Economic Ignorance Wins the Day Again in France
France's minister of industrial insanity, Arnaud Montebourg (sometimes referred to as 'Mountebank' in these pages, for obvious reasons) once again proves that the leopard cannot change its spots. After wrangling incessantly with Arcelor-Mittal over its decision to close two long idled and evidently loss-making steel furnaces, he has now decided to openly declare war against the company.
Here is a brief summary of the economic facts of life for the hyperactive minister:
There is vast overcapacity for steel in the world. In China alone, some 200 million tons of production capacity appear to be the fruit of malinvested capital due to China's real estate and infrastructure bubble that has resulted from an unhealthy credit boom. This means that in China alone 200 million tons of production are likely loss making at present and will eventually have to be idled and/or liquidated.
It makes no sense to keep loss-making capacity going in Europe as well. That will only further misdirect scarce resources that are more urgently required elsewhere. What this 'elsewhere' is, we cannot say, but we don't need to know this anyway. The market will direct resources to fulfill the most urgent wants and needs through the price system. There is no need to second-guess it, nor is there a need to intervene. In fact, we would judge that the very last thing the market economy needs in order to function smoothly is a 'minister of industrial renewal' (Montebourg's official job description), or any other type of 'economy minister'. The very best thing such ministers could do to help the economy would be to resign immediately.
However, Montebourg has apparently decided that the flight forward is the best method of dealing with Arcelor-Mittal and :
“French Industrial Renewal Minister Arnaud Montebourg does not want steel giant Arcelor-Mittal in France anymore and is looking for an industrial partner with which to take the group's operations there over on a temporary basis, he said Monday in an interview.
"We do not want Mittal in France any longer because they do not respect France," Montebourg told the French financial daily Les Echos. "Mittal's lies since 2006 are damning,"the French minister said, adding that the company "has never honoured its commitments" to the country.
Arcelor-Mittal has shut down blast furnaces in Florange, eastern France, but wants to maintain its other activities there, in what has become a showdown with the new Socialist government in France.
Montebourg told Les Echos he was working on a "transitory nationalisation" project for the site. The newspaper said that "the idea would be to associate an industrial operator with a minority capital stake for as long as it takes to stabilise activity" at the plant.
On October 1, ArcelorMittal said it would shut down the furnaces for good and gave the French government two months to find a buyer. With the Saturday deadline approaching rapidly, tension between the steel giant and France has risen sharply because the government says it has two offers, but only for the entire site.
After Mittal refused to sell the entire operation, Montebourg raised the threat of a temporary nationalisation in a hearing before French senators last week.
That was followed by Mittal warning that a sale of the entire Florange site would threaten the viability of the rest of ArcelorMittal's activities in France, where the group says it employs 20,000 workers.
Presumably Montebourg thinks he will simply save the other 20,000 jobs he puts directly at risk via nationalization as well. No wonder enterprising Frenchmen have fled to London in droves.
Property Rights Thrown Under the Bus
Montebourg makes it sound as though Arcelor-Mittal, a private company, were deputized to the French government to help it fulfill whatever political aims it pursues – as though the government could simply draft private companies to aid it in attaining its socialist goals.
This case is going to have repercussions that go far beyond the fate of the loss-making furnaces and Mittal's continued presence in France. By threatening the company with nationalization if it doesn't comply with the government's wishes, Montebourg is signaling that his government has absolutely no respect for property rights.
It is, as we have argued before, instituting a 'Zwangswirtschaft', a coerced economy in which the private owners of the means of production remain their owners on paper, but can no longer dispose of their property as they see fit.
Such an economy, although actually closer to the fascist than the socialist model, is no longer a free market economy, but becomes indistinguishable from a socialist command economy in its essential features (fascism and socialism are really only two faces of the same coin anyway).
Given that France still retains many of the characteristics of a market economy, albeit a severely hampered one in which institutional unemployment is soaring, this blackmail of Mittal is bound to introduce even more regime uncertainty than has reigned hitherto. Very few enterprises will be eager to commit to new capital investments in such an uncertain environment. Why would anyone invest if property rights appear close to becoming extinct for all practical purposes? This holds especially for investment projects that require long lead times to come to fruition and are as a rule very capital intensive. Moreover, all marginally profitable branches of industry will become even more wary of investing their resources.
We understand that Montebourg wants to save the jobs of the steel workers at the two furnaces because his boss, president Hollande promised them this would happen before he was elected. We have already commented on the unfortunate tendency of Mr. Hollande to keep even his most absurd election promises. On the one hand, it is refreshingly honorable for a politician to stick to what he has promised. On the other hand his promises – which many once mistakenly thought were exaggerated for electioneering purposes – now threaten to sink the already wobbly French economy.
If Mittal closes the two furnaces (which as noted above have been idled for many months already), then the people employed there will lose their jobs which is of course unfortunate. However, this is a typical case of the road to hell being paved with good intentions: by threatening the expropriation of Mittal, Montebourg ultimately risks far more jobs than merely those at the two furnaces.
