The French Socialists to Advance Policies that will drive the Wealth Creators out of France

Posted by PITHOCRATES - July 1st, 2012

Week in Review

No one likes austerity.  Even the nations who agreed to it to join the Eurozone.  Back when they were joining they all said they would keep their deficits and debt within Eurozone requirements.  But after a prolonged recession few are willing to cut back on government spending.  In fact, in France, they’re going to increase government spending by beating up on the rich (see Adieu, la France posted 6/23/2012 on The Economist).

AFTER the French Socialists last came to power in 1981, under François 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 François Hollande’s election as president with more than a frisson of foreboding. What would the Socialists do this time…?

Even before the parliamentary elections on June 17th, at which the Socialists won a majority of seats, rhetoric against factory closures had been mounting…

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…

[The Socialist] 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…

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… In some cases it will lead to a 70% pay cut… 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).

Behold class warfare on a grand scale.  This is socialism.  This is what being ‘fair’ is.  This is egalitarianism.  Everyone is equal.  Except the rich and successful.  Who the state enslaves.  To serve the people.  By forcing these executives to continue to do what so few people can do.  Run these big corporations profitably.  But they won’t reward them for their unique talents.  No.  Instead, they’ll enslave them.  Force them to keep producing wealth.  To keep creating jobs.  But to do so for a paycheck that’s less than most sports stars, movie stars, singers, writers, reality stars, etc., get.  Because these executives don’t earn their pay like these people who contribute so much to the world’s economies.

The Socialists believe these rich executives don’t do anything worthy for their pay.  That these corporations run themselves and only create wealth because of the workers in the trenches.  These are the important people.  Of course if they don’t need these rich executives why not just fire them?  Let these corporations spontaneously produce wealth and create jobs?  Because even the Socialists know that these rich executives are the only ones who can run these corporations and produce the wealth they so want to confiscate.  And if they fired these rich executives and tried to run these corporations themselves there would be no wealth to confiscate.  Because they have no business experience.  And they would only run these companies into the ground.  Just like the Soviet state planners did in the Soviet Union.

How did they get here?  Their social democracies.  Cradle to grave state welfare.  The people like it.  They love the free stuff.  The problem is it’s free only to them.  Someone has to pay for it.  Primarily those who work for the rich executives.  And the rich executives themselves.  Via confiscatory tax rates on the wealth they create.  But as they drive out these wealth creators from the country what will they tax?  As populations age there are more people consuming government benefits than there are paying for them.  Which means they need to raise tax rates ever higher.  Going so far as to nationalizing businesses.  Eventually there comes a point where even class warfare won’t work anymore.  Because there just won’t be enough wealth left in the country to tax.

These policies are not likely to make things better in France.  It may feel good for a little while to punish the rich.  But punishing the rich won’t reduce your taxes.  Or improve the economy so you can advance into a better and higher paying job.  But it makes good politics.  Which is why these politicians can win elections.  In Europe.  And in the United States. 

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