Whenever I despair of the intrusiveness of government in the United States, I cheer myself up by looking at France and recognizing how much worse things could be. President Francois Hollande recently announced he would try to block General Electric bid’s for the energy business of Alstom, a French company. While France itself owns only one percent of the shares of Alstom, Hollande has arrogated to himself the authority to block such a bid because he does not believe the combination as currently structured is in France’s “strategic interest, “whatever that means. One of President Hollande’s ministers even suggested that GE make a different deal with Alstom, combining the railroad-related divisions of the companies as well. An independent analyst concluded that the minister’s idea was “ludicrous,” because GE produced diesel engines for freight trains while Alstom was in the passenger rail business.
One must be grateful for the consensus in the United States that executives and shareholders generally make the decisions about mergers and acquisitions under the laws of property and contract. Government discretion to interfere is limited to antitrust and national security considerations. The bailout of GM and the distortion of bankruptcy law was an unfortunate exception, but it was made at the time of the greatest economic crisis since the depression. In contrast, French intervention is common and constant.
The behavior of the hapless Mr. Hollande and his agents show how wise are the limitations in the United States on government fiat in the marketplace. Politicians possess little comprehension of business in general and no understanding of the details that make particular acquisitions succeed or fail. Markets require local knowledge and depoliticized decision making to flourish. France with its dirigiste tradition of centralized decision making and political interference diminishes spontaneous ordering and its advantages. France has also imposed large legal impediments to that order with restrictions on firