In Socialist France, Investors And Entrepreneurs Are An Endangered Species

This op-ed was first published on Forbes, on Jan 7th, 2012

Five thousand! Since the election of French socialist President François Hollande in May 2012, 5,000 senior and chief executives, entrepreneurs and business owners moved out of France to Belgium, Switzerland and the United Kingdom. That is three times more than in 2011. Usually only French Fortune 500 people would flee fiscal pressure, but they are joined now by businessmen. International companies are relocating their executives in neighboring countries, and this never-seen-before trend is likely to grow in the coming months. The fiscal exile has become an entrepreneurial exodus.

This momentum was caused by the socialist government intervention into the economy. In a speech given last month, French President Hollande enacted the government’s takeover of the French economy. He explained to entrepreneurs and businessmen gathered in front of him which sectors of activity he wanted to be developed: “I have identified three sectors in which we can be number one, if we mobilize all our resources.” Acting as a CEO, the president detailed what must be developed in each chosen sector. First, he cited the “energy transition” and “everything that will allow us to adapt our buildings, to change transportation, energy networks, but also waste disposal.” He then moved on to healthcare—specifically “the drug industry we know very well, biotechnologies, but also nutrition and agribusiness.” And finally, he referenced “general technology”—mainly “digital technologies, electronics, telecoms, connecting technologies, everything that connects tools to each other in order to go faster.”

Then the French president went on to explain how his government is going to finance companies: “These sectors, as I have described them, will be supported by the Public Investment Bank.” This government-controlled bank is charged with financing companies—in other words, distributing subsidies—and implementing economic development as decided by the president. Last, but not least, the president “asked the government to establish a strategy for both public and private investments aiming at modernizing France by 2020.” The takeover is complete.

These socialist economic policies, pure products of the welfareship, will be implemented this year. Entrepreneurship will be severally hampered in both human and financial terms.

Humanly speaking, French economist Frédéric Bastiat described the negative impact of government economic intervention for entrepreneurs and businessmen: “when the law, by means of its necessary agent, force, imposes upon men a regulation of labor […] it acts upon people. It substitutes the will of the legislator for their own wills; the initiative of the legislator for their own initiatives. When this happens, the people no longer need to discuss, to compare, to plan ahead; the law does all this for them.” The consequences are devastating, Bastiat explained: “Intelligence becomes a useless prop for the people; they cease to be men; they lose their personality, their liberty, their property.”

Financially speaking, new bureaucracies will be created, such as the Public Investment Bank; new regulations will be enforced, since the president has pointed out the fact that “the very idea of regulation is not challenged;” and public agents will be hired to check and control private businesses that will receive government subsidies. The overall functioning costs of this bureaucracy will increase public spending and be burdened on companies and taxpayers.

Loss of property and growth of bureaucracy are the two results of the government intervention in the economy. It is a danger for the free market and becomes lethal when the economy is planned. Free enterprise cannot be planned nor subsidized; if it is, it stops being free and loses its purpose, which is the enrichment of individuals. That is why French entrepreneurs are discouraged: they end up working only to finance the welfareship system, not for their own interests and improvement. That is why they are leaving for neighboring business-friendly countries. As a consequence, France is going through an entrepreneurial brain-drain that has recessive effects on its economy.

For Americans, the lessons to be drawn from the enforcement of these policies in France should help identify the ideas that drag business down. The driving principle behind socialism and welfareship is that wealth is to be shared, not created. Ayn Rand pointed out that “men had always thought of wealth as a static quantity—to be seized, begged, inherited, shared, looted or obtained as a favor.” Then another socialist idea completes this one as Ayn Rand, again, has perfectly described it: “every man … owns an equal share of the technological benefits created in the world.” These two ideas gave birth to the planned economy, which intends to meet the welfare aim of providing each citizen an equal share of labor production. That is exactly what is happening in France now. And as such, a planned economy, as President François Hollande wants it, is tantamount to seizure.

As Russian-born Ayn Rand wrote in “Atlas Shrugged,” “Americans were the first to understand that wealth has to be created.” If they keep this understanding, they shall be protected against welfareship and remain free entrepreneurs.

