The Great Debate

Is France closing for business?

Peter Gumbel

May 23, 2012 15:13 EDT

Arnaud Montebourg, a member of the French parliament, has a problem with the iPhone. He thinks consumers in France should pay more for it than they already do. Why? Because, he says, the iPhone is made by “exploited” laborers in China who are taking away the jobs of French workers and the best way to redress that is by putting in place trade barriers and taxes that will stop “excessive imports.”

Then there’s Renault in Morocco. When the French automaker opened a new factory in Tangiers in February, Montebourg decried the move as “a humiliation for French industry,” because Renault hadn’t built the plant in France even though the French state is an important shareholder.

Montebourg’s protectionist stance – he calls it “deglobalization” – is well known in his native France, but now he’s unleashing it on the world. In the new Socialist government, Montebourg is the “minister for productive recovery,” a job whose precise perimeter remains hazy but that appears to cover large swaths of industry and commerce. His first official statement was an announcement that he intends to lean on companies including Shell, ArcelorMittal, Unilever and Peugeot, that are planning to close facilities or lay off workers in France.

It’s still too early to tell how adept President François Hollande will be in steering the French economy through these difficult times, but already there are some early indications – including the appointment of Montebourg – that the business climate in France may be about to change for international companies.

France remains one of the world’s largest recipients of direct foreign investment, and international companies play a prominent role in the French economy, employing more than 2 million French workers and accounting for about one-third of the nation’s exports. Over the past decade, successive governments in Paris have worked hard to burnish the nation’s reputation as a business-friendly place – even as opinion polls continue to show a high degree of skepticism among the French public about the benefits of globalization. The efforts have paid off: Foreign direct investment into France in 2011 totaled $40 billion, according to UNCTAD. While that’s less than half the amount it received in the peak years of 2006 and 2007, it was an increase of 10 percent from 2010 despite the financial crisis, and kept France in the world’s list of top 10 FDI recipients.

France’s rich cultural life is an obvious draw, but over the past few years a range of fiscal and other measures have been put in place that are aimed at attracting foreign business. They include a tax credit for research and development expenses covering up to 40 percent of the amount invested; it ranks as the most generous in Europe.

The wind is now changing. Hollande was voted into office on a platform that is substantially less business-friendly than that of other left-leaning European leaders before him, including Britain’s Tony Blair or Germany’s Gerhard Schroeder, let alone his two conservative French predecessors, Nicolas Sarkozy and Jacques Chirac.

Are capitalists happier?

Vernon Smith

Aug 12, 2011 13:06 EDT

By Ronald Rotunda, Vernon Smith and Bart Wilson The opinions expressed are their own.

As many of the world economies seem to be collapsing simultaneously, it is a good time to step back, take a deep breath and look at the bigger picture. Which kind of economy ultimately works better in the long run — capitalism or socialism?

We have long known that workers are richer in capitalist countries than in socialist ones. But are they happier? Capitalism sounds much harsher, like Thomas Hobbes’ depiction of the state of nature — the war of all against all. Socialists see capitalism as a system where people unfeelingly compete by trying to drive out their opponents. Capitalists counter that free markets are really about voluntary exchange and trading for mutual benefit.

So who is right? Using virtual economies, we can now literally recreate, in laboratory investigations, the state of nature and are no longer left to philosophical musings of first principles.

In the state of nature, individuals produce what they need — e.g., grain, beef, etc. People can remain self-sufficient, or choose to trade and specialize — some people may be more efficient than others in certain jobs. For example, some may herd cattle better while others have a green thumb growing crops. Or, they can even steal from each other because, in the state of nature, no legal system protects private property. (That should please the French anarchist Pierre-Joseph Proudhon who proclaimed, “Private property is theft”).

The virtual economy endows each participant with an icon, “home,” where they consume goods, and a “field” where they produce them. For simplicity there are only two goods. They could be meat and potatoes, or ham and eggs. We call them red and blue. The experimenters privately inform each participant of their preferences over these two goods. Half are told that for every 3 reds they need 1 blue to earn 3¢, and the other half earn 2¢ for each red unit consumed with 2 blues.