Is France the Darling of Europe?
Germany (EWG) has always been regarded as the anchor of the EU economy and
Eastern Europe as its fast growing, entrepreneurial engine. Yet, more than half a
million French (EWQ) businesses were created last year, 75 percent more than in
2008.
That one-year jump was bigger than the increase over the rest of the decade put
together.
What gives?
A French government policy launched in January 2009, can be given a fair amount of
credit for the turnaround. It eliminated most of the cost and headaches involved in
setting up a single-person business. Registration on a website suffices. Income tax and social taxes – healthcare, pension and so on – are rolled into a single levy on the new
venture’s revenue.
On the other side of the equation, the French government has been jumping in to
help long-standing companies cope with the global economic turbulence.
Steven Erlanger of the NYT described how HB-Henriot, one of the oldest companies in
France, a producer of hand-painted glazed earthenware and in business since 1690.
The company was founded here in Brittany for its waterpower and riverbed clay.
The French government has stepped in helping to save the company and its 54 jobs.
Paris accelerated tax breaks and gave subsidies equal to almost a month’s salary per
worker so firms could reduce labor costs and inventory without losing employees. And
Paris provided some credit guarantees so banks would fork over badly needed loans.
France weathered the storm better than its European rivals in part because of its
insularity, less emphasis on finance and real estate, and policies aimed at stability
over growth. In short, this paternalistic, risk-averse approach, a drag in go go times,
helps during a downturn.
France’s recession was not nearly as deep as Germany’s, let alone that of the United
States. Growth for this year is forecast to be positive but modest at about 1.2
percent, about the same as in Germany, compared with 0.7 percent for Europe as a
whole and with 2.2 percent in the United States.
Can we learn something from France?
Christine Lagarde, the minister of economic affairs, industry and employment, said in
the article, “I think we’ve done relatively and reasonably well. We applied the three
‘t’s’: timely, temporary and targeted.” France decided to put half its package into
investment and half into stimulus, she said, concentrating on small and medium
enterprises, since they are “more agile” and represent 95 percent of the two million
registered French companies.
This small and medium company focus should have been a much greater part of the
US stimulus bill. One French trend that we unfortunately are following is the
unbelievable role of the state in the economy.
About a quarter of the labor force works for government, and more than half of gross
domestic product is due to stems from state spending, including pensions and health
care.
What about the growth strategy of HB-Henriot? It has a new owner and new American
distributor, with the goal of increasing exports from 10 percent of its business to 30
percent. By the way, 47% of Germany’s GDP come from exports. |