Crony Capitalism Is The Norm In A French Film Industry Shielded From Free Markets

Op-ed first published on Forbes

“French actors are wealthy thanks to public money.” Vincent Maraval, founder of Wild Bunch S.A., a French film distribution company which distributed the Academy-Awarded French movie “The Artist,” denounced the subsidized French movie industry on December 29, 2012.

Maraval was referring to a $1 billion, behind-the-scenes story—which is a good example of the sprawling of welfareship into every human activity. Welfareship is based on the redistribution of money by the government through benefits and subsidies. It’s a way for Big Government to maintain its grasp on society. As a consequence, subsidies and aids are not restricted to the health sector, social aids and retirement pensions only: every industry wants its share of money and will eventually get it. The French entertainment industry is an interesting study case showing how far the system is progressing.

French government agencies are funding the arts, culture, and the movie industry through the National Center of Cinematography and the Moving Image (or CNC). As of February 2012, its liquid assets amounted to $1.3 billion. Through its 46 committees, the CNC is distributing money to movie producers, filmmakers, and actors. Thomas Langmann, who produced “The Artist,” provided some insight into the the CNC’s decision-making process: “it is an agency based on cronyism and it gives money to movies which, without it, would never have had a chance to be produced.”

To get as much public money as possible, major French movies’ budgets are often above the line. For instance, the underperforming movie “Astérix” had an $80 million budget. Another such movie, “Populaire,” was more expensive than Academy Award-winning and globally successful, “The King’s Speech.” Because of its subsidies, the French Big Government has created a movie industry that looks like North Korea: isolated from the rules of free market.

And because of this system, French taxpayers are the actors’ cash cows. Americans may not be familiar with the following major French actors but, as examples given by Vincent Maraval, actor Dany Boon earned $4.6 million for the movie “The Perfect Plan”—a fee which exceeded ticket sales. Daniel Auteuil earns $2 million per movie, even though his “last four movies were huge financial failures.” Jean Reno, Marion Cotillard, and Audrey Tautou receive “fees between $660,000 and $2.6 million.”

Owing to these amounts, a significant return on investment should be expected by French taxpayers in the form of spreading the French culture around the globe. Yet this is far from being the case. Return on investment? There is none! Vincent Maraval stressed that “on the top 10 movies of an industry that produces 220 of them, only one [it could be argued] provided a return on investment.” The CNC has failed to disseminate the French culture. Maraval pointed out that “our talents are unknown across our borders” and the French movies are “limited to the French market only.” Worse: the French taxpayers are actually the producers of films that they would have never invested a penny in if asked.

Art is a business, but if the French movie industry were to be managed as a real business two things would happened: First, based on business forecasts and ROI, only one out of 10 French movies would actually be funded, meaning that 90 percent of the present French production would never make it into the theaters. Public money would really be saved. Second, French actors would be paid according to their market value and talent. Let’s take the example of French actor Vincent Cassel. In the free market American movie industry, Cassel was paid $300,000 to perform in the Academy Award-winning “The Black Swan,” which generated $330 million in revenue worldwide. In the subsidized French movie industry, the same actor received a $2 million fee for “Mesrine,” which generated only $30 million worldwide.

But pure business is not an option for the French movie industry. There is so much money to be plundered from the government that the French “artists” cannot imagine working without it. As Vincent Maraval pointed out, the actors “earning the highest fee earn more that they are really worth, thanks to the public money.” Indeed, distributing subsidies and paying people more than what they are really worth is how welfareship sprawls across every sector of society and why it is so hard to get rid of it. The government has bought out its citizens to the extent that “everybody endeavors to live at the expense of everybody else,” as French economist Frédéric Bastiat put it.

By the way, “The Artist”—which received five Academy Awards in 2012 and was distributed by Vincent Maraval’s company—was not selected by the CNC to receive an “Advance on Revenues” subsidy. That is the proof that entertainment does not need to be subsidized to be entertaining and successful.