There is a lesson that Mr. Montebourg has yet to absorb: No government can dispense with the laws of economics by decree. It might as well attempt to order the sun not to shine or issue an edict that gravity be abolished.
Socialist industry minister Arnaud Montebourg, holding one of the many fruits of capitalism close to his ear.
(Photo via ghi.ch)
Emigrate While You Can... Learn More
Dear readers - we want to once again thank all of you who have supported us with donations.
To donate Bitcoins, use this address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
Thank you for your support!
Most read in the last 20 days:
- Gold and Gold Stocks – It Gets Even More Interesting
Technical Backdrop If only we could get a dime for every bearish article on gold that has been published over the past two weeks...but one can't have everything. When a market is down 83% like the HUI gold mining index is, we are generally more interested in trying to find out when it might turn around, since it is a good bet that it is “oversold”. Of course, it if makes it to 90% down, it will still be a harrowing experience in the short term. We like these catastrophes because...
- The Greatest Racket of All Time
The Successes of the Global War on Terror One would think that the so-called “Global War on Terror”, which has been given fresh impetus by the Paris attacks, must be going swimmingly. What else could explain the great enthusiasm with which it is pursued? It may be recalled that it started in earnest after the WTC attack – also a declaration of war, as it was put at the time. As is often the case when Islamist fundamentalists strike, the actual attackers immolated themselves on...
- The Long, Cold Winter Ahead
Not Immune Cold winds of deflation gust across the autumn economic landscape. Global trade languishes and commodities rust away like abandoned scrap metal with a visible dusting of frost. The economic optimism that embellished markets heading into 2015 have cooled as the year moves through its final stretch. Photo credit: David Byrne If you recall, the popular storyline since late last year has been that the U.S. economy is moderately improving while the...
- How Do People Destroy Their Capital?
There is no Santa Claus I have written previously about the interest rate, which is falling under the planning of the Federal Reserve. The flip side of falling interest rates is the rising price of bonds. Bonds are in an endless, ferocious bull market. Why do I call it ferocious? Perhaps voracious is a better word, as it is gobbling up capital like the Cookie Monster jamming tollhouses into his maw. There are several mechanisms by which this occurs, let’s look at one...
- Junk Bonds Under Pressure
While the Stock Market is Partying ... There are seemingly always “good reasons” why troubles in a sector of the credit markets are supposed to be ignored – or so people are telling us, every single time. Readers may recall how the developing problems in the sub-prime sector of the mortgage credit market were greeted by officials and countless market observers in the beginning in 2007. Photo credit: Getty Images At first it was assumed that the most highly...
- The Plane Incident in Syria
A Strange Event The topic of the SU-24 Russian plane shot down by Turkey over the weekend in Syria has been discussed all over the media ad nauseam by now, but we want to add a few observations and suggestions of our own. Some have perhaps not received the attention they possibly deserve. Image of Russian jet shortly after it was hit by a Turkish missile. Luckily someone was promptly at hand to make a qualitatively acceptable video of the incident. As is well known, cameramen...
- Angry Belgian Muslims and the Price of Welfare Statism
Ill-Tempered Mohammedans in the Socialist Paradise In the wake of recent revelations about the identities of the morons involved in the horrific Paris attacks (happily, most of them shuffled off the mortal coil as well, thereby improving the aggregate degree of moral clarity and intelligence in the world), a friend pointed us to an article at Unz Review that asks: “Why Does Belgium Have Such Angry Muslims?” Our instinctive, immediate reaction was to argue that the bland, boring...
- Can Investors Trust the New Gold Fixing?
Statistical Analysis of the New Gold Fixing Since 20 March 2015 a new gold price fixing organized by the London Bullion Market Association has been in operation. It has replaced the previous price determination process, which was in place for more than a century and became subject to criticism as it was highly vulnerable to manipulation. Has manipulation now ceased? Gold fixing at N.M. Rothchild and Sons offices in London. The first fixing took place there on 12 September...
- US Money Supply Growth Finally Begins to Crack
Breaking Below the Shelf In our recent missive on junk bonds, we inter alia discussed the fact that the growth rate of the narrow money supply aggregate M1 had declined rather noticeably from its peak in 2011. Here is a link to the chart. As we wrote: “We also have confirmation of a tightening monetary backdrop from the narrow money supply aggregate M1, the annualized growth rate of which has been immersed in a relentless downtrend since peaking at nearly 25% in 2011....
- Incumbents Swept from Office Around the World
Election Trends in 2015 – No Incumbent is Safe In the political sphere, this year has started with a bang, when Syriza won the Greek parliamentary election. All of Europe's attention was focused on this outcome and its aftermath over the coming six months or so. As it turned out, it was a bad omen for political incumbents nearly everywhere. More recently, we have seen the government of Stephen Harper in Canada go down in flames, with its opponents winning an unexpected landslide...