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Jun 23rd 2012 | from the print edition
AFTER the French Socialists last came to power in 1981, under Fran ois
Mitterrand, the new government went on a spree of nationalisations, taking over
36 banks and several industrial groups, before quietly abandoning the policy
and even reprivatising a few firms. Small wonder that French bosses greeted
Fran ois Hollande s election as president with more than a frisson of
foreboding. What would the Socialists do this time?
The answer is that Mr Hollande seems to want to put a break on the
Schumpeterian forces of creative destruction in order to conserve the country s
business landscape in aspic. Even before the parliamentary elections on June
17th, at which the Socialists won a majority of seats, rhetoric against factory
closures had been mounting. Arnaud Montebourg, a left-wing politician who is
now minister for productive recovery , fought hard against closures during the
campaign. When Lejaby, a lingerie brand, made plans to shut its last French
plant and move production to Tunisia, he came out in support of the brassi re
tricolore (in the end LVMH, a luxury-goods group, rescued the bra factory). He
even wants to keep companies from moving within France. He protested loudly
when Kawan Villages, a struggling camping operator, recently tried to shift its
tents from Burgundy down to the south-west, taking all its workers with it.
Now the new government is going beyond rhetoric. Michel Sapin, the labour
minister, has promised to make it so expensive for companies to lay off workers
that it will no longer be worth their while. Firms that fire people while still
paying dividends may be penalised. Another planned ruse is to force companies
to sell factories, presumably along with the brands manufactured there, to
competitors rather than close them down.
But the government will struggle to contain market forces. Many companies put
off restructuring plans during the election campaign, so as to avoid
controversy. Now an avalanche of lay-offs is in prospect. The Conf d ration G n
rale du Travail, a powerful union, has given warning that as many as 45,000
jobs are under threat as firms such as PSA Peugeot-Citro n, a car manufacturer
with falling sales, and Carrefour, a struggling retailer, prepare to retrench.
In some cases, firms could founder if they are not allowed to cut costs.
The Socialists are unlikely to be terribly successful at preventing the
destruction of jobs, but they may be all too effective, however
unintentionally, at stifling job creation. Among the party s most popular
campaign promises was to tax incomes of more than 1m at a marginal rate of
75%. The likely consequences will be much less admired. Some big companies will
leave France or move management abroad in order to shield their executives from
the tax. That will lead them to invest and hire more overseas rather than at
home. Already, top foreign executives no longer want to join French firms. A
new extra tax on dividends has further angered the business world.
Don t forget to turn out the lights
Paris is full of rumours of hasty departures. PPR, a luxury-goods group which
owns Gucci and Yves Saint Laurent, is reported to have plans to move its entire
executive committee to offices in London as soon as this summer. Technip, a
global oil-services firm, is rumoured to be about to move its official
headquarters across the Channel. (PPR declined to comment, and Technip said it
has no plans to move for now.) To the fury of a French member of parliament,
David Cameron, Britain s prime minister, this week promised to roll out the
red carpet for French companies on the run from the new tax.
But the most important consequence of stratospheric taxes will be less visible,
at least at first. Marc Simoncini is one of France s best-known entrepreneurs
and one of the few business leaders to denounce the new measures publicly. Why,
he recently asked, would anyone want to start a business, invest and succeed in
the most taxed country in the world?
Tax is not the only threat to executive pay. Last week Pierre Moscovici, the
finance minister, announced that pay for bosses of companies in which the
French state holds the majority of shares will be capped at a flat rate of
450,000, or roughly 20 times the wage of the lowest-paid worker. The French
experiment will no doubt be watched with interest around the rich world. In
some cases it will lead to a 70% pay cut. Over time, the quality of management
at these state firms, which had become more professional over the past decade,
will surely suffer. Executives such as Guillaume Pepy, the boss of SNCF, the
national railways, for instance, could secure a top position anywhere in his
industry. Measures to limit pay at fully private firms are expected before
long.
Most French business leaders don t think that the government is deliberately
targeting them. They reckon that its motives are purely political and that the
Socialists are simply not aware of the damage their plans will do (most
ministers have hardly any experience of business). Besides, the 75% tax rate
might never be implemented: France s highest court may rule it unconstitutional
later this year.
Yet French bosses have partly themselves to blame for the way they are being
treated. Almost all have benefited from the tight bond that exists between the
top ranks of France s civil service and the country s senior executives. Many
are alumni of the same grandes coles, such as the Ecole Nationale d
Administration. Government aides are regularly parachuted into jobs, even at
firms not controlled by the government. And some bosses later become ministers.
If both groups were not part of the same elite, and if French companies were
more independent from the state, they would be much less vulnerable to its
whims.
http://www.Economist.com/blogs/schumpeter
from the print edition | Business