Welfareship: the New Face of European Collectivism

This op-ed was first published on Paprika Politik, on Jan, 2nd, 2013

“Labor creates, politics destroys; that is why labor is not rewarded.” History has vindicated French economist Frédéric Bastiat’s prescient prediction, which serves as a clear warning to freedom lovers everywhere of the devastating effects of government intervention into the economy. It was true and obvious during the Communist period in Hungary and Central Europe. But do not be fooled: It is truer, even if not obvious, now that these countries have joined the ostensibly free-trade European Union.

The unnoticed danger awaiting citizens of Hungary and other Central European countries is to go from one collectivism to another. What could not be done by force would be done by purchase. Traditionally, when governments seized individual rights by violence and established dictatorships, it always proved to be a failure in the long run: That was because the process was violent, oppressive and alarming, and citizens would ultimately resist. But when a government gives subsidies, benefits, and privileges to its citizens, it in effect purchases some rights over them, making violations of those citizens’ fundamental rights more palatable. U.S. President James Madison foresaw this phenomenon centuries ago when he warned against “the old trick of turning every contingency into a resource for accumulating force into the Government.” This process is peaceful, soft and unalarming. It gives birth to the most powerful of all collectivism, which I have called “Welfareship,” by which I mean a democratic society based on welfare policies.

There is a trend inside the European Union that leans toward Welfareship. This trend is most pronounced in France. As a founder of the EU and a privileged partner of Germany, the French government commands significant influence in European policy debates. Furthermore, the approval of the European Budget Treaty and the slow move towards a “European Economic and Finance Ministry” mean that national laws will yield to European laws. France – especially the current Hollande government – is the perfect example to help identify the two main principles of Welfareship: The first principle is that labor must be shared, the second that wealth must be redistributed.

Sharing labor. Ayn Rand observed that certain government planners hold a fierce belief that “every man … owns an equal share of the technological benefits created in the world” (emphasis added). That is true, in their mind, because labor is a burden, and as such, it must be shared to benefit the workers.  According to such a philosophy, the creation of wealth cannot be a suitable incentive since it would require labor, which is to say, suffering. The French adopted that principle when the 35-hour-work-week law passed at the end of the 1990s. The hours made available by the decreased workload would be used in order to hire other workers who would share the burden of work. Yet, practice proved theory to be wrong: Jobs were not created, unemployment continued to increase, and working conditions deteriorated since the same amount of work had to be done in 35 hours instead of 39. But rather than face economic reality and encourage labor, the French government has decided that wealth will instead be provided by the government through welfare payments. This is done thanks to an economic system called “redistribution.”

Again, Ayn Rand described the rationale behind wealth redistribution as a belief that “every man born is entitled to exist without labor and … is entitled to receive his ‘minimum sustenance’ – his food, his clothes, his shelter – with no effort on his part, as his due and his birthright.” The implementation of this principle led to a legal plunder described by Bastiat: “The law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong.” This undeniable violation of property rights, as practiced by, for example, the French government, has two goals: First, financing the bloated welfare system, including retirement pensions, civil servants’ wages, and all public services financial charges; second, wiping out income inequality and making everyone earn roughly the same amount of money.

As a result, 35 million people in France – more than 50% of the population – benefit from 60 billion euros of welfare money. Just recently, the French constitutional council was forced to strike down a proposed 75% income tax (though, it should be noted, the council did so on a technicality and the proposed tax will likely return after the government reformats it slightly). The government has bought out its citizens to the extent that "everybody endeavors to live at the expense of everybody else," as Bastiat put it.

But what if this kind of collectivism was working and really improving living conditions? Does it work in France? No. To the contrary, the poverty rate has stayed steady at 13.5% over the last twenty years, unemployment has never gone under 8.5% in the last fifteen years and is reaching 10% now (15% if we count the undeclared jobless), and an entrepreneurial exodus has begun as 5,000 entrepreneurs have left France since the election of the socialist president in May 2012.

Welfareship is doomed to failure because it deprives men and women of their property, and consequently their freedom. Free-traders will not to accept plunder. Eventually, they will leave, taking their wealth creation abilities with them, leaving the government to its own disarray. And that will be Welfareship’s collapse. Hungarian free-traders should watch out which principles are shaping their public policies: those of free trade or those of Welfareship.