New Elections in France: Will the Business Environment Get Better?
April 30, 2007

Nicolas Sarkozy, the moderate-turned-conservative candidate for the French presidency, is up against Socialist Segolene Royal in the upcoming second round of elections. In the first round, Sarkozy captured 30 percent of the votes, defeating Royal who lagged behind Sarkozy by five percentage points.

I've been wondering what that means since the first round of elections on April 21. And after having just spent a whole week discussing business-building strategies with 28 smart entrepreneurs, I've been thinking about the effect the upcoming election will have on the French business environment.

I have an interest in France. Thirty years ago, I learned to speak French while teaching at a French University in Chad and playing with a French rugby team. I was married in French West Africa and spent my honeymoon in Normandy. In the past 30 years, K and I have traveled to France at least a dozen times on vacation, and I have been there two dozen times on business. I have a partner who lives in Paris, and, through my relationship with him, I am invested in several French businesses.

Sentimentally, I'm an advocate of France. Intellectually, I am appalled by how it runs its economy.

Of all the countries I have invested in all over the world, France has given me the worst return on my money. It hasn't been a return at all, to speak the truth. It's been a loss. In one venture alone my partners and I lost more than $8 million. In another venture, the loss is currently at $2 million or $3 million and mounting.

France is one of the most difficult countries in Europe to invest in. The business markets are old and tradition-bound and heavily regulated. Taxes are high. Bureaucracy is daunting. It is extremely complicated and expensive to start a new business and very difficult to keep an existing business going. So many forms to file. So many new rules to comply with.

And the cost of being an employer is almost prohibitive. First-time employees get five weeks of paid vacation every year, reimbursements for travel and lunch, and a very liberal number of sick days for just about any malady you can think of - including stress. One of our French employees became stressed out because his supervisor chastised him for not working hard. He stopped coming into work altogether and filed a complaint with the government ... which forced us to allow him to work as little as he pleased and pay him full-time for the bad job he was doing when he did show up at the office. The idea of a fair day's labor for a fair day's wage is passe in France.

The cost of keeping an employee in France is probably 50 percent higher than it would be in the United States, and the cost of firing one is even higher. The combination of perks, guarantees, and prohibitions is so daunting that most employers are very reluctant to hire people in the first place.

I have French friends who fled to the U.S. because they could not make their small businesses bloom in France.

So what was I thinking? Why did I ever put one nickel into France?

Well, it wasn't me. It was my partner. He's the culprit.

And why did he get us into France? The official reason was that he intended to include the French market in our company's growing readership. That would have been a good plan - if, that is, we had taken a ready-fire-aim approach to our business building there. But had we done that - had we begun by trying to find out if the market could work before we hired people, rented office space, and subjected ourselves to a thousand French regulations, we would have concluded, very early on, that the French market wasn't ready for us. We would have pulled back and rethought our position and come out again a year or two later when we had a genuinely different and better idea.

Instead, we persisted in following a business model that worked elsewhere, but not in France.

I think we persisted despite Mr. Market's telling us to go home because we had an ulterior motive. You see, we are in the business of telling people what to do - with their money and their time. Plying that trade in France was a temptation we couldn't resist.

Our hubris has cost us money - millions and millions of dollars. But, luckily, the company can afford it. And the fight isn't over yet.

With each passing year, we move slowly forward, inching our way through the bureaucracy by means of a handful of very hardworking French employees who have the same hope-against-hope aspirations for the French economy that we do. These are bright, earnest people who don't get tied up in "what should be" but rather focus on "what is."
France is a country of self-styled intellectuals. Writers, composers, philosophers, and scholars are given substantial coverage in the press, sometimes rock-star-level coverage, and their ideas are seriously debated by panels of TV and movie personalities who want to be seen as serious. This has always seemed to me to be to be the most pretentious and embarrassing aspect of French culture.

