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Hollande Faces Early Crisis

It looks like François Hollande’s honeymoon will be short indeed. We’re only two months into the first Socialist presidency France has seen in nearly two decades, and already French automakers are facing significant layoffs and plant closures. The FT reports that French manufacturer Peugeot is planning to cut one of its plants near Paris, as well as cutting more than 6,000 jobs.

This may sound somewhat routine for America, but it is alarming for France; the FT describes the layoffs as “an industry taboo.” Nor will this be the end of automotive layoffs. The piece goes on to estimate that tens of thousands more jobs could be cut if nothing changes. To make good on his campaign promises, Hollande would have to get the government involved, and there are some hints that it may indeed step in to aid struggling car manufacturers:

Aulnay’s closure was widely expected but the move will pose problems for the French government, which is facing a wave of industrial redundancies which threatens tens of thousands of jobs.

Arnaud Montebourg, industry minister, is to present a plan for state support for the auto sector to the government on July 25.

This puts Hollande in a pickle. The Socialist government cannot afford to see factories closing down and workers losing their jobs. This means every company in France can now extort money from the government by threatening to close. Don’t be surprised if other French companies begin vocally threatening layoffs in the hopes of recieving similar treatment from the state.

The French socialists believe in subsidizing industry to keep jobs and friends. Industry, knowing this, will have its hand out.

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  • Jacksonian Libertarian

    For Socialists this is called a growth budget, government growth.

  • Jim.

    The thing is, this is the only way for a Socialist society to be truly “fair”.

    Everyone has to get their cut.

    Otherwise, you run into the situation where the only people who aren’t getting a cut find it difficult or impossible to maintain themselves. In most Socialist countries — aside from the ones that actively and generously subsidize becoming a parent (and even most of those fail, like post-unification Germany) the fertility rate drops far below replacement levels.

    Socialism robs Peter to pay Paul. The only way to make this equitable is to rob both Peter and Paul, which is called Communism — and it failed dramatically less than a generation ago.

    Eurosocialism (Keynsianism in general, really) tries to pay both Peter and Paul without robbing anyone, and that’s collapsing now.

    What will come next? We’ll see. Probably something that makes Paul Ryan’s budget plan feel left-of-center.

  • Atanu Maulik

    Over the coming months and years, the French will relearn an old lesson. Electing socialists is not a good idea when there is a need to GROW the economy.

  • James Brown

    The Aulnay issue has been a long way in the making. Arthur Goldhammer, writing at his French Politics Blog, pointed to a post he put up last year ( ) concerning the possibility (and today’s reality) of PSA closing its PSA plant. The main sticking point then, and today, selon Goldhammer, has been the paltry level of industrial relations: the unions need to recognize the demands of global competition and management needs to be more forthright. Of course, it rarely works out as one would hope for, due especially to the lack of trust between top directions and unions.

  • Soul

    I recall an incident similar to this when I worked for a German firm. The Germany company I worked for, for a short while, was known for manufacturing creatine used in sports exercise drinks. Originally the Germans were able to sell their product for around $80 a kilo. Then Chinese producers seeing an opportunity, began making good quality creatine. Eventually the selling price dropped to around $6 a kilo. It was later, after I had left, that I learned the cost to make creatine for the Germany firm was about $11 a kilo. Because of laws in their country, the German company was forced to continue selling creatine at a large loss, obviously. Rather strange I thought. The more product sold, the further in debt the company went.

  • Gene

    Why don’t socialists and other left-leaning folk understand that people will RESPOND to changes in policy, with changes in behavior? Changes in behavior that will blunt the intended impact of the policy? When the initial coercion fails, do you then go to the next level of coercion? At what point do you stop?

  • James C Brown

    As Bernard Thibault, a union leader said, every job lost at Peugeot (or Renault for that matter) will cause 3 or 4 jobs lost at suppliers and other sub-contracting firms.

    There’s more than one reason to explain why PSA has had its eyes set on shutting down the Aulnay-sous-Bois plant. Part of the reason is strategic – to compete globally, PSA is moving construction abroad. Part of it is due to the onerous overhead costs and corporate tax rates imposed on industry. Part of it is circumstantial – a bad economy with a failing currency that makes French car exports as expensive as German car exports.

    France seems to have the worst of both worlds that make it difficult for it to reap the gains of Schumpeter’s creative destruction. On the one hand, there is the destruction brought about by top management who confront global competition by slashing jobs.
    But on the other hand, the heavy regulatory & fiscal regime of the French state inhibit job creation.

    And yes, people do react to policies…in a variety of ways. A recent study by polled newly minted university graduates from engineering and business programs in Europe to find out where they want to work. American firms Google, Apple, Microsoft & Coca-Cola topped both business & engineering lists. Overall, the cohort of young European white-collar workers-to-be want to work for big companies and latch onto stable, predictable career paths. As I see it, its a natural reaction to the shaky economic context: in times of trouble, these kids are flying to the safety of big corporations who are often thought to be less at risk of laying off middle-management and executives.
    They’re looking to become conformist organization men & women whose careers evolve out of harms way; they’re not looking to become risk-taking innovative entrepreneurs (of the kind who founded firms like Apple & Google).

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