France – a Zwangswirtschaft?

Zwangswirtschaft is the very apt German term Ludwig von Mises used to describe various forms of state capitalism, such as the economy of Nazi Germany. The literal translation is 'coerced economy' and as such it is a decisive step closer to a full-scale socialistic command economy than the severely hampered market economy (a milder form of state capitalism) that is in place in most of the so-called 'free world' today.

Francois Hollande is a typical colorless career bureaucrat-politician who never had a 'real job' in his whole life, this is to say, he never had to prove himself in the private sector. The cabinet put together by the perpetually astonished looking president (we strongly suspect that he is still astonished that he was actually elected) is of similar quality: it is almost a Soviet-style politbureau, with not a single senior minister who is not a career politician or bureaucrat (the two often go hand in hand in Europe).

 

German news magazine Der Spiegel, which is normally known to be sympathetic to the center-left, recently published a scathing article on the industrial dirigisme of Hollande's government the title of which leaves little to the imagination: “How Paris Is Killing French Industry”.

What prompted the magazine to take a closer look at France's economic policies was the case of ailing car maker Peugeot, which the president and his 'minister of industrial renewal' (talk about irony), Arnaud Montebourg have decided to micro-manage to death.

It is worth quoting the article at length, as the case demonstrates the attitude of the French government toward the private sector quite vividly:

 

 


“Well-meaning people can often be particularly dangerous. Take French President François Hollande and Minister of Industrial Renewal Arnaud Montebourg, for example. They want to rush to the aid of French automaker PSA, which has driven itself into a crisis with its Peugeot and Citroën brands. Representatives of the CGT trade union, such as Jean-Pierre Mercier, also want to help. "We will fight for our jobs and the livelihoods of our families," says Mercier.

The French government and the unions want to prevent Peugeot from closing its plant in Aulnay-sous-Blois, outside Paris, and slashing 8,000 jobs. But if politicians and labor leaders are successful, they will only make things worse. Perhaps they'll manage to save a few thousand jobs in France in the short term. But, by doing so, they will put the company's future into even greater jeopardy.

The company, which has been making cars since 1890, is fighting to survive. Sales have plummeted, and plants are not operating at anywhere close to capacity. PSA is currently losing €140 million ($173 million) a month.

For the 3,000 Peugeot workers in Aulnay-sous-Bois, their work ended temporarily at 10:30 p.m. on July 26. The plant was closed for five weeks, as it is every year for the summer vacation. But, this time, things were a little different. The commencement of the annual vacation period had a bitter aftertaste. Workers had just learned that the plant was to be permanently shut down in 2014.

President Hollande reacted immediately, saying that PSA's downsizing plans were "unacceptable" and had to be renegotiated. Minister Montebourg said that he had little faith in company management and speculated that perhaps the car company was merely playing the "imaginary invalid." He also said that he had a "real problem" with the company's strategy and the behavior of its main shareholder, the Peugeot family, which owns more than a quarter of its shares and received a substantial dividend last year.

Both CEO Philippe Varin and Supervisory Board Chairman Thierry Peugeot were called on the carpet, and the Peugeot family was forced to hear Montebourg deliver a lecture on patriotism. The company, the minister said, doesn't just belong to its shareholders, but also to "the history of France, a territory, a national idea."

The French state owns a share of Renault, the country's second-largest automaker, but not of Peugeot. Nevertheless, the government behaves as if Peugeot actually were a state-owned company. In this respect, it is demonstrating how matter-of-factly French politicians intervene in the management of major corporations.”

 

(emphasis added)

This, dear readers, is indeed the very essence of 'Zwangswirtschaft'. Nominally the means of production remain privately owned, such as is the case with Peugeot. However, the owners are no longer free to dispose of their assets as they see fit. A government bureau is telling them what they may or may not do. It is quite ironic that Montebourg puts nationalistic sentiments forward as the justification for the intervention. 'Peugeot doesn't just belong to its shareholders' because it is 'a national idea'. So what is Mountebank trying to tell us? That he's not only a socialist, but more precisely a national socialist?

He would probably bristle at the suggestion, but the difference between fascism and socialism is not as great as the enmity between these two camps would suggest. To both ideologies, the State is everything. The rest of us are only of interest inasmuch as we can be useful for serving the State's interests. Frequently this means that one ends up as cannon fodder.

However, even if one generously assumes, as the author of the Spiegel article does, that Hollande and Montebourg are merely misguided, 'well-meaning' and therefore 'particularly dangerous people', who genuinely believe that what they are doing will help workers, it does not alter the fact that their policies are likely to produce an outcome diametrically opposite to their stated goals.

They may well succeed in temporarily saving the jobs of a few thousand Peugeot workers with their intervention, but they are thereby endangering the jobs of many thousands more in the longer run.

Moreover, their dirigisme damages France's economy in  other respects as well. By blithely disregarding property rights, they are sending a signal to all businessmen: you are no longer economically free. In fact, in light of Hollande's tax policies, the producers of France's wealth are apparently only free to serve as milk cows for the bloated bureaucracy.