French people love nothing better than to argue over dinner about the three subjects we are told to avoid: religion, sex, and politics. In most bourgeois circles, the preferred political orientation is far left by U.S. standards, although in France such a perspective is seen simply as "correct."

To get back to Sarkozy, his win, by more than five percentage points in an election in which 84 percent of the adult population voted, is significant.

Some pundits are saying that his win is due to the economy. For more than 25 years, you see, things have been getting worse for France. Since the early 1980s, France fell from having one of the world's most robust economies to standing 17th on the list. The drop became steeper and faster in recent years as the country spent itself into record-high debt (the fastest growing public debt in Europe, according to The New York Times).

And if that weren't enough, the French have a serious problem with a growing population of marginally employed Arabs and North Africans that burden the country's huge welfare system and gnaw at the hand that is feeding them.

French voters "clearly marked their wish to go to the end of the debate between two ideas of the nation," Sarkozy said after the results were announced, "two projects for society, two value systems, two concepts of politics."

Sarkozy's value system favors cracking down on crime and freeing up regulations so that small businesses can grow. He says that he believes France will progress only if its people "work harder." He has promised to lower personal and corporate taxes, eliminate obstacles to job creation. That sounds sensible to me.

On the other hand, he vows to protect French corporations from foreign competition - which, in the long run, will be bad for the French economy. And he has recently taken strong stands against immigration, which has been interpreted in some circles as an attempt to capture some of the vote that Marie le Penn, a right wing candidate, gets every election.

It seems to be working. Some French - perhaps those who live in or near the blighted immigrant communities - are fed up with the idea that the French government is supporting an increasing number of foreigners who hate France and the French but are more than willing to live off its social support system.

Segolene Royal - the Socialist who came in a close second in the election, but who reportedly has little chance of actually becoming President - has a very different vision of how to fix things. She advocates "participatory democracy," reducing presidential powers, and the maintenance of France's general welfare system and strong state involvement in the economy.

I don't think it takes much to see that, for the most part, Socialist policies in Europe have failed. Socialism's fundamental idea - that redistributing capital assets (either periodically through coups and confiscation or regularly through confiscatory taxing) can equalize wealth over the long term - ignores some simple human facts. We aren't all equal in any regard: in ambition, intelligence, tenacity, or the willingness to work.

If working hard is a key component of wealth building, then Sarkozy is right. To reverse France's 25-year economic decline, it must get its citizens to work harder, not come up with new schemes that make it easier for them to work less.

Socialist promises are most attractive to those who don't, for whatever reason, work productively. A society that establishes policies and protocols that reward the low end of the production pole is one that is going to get the economy it deserves.

Nature rewards the smart, the quick, and the productive. When France does that too, its economy will thrive.

You don't have to ignore or penalize the disabled to have a robust society. There is plenty of capacity to take care of them. What an economy can't afford is a policy that treats criminals and loafers as disabled and encourages able-bodied working people to take as much as they can regardless of how little they contribute. That's what France has been doing to its people for some time. And that - more than anything else - is the cause of its so-called "immigration problem."

I will be interested to see what happens. The second round of elections will take place on May 6.

posted by M. Masterson @ 4:31 PM,

2 Comments:

At 6:03 PM, Blogger Maverick said...

Am I missing something??

I have been an avid reader of Early to Rise for years - my ETR golder says my first issue was Dec 22, 2003 - and I really like reading just Michael Masterson's commentary on life.

This morning I thought I would read your blog... the first time!!

And I find that the structure forces me back to ETR to finish each story... great selling strategy IF I DIDN'T ALREADY read the ETR.

Why can't all artcles be fleshed out like this one?? Or are they and then as they date, they get stripped down??

For the first time I am frustrated by the great work of the ETR team.

 
At 2:51 PM, Blogger A.M.Sall said...

Michael, I like your capitalism, it's capitalism with a smiling face. Very good! (Of course I'm not being sarcastic, I really mean it!)

 

Post a Comment

<< Home