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.”
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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