France's Anti-Rich Boomerang
Throughout the election campaign that brought him to the country's executive office in May of this year, France's President Francois Hollande proudly advertised himself as a rich-basher. Remarks like "I don't like the rich" and "my enemy is the world of finance" were often well received by voters inclined to believe that economic activity is a zero-sum game in which a capitalist's gain implies a worker's loss, and vice versa.
Since Mr. Hollande assumed power, this style of electioneering has been put aside. Prominent members of the government continue nonetheless to give vent to the anti-rich rhetoric - if only to attempt to recapture a fast-eroding popularity.
A conspicuous manifestation of the anti-business sentiment that prevails in governmental circles relates to the threat, made last November by the minister of industrial recovery, Arnaud Montebourg, of nationalizing a steel mill located at Florange, in the north of France, and owned by the Indian-born and British national tycoon Lakshmi Mittal. On that occasion, Mr. Montebourg bluntly declared that Mr. Mittal was "no longer welcome in France."
At the root of the minister's animosity was Mittal's decision to close down some furnaces at the Florange plant. The closure was to entail the elimination of 629 posts without layoffs (Mittal promised to ensure the relocation of the workers concerned).
For trade unions, and for Montebourg, Mittal's plan was unacceptable. Hence the threat of nationalization.
To justify their stance, the advocates of that course of action presented the nationalization of General Motors by President Obama as an inspiring success story. They seemed to forget, however, that such nationalization entailed thousands of layoffs in addition to wage cuts. This is not quite what workers at Florange had in mind, let alone were ready to accept.
As a matter of fact, the Florange workers and trade-union leaders saw nationalization as a means of preserving all the posts at stake irrespective of profitability considerations. In that case, and contrary to what happened at General Motors, nationalization would not serve to enhance the firm's competitiveness but, rather, would perpetuate redundancies at the expense of the taxpayer. At a time when France struggles to reduce her public deficit and sovereign debt so as to avoid a nasty reaction of financial markets, the cost for the state to nationalize Florange (one billion euros according to government's estimations) would be too high to bear.
The idea of resorting to such a drastic measure encountered a favorable reception, not only at Florange, but also among workers of other ailing industries who hoped that, by setting a precedent, the nationalization of Florange would compel the government to come to their rescue in a similar fashion at a later point in time.
Finally, the nationalization of that plant was ruled out - which, incidentally, triggered the fury of workers and union leaders. All the same, the mere act of brandishing that measure will have deterred more than one foreign investor from placing their hopes, and their money, in France. Thus, by trying to perpetuate 629 posts (the removal of which, let's recall, will not lead to layoffs), thousands of jobs may never see the light of day in France because of investors' fears of falling prey to an expropriation ukase should efficiency considerations force them to trim their payroll.
A similarly counterproductive effect was at work when France's housing minister, Cecile Duflot, threatened to requisition empty buildings so as to shelter the homeless population during the coming winter season. (It is not clear, however, whether Mrs. Duflot went to the trouble of ascertaining how many apartments and housing projects may now be nixed by skittish investors due to the minister's threat.)
"Anti-rich" trickeries have also been applied to "tax exiles," namely those wealthy French who are fleeing their country so as to avoid paying a bundle of punitive taxes made tougher still by the current government. As a sign of the trend, the number of applications for naturalization, made by French citizens in Belgium, has increased by 15-20 percent in the past few months. Other favorite destinations are the UK and Switzerland. Film star Gerard Depardieu as well as billionaire business executive Bernard Arnault (CEO of luxury group LVMH) are among the French nationals who have recently chosen domicile outside their country for fiscal considerations.
Fiscal exiles have been held up to public obloquy by the party in power and accused by the prime minister, Jean-Marc Ayrault, of "wanting to be still richer" and of "lacking solidarity toward their country fellows."
Besides getting mired in a fruitless "anti-rich" campaign, French authorities stand to gain from digesting the well-known Laffer theorem, which shows how exorbitant taxation kills the incentive to work, invest and, ultimately, shrinks tax revenues.