France Suffocates Its Own Industrial Power

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In his best-selling novel "The Map and the Territory" (Goncourt Award 2010), French writer Michel Houellebecq depicts a country deprived of its industrial sector. The landscape and the old buildings and monuments remain gorgeous, attracting tourists from all over the world in spite of frequent transport strikes; at the same time, however, economic activity has ceased to exist.

Judging from a series of economic indicators, Houellebecq's fictional story isn't far away from today's reality. France is steadfastly advancing toward deindustrialization.

Jobs in the manufacturing sector are vanishing: 400,000 have been lost in the past five years. The country's weight in international markets has not ceased to recede: last year, 13.1 percent of total European exports of manufactured goods originated in France, down from 15.7 percent a decade ago. The share of the manufacturing sector in GDP is the lowest among Eurozone countries: 9.3 percent in 2010, or less than half of Germany's 18.7 percent.

Massive job cuts ("social plans" in France's political jargon) don't stop. Air France and major banks such as Société Générale and BNP Paribas have slashed their payroll or are in the process of doing so. The leading poultry firm, Doux, has filed bankruptcy and is seeking a rescuer.

More recently, car manufacturer Peugeot-Citroën (PSA) announced that, by 2014, it will close down one of its plants and reduce by 8,000 its domestic workforce. The announcement provoked what has been called a "social earthquake."

Other job cuts are in the oven, including in the pharmaceuticals and telecommunications sectors.

Trade unions as well as left-leaning political leaders keep putting the blame on "greedy" CEOs and other managers who - so we are told - sack workers and relocate activities abroad with the despicable aim of cashing in juicy benefits and/or distributing exorbitant dividends to stockholders.

For sure, not everything is transparent within France's business community. But persisting in the usual inquisitorial diatribes against the entrepreneurial class, and for that matter against the market system per se, only serves to detract attention away from the core cause of the proliferation of relocations and job cuts in France, namely: the progressive erosion of the country's competitive edge as a result of a smothering taxation, endless red tape and off-putting legislation.

In France, trade unions and like-minded political figures have an overriding concern: protection. They strive to protect unaffordable entitlements, uncompetitive industrial jobs and bloated public personnel. With this leading purpose in mind, they try, and do, impose barriers to relocation. That policy course, however, aggravates the problem by hindering firms' ability to take advantage of lower labor costs abroad.

The aforementioned setbacks of PSA clearly illustrate the counterproductive nature of attempts to thwart industrial relocation. PSA woes are to a large extent due to the fact that it had yielded to political pressures and had kept the bulk of its activities in France. Renault, the rival company, did the opposite: it relocated vast sectors of its activities despite the protests of trade unions and the pressure of governments. Today, PSA is losing 200 million euros per month, while Renault is posting non-negligible profits, thanks mainly to the success of its brand Dacia, produced abroad.

In France, for politicians to have a chance of succeeding, they have to publicly display their distrust and animosity vis-à-vis market forces and promise ever tougher measures to thwart and regulate "unbridled capitalism" (read: free enterprise). Former Prime Minister Lionel Jospin (from the Socialist Party) once departed from conventional wisdom by acknowledging that "the State cannot do everything." This simple statement of fact contributed in no small measure to his defeat in the presidential elections of 2002.

Little wonder that, now, the newly-elected president, Socialist François Hollande, hastened to criticize Peugeot-Citroën's "social plan" and declared that such plan is "unacceptable in its present form." This is the type of empty declaration that France's political establishment is fond of.

Little wonder, too, that President Hollande has created a ministry of "Productive Recovery" to act as a watchdog against relocations. The head of that ministry is a maverick left-wing politician, Arnaud Montebourg, who published last year a book pledging in favor of protectionism and the "deglobalization" of the world economy.

Is it so difficult to admit that the more obstacles are erected against job dismissals, the firms will feel less inclined to hire new personnel? Is it so hard to concede that the higher the taxes on profits and incomes are, the less willing to invest entrepreneurs will be?

The country's trade unions and left-leaning politicians don't bother to draw lessons from the success of market-friendly reforms carried out elsewhere, notably those enacted in Sweden and other Scandinavian countries as well as in Germany.

Never mind if those countries have managed to weather the current economic crisis better than others in Europe. France's trade unions, think tanks and political leaders brush aside these success stories, arguing that reforms of that nature would undermine the "superior" French "social model" and, consequently, cannot be "transposed" to the French situation.

Be that as it may, while France sees its industries dying one after the other, suffocated by the straightjacket of the state, the minister for "Productive Recovery" calls for "rearming" public power and, as usual, trade unions request still more constraints against workers' dismissals and industrial relocations.

The day is thus approaching when Houellebecq's novel will form part of, not only the courses of French literature, but also the programs of France's economic history.

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