 


 

Arnaud Montebourg, France's 'minster of industrial renewal'. He probably should be renamed France's industrial undertaker.

(Photo via flickr – Parti socialiste)

 


 

His perpetually surprised looking boss, who possibly missed a vocation as a stand-up comedian, Francois Hollande. The proverbial wolf in sheep's clothing, he is busy implementing long discredited economic policies. He likely owes his election mainly to the fact that he is not Nicolas Sarkozy.

(Photo via abaca)

 


 

The First Hundred Days

Gaspard Koenig, one of the many Frenchmen who have fled France for the more welcoming shores of Albion, has written an excellent essay on Hollande's first 100 days in office. Koenig not unreasonably concludes that “Hollande is the ultimate – and probably also terminal – embodiment of the European-style Welfare State”.

Many observers thought that a number of Hollande's election promises would eventually be discarded – that he could not possibly be the radical leftist he presented himself as. Generally, social democrats in Europe have moved ever closer to the political center in recent decades. Two pertinent examples are the UK's Tony Blair, and even more so Germany's Gerhard Schröder, whose free market oriented reforms of Germany's welfare state are nowadays regarded as the main reason for Germany's economic resurgence.

It is therefore not surprising that Hollande's candidacy and eventual election were initially greeted with some equanimity. However, it has now become clear that he really meant every word he said during his campaign. In Koenig's words:


“The policies decided during Hollande’s first 100 days all stem from a single rigorous point of doctrine: the political will can and should tame, and even replace, intrinsically evil markets.”


And so Hollande's government is implementing one policy after another inimical to the market economy – in the process demonstrating a degree of economic ignorance that is truly frightening. From price controls to lowering the retirement age to interventions in the affairs of large corporations as in the Peugeot case discussed above to vastly increasing the government's payroll, Hollande is apparently hell-bent on hastening France's economic demise.

All of this costs a lot of money, which the government doesn't really have – it has committed itself to reaching the deficit and public debt targets prescribed by the euro area's 'fiscal compact' after all. And so Hollande, like a modern-day Willie Sutton, goes to get the funds from 'where the money is' – the pockets of all those evil rich businessmen and producers of wealth, whose numbers are now dwindling in France at a rapid pace. Many have taken flight: today London is the 6th largest 'French' city, home to 400,000 Frenchmen who have fled Hollande's statist worker's paradise.

One doesn't need to be an anarcho-capitalist to recognize the overreach of a government that imposes a 'wealth tax' on people's assets and a 75% top marginal tax rate. No former King of France could have gotten away with such impositions. Heads would have rolled. Today a democratic head of State can feel quite secure while he shamelessly goes about picking the pockets of his most productive citizens – but they can still vote with their feet.

All of this makes it quite curious that bond investors are happily piling into France's sovereign debt. The extremely low interest rates in the euro area's 'core' are partly a result of weak economic activity and slow money supply growth, as well as the 'convertibility premium' Mario Draghi mentioned on occasion of the last ECB press conference (i.e., speculation on currency depreciation and appreciation after a putative break-up of the euro). In France's case it probably also reflects investors' approval of Hollande's deft confiscation of his citizens' wealth, but one can live off the accumulated wealth of the past only for so long.

 


 

The 2 year government bond-yield of France is close to zero – click for better resolution.

 


 

The 10 year yield is right at a new 270 year low – click for better resolution.

 


 

Obviously buyers of French government debt have no regrets thus far, but as the volatility in interest rates during 2010-2011 shows, market confidence is probably far more fragile than it currently appears.

The French government still must confront a €33 billion hole in its budget, and this happens at a time when France's economy is in contraction and its most productive citizens are sorely tempted to either pack up and leave or simply 'go Galt'. Moreover, France's banks hold assets worth over 400% of the country's GDP, and have the by far biggest  exposure to debt in Italy, Spain, Portugal and Greece among banks in the  euro area's 'core'.

Investors buying French debt at today's paltry yields have a remarkable ability to suspend disbelief. Stock market investors seem less prone to succumbing to illusions these days. Although the CAC 40 in Paris is well off the lows made in 2011 and earlier this year, the long term chart of the index continues to look bearish, as every rebound since the 2009 crash low looks corrective. In fact, the French stock market has never regained the peak it made 12 years ago at the height of the tech mania.

 


 

A textbook secular bear market: the CAC 40 Index in Paris – click for better resolution.

 


 


 

Charts by: BigCharts


 
 

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9 Responses to “Francois Hollande – Moving France Toward A Command Economy”

  • Zwangswirtschaft – that’s a good word.
    The real problem in all economies, all governments, is there is no REAL House of Representatives, not even in the United States. Until then, economic problems will continue to re-cycle, generation after generation, because there is no counter-balance to the financial sociopaths. Wall Street has a saying for this:
    “If you’re not [represented] at the table, you’re on the menu.” They’re absolutely right.

  • Keith Weiner:

    Well meaning? They are thugs!

  • I call them NAZI’s all the time. A friend of mine who has been indoctrinated in the government schools seems to think I am crazy, that only Hitler was National Socialism. Listen to Obama. A walking con man who loves to take other people’s money. He is going to finish it all.

