Thursday, 12 July 2012

Jacobin Fervour

Killing The Goose

France is in a bad way.  The election of a strong Socialist government is going to make it a whole lot worse.

Consider the following snippets (from the Financial Times):

  • The government is braced for what trade unions predict will be the loss of some 45,000 jobs during the next few months, which comes on top of the disappearance of 350,000 manufacturing jobs over the past five years.
  • The starkest illustration of France’s competitive problem lies in its trade deficit, which hit a record €70bn last year, while Germany ran a surplus of some €150bn.
  • The International Monetary Fund says France lost about 2.5 percentage points of world export market share in the past decade – more severe than its peers. In the euro area it lost about 1.5 percentage points in the latter half of the decade, compared with a 0.25 percentage point loss for Germany. Industry’s share of gross domestic product shrank in the decade to 2010 to 16 per cent from 22 per cent.
  • The government stresses the lack of investment, innovation and skills as core issues, but French business blames high labour costs for much of the problem.  
  • A big chunk of the country’s large social welfare programmes are financed by charges on employers and employees. A recent European Commission report said the implicit tax rate on French labour was 41 per cent, one of the highest in the EU.
  • Philippe Varin, Peugeot’s chief executive, has estimated that in 10 years the hourly cost of a worker has risen 31 per cent in France, compared with just 19 per cent in Germany.
  • One effect has been a sharp decline in profitability, by 50 per cent since 2000 for industrial companies, according to the GFI, an industrial sector association. French companies tend to absorb slowdowns by cutting profit margins because restrictions on shedding labour and high charges on employment limit their ability to adjust costs.
The Socialist Government's response to this dismal picture is to increase tax rates upon the wealthy--an envy tax--which inevitably increases costs to business.  The productive sector in France is going to hollow out even faster as a result. 

Read the full article here.

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