7 in November to 52.1 in December. Of the big economies, only Italy and France are spiralling downwards again.
France’s economic sickness is primarily due to its overbearing state, horrendously high tax levels, insane regulations, absurd levels of inefficient public spending and generalised hatred of commerce, capitalism, success and hard work. The result of this infernal concoction can be summarised by three depressing stories.
First, boss-napping is making a comeback: two executives were yesterday taken hostage by members of a communist trade union at a Goodyear tyre plant in the north of the country. The quotes from the union extremists involved are utterly shocking. In a country bound by the rule of law and which respected property rights and classical liberal values, such a kidnapping would immediately trigger a major police response, with those detained freed and everybody responsible for their imprisonment arrested, tried and jailed. Not in France.
Why would any investor with any sense want to purchase assets and employ people in France? It is insanity – and a catastrophe for ordinary, law-abiding French workers condemned to sky-high levels of unemployment. Companies should not bother opening offices in France; there are plenty of better places for them to allocate their cash in today’s global economy.
Then consider the events on New Year’s eve: “just” 1,067 cars were torched, a number which the authorities welcomed as down by a tenth on the previous year. Horrendously, three people died.
Next, Francois Hollande has finally pushed through a version of his 75 per cent top tax rate; it will last two years and start at €1m in earnings. It will now supposedly be paid by the employer, and limited to five per cent of a firm’s turnover – but its economic effects will be almost as bad as the original plan. French firms have zero incentive to employ top talent; and successful people have zero incentive to work there. Hence the result increasingly reads as a script from one of Ayn Rand’s novels – and most notably Atlas Shrugged, where an oppressed business elite goes on strike in disgust.
In response, Hollande now claims that he wants to unveil a series of “reforms”, supposedly striking a deal with business to cut taxes in return for job-creation. But even if he were serious, there is no such thing as “business” – just lots of companies seeking to make a profit. You can’t sign a grand bargain with them; that is a hopelessly corporatist way of looking at the world. The only solution would be a revolutionary change of tack, a complete rhetorical U-turn, a rejection of Marxist terminology and culture, massive cuts to public spending, drastically lower taxes and a long-term commitment to supply-side policies that increase the private sector’s incentives to hire, invest, save and work. Will we see some small changes, borne out of desperation? Undoubtedly. But a real pro-capitalist shift? No chance.
allister.heath@cityam.com
Follow me on Twitter: @allisterheath
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The French embassy’s strange attack on me misses the point
Allister Heath by Allister Heath Jan 15th 2014 Editorial Article
IT was Adam Smith, the great economist, who put it best. “There is a great deal of ruin in a nation”, he once explained, seeking to reassure a panicky young interlocutor. Smith’s point was immensely powerful: it is very hard even for the most misguided, most economically illiterate of politicians to destroy a country’s economy. It takes years, a lot of effort and pretty extreme policies to erode a large stock of human and physical capital built up over a long period of time. A few unusually destructive governments have pulled it off, of course, but it takes some doing, especially when an economy reaches a certain critical threshold in terms of GDP, education, infrastructure and large private sector companies. Capitalism is an extraordinarily resilient system.
I always remember Smith’s wise words when I think about France, a country that I love but which has thoroughly lost its way. It remains wealthy but has been in relative decline for years, suffers from horrific levels of unemployment and awful social problems and is now led by a President intent on trying to test Smith’s maxim to destruction. The modest pro-reform polices he outlined yesterday show that he still doesn’t understand how a market economy works. They were a case of too little, too late, and smacked of a bizarre, corporatist belief that the government can somehow strike a deal with the “private sector”, cutting tax in return for the creation of a pre-set number of jobs. Strange.
But the French establishment is rattled. After I wrote a piece in this space last week bemoaning France’s failed socialist experiment, the French embassy penned a 10-point attack on my column on its website. It is an unusual piece of work: one way it seeks to fight back against my arguments on France is by attacking the UK and highlighting some of its own faults.
That misses the point completely: I spend nearly every day pointing out what is wrong in Britain, why our over-regulated and over-taxed economy is under-performing, why we need better policies. This time, my article was on France, not Britain – and France is facing crippling problems which the French government needs to address, rather than spending its time penning lengthy attacks on the writings of independent journalists.
But the embassy’s attack on the UK – including the “ailing” NHS, our road system, and the previous Tory government – triggered a diplomatic row yesterday. The UK government responded angrily, as did many MPs; and the story went around the world and was reported extensively by top media outlets.
So here are some of the facts that the French embassy didn’t mention (see more here). The World Economic Forum’s (WEF) Global Competitiveness Report 2013-2014 ranks France as the 130th worst country (out of just 148) for its regulatory burden. France places just 71st for overall labour market efficiency, 116th for labour market flexibility and 83rd for efficiency of government spending. The IMD’s 2013 World Competitiveness Rankings feature France as one of the biggest fallers since 1997.
The embassy is right that France still boasts Fortune 500 firms – but none of the top 30 have their beginnings in the last 50 years; upstarts simply can’t rise to the top in France, unlike in the US. Productivity is high – but that is a mathematical illusion caused by the fact that low-productivity workers can’t find a job and thus aren’t included in the stats. The French state spends an absurdly high 57 per cent of GDP; its tax and other revenues amount to 52.8 per cent. Unemployment was 10.8 per cent in November (3.193m people).
I want France to succeed, to grow and to prosper, and for its people to find good jobs. I was born and schooled in France and spent the first 17 years of my life there. It is a wonderful country, but one that has been on the wrong path for years. It is in desperate need of a dramatic intellectual U-turn.
allister.heath@cityam.com
Follow me on Twitter: @allisterheath