  • worldend666:

    I have to say I agree that Hollande’s views are mainstream. I sent bar stool economics to acrench friend of mine. If you haven’t seen it you should. Here it is:

    Suppose that every day, ten men go out for beer and the bill for all ten comes to $100.If they paid their bill the way we pay our taxes, it would go something like this:The first four men, the poorest, would pay nothing.The fifth would pay $1.The sixth would pay $3.The seventh would pay $7.The eighth would pay $12.The ninth would pay $18.The tenth man, the richest, would pay $59.So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, I’m going to reduce the cost of your daily beer by $20’. Drinks for the ten now cost just $80.The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. Theywould still drink for free. But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’They realized that $20 divided by six is $3.33. But if they subtracted that fromeverybody’s share, then the fifth man and sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:The fifth man, like the first four, now paid nothing (100% savings).The sixth now paid $2 instead of $3 (33% savings).The seventh now paid $5 instead of $7 (28% savings).The eighth now paid $9 instead of $12 (25% savings).The ninth now paid $14 instead of $18 (22% savings).The tenth now paid $49 instead of $59 (16% savings).Each of the six was better offthan before and the first four continued to drink for free.But once outside the restaurant, the men began to compare their savings. ‘I only got a dollar out of the $20’,declared the sixth man. He pointed to the tenth man, ‘but he got $10!’ ‘Yeah, that’s right’, exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than I!”That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get allthe breaks!”Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’The nine men surrounded the tenth and beat him up.The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered somethingimportant. They didn’t have enough money between all of them for even half the bill!And that, boys and girls, journalists and college professors, is how our tax system works.

    This story comes with its oversimplifications and even fallacies but my French friend simlly asked me if it isn’t fair that a millionaire should give some of his income to help the poor. It seems to me that he was not interested in thinking about it at all.

    • White eagle:

      I feel your pain,my friend.Pater here is taking care of The Remnant,forget about ‘normal’ people.
      Mathematics,logic and common sense don’t count for the masses.They operate with emotions and ‘moral values’.
      That’s why Robert Prechter is so confident that the Elliott Principle will never be overused or misused by the masses.
      I am saying for a long time that Marxism is a religion.If you can grasp that,you will understand the behavior of all this journalists,professors,public intellectuals and their followers.Not only we are living in an asylum,lunatics are running the whole thing.
      I admire von Mises for not committing a suicide after he came to USA and fighting for some 30 years for the right thing in the country of the right thing,only to see total decline of the last bastion of Western freedom into darkness of Keynesian-Monetarist-Marxist-fascist swamp.A brave man!

  • jimmyjames:

    At least he makes the honest assessment that “I seriously doubt whether any Team Romney economists think a gold standard to be a good idea.

    **********

    I seriously doubt any of them even know what gold standard is-other than it’s not politically friendly-

    ********
    However, even if one generously assumes, as the author of the Spiegel article does, that Hollande and Montebourg are merely misguided, ‘well-meaning’ and therefore ‘particularly dangerous people’, who genuinely believe that what they are doing will help workers, it does not alter the fact that their policies are likely to produce an outcome diametrically opposite to their stated goals

    ****************

    Maybe clueless or bought off or both could be added to the list?
    Bright lights in Paris to be sure-

  • Crysangle:

    “To both ideologies, the State is everything. The rest of us are only of interest inasmuch as we can be useful for serving the State’s interests. Frequently this means that one ends up as cannon fodder. ”

    Literally – French nationality law is adapted originally to keep citizens as ‘French’ – “once a Frenchman always a Frenchman” . The reasons for this appear historically to be to avoid people not so ‘French’ escaping being drafted (see link below) during war. So not only are people automatically declared French, there is only a short window between 16 and 19 yrs of age to repudiate nationality, only in certain circumstances (not born in France to French parents) , and only if a person already has another nationality.

    http://www.law.ed.ac.uk/citmodes/files/francereport.pdf

    At least they have no problem with double nationality status and allow people to vote with their feet , but from a viewpoint of conscience the French attitude is unacceptable, especially to those who no longer wish to be considered French. A form of cleptomania maybe.

    Renault moves some production to Turkey also , a move restrained by the previous government.

    http://www.hurriyetdailynews.com/turkey-wins-clio-production-after-sarkozys-presidency.aspx?pageID=238&nID=26704&NewsCatID=345

  • White eagle:

    Nothing new on the western front!
    Excellent article Pater.Thank you for Koenig link.
    You only forgot to mention ‘near death’ experience by Peugeot few decades ago when it was forced by French politicians to take over totally ruined Citroen.Guess who ruined it?Peugeot family already knows the procedure.
    I have an idea for possibly very enlightening (especially for your Anglo-Saxon readers and younger readers as well) article about another famous enterprise in France – Renault.It was also family business,made from scratch.
    Disregard for private wealth is so deeply rooted in French people and politicians for so long time that Hollande is not exceptional at all except for uninformed.Since WW2 France has only right-wing socialists(fascists) and left wing socialists(now in power). France is in process of exterminating its wealthy class and turning into bureaucratic Gulag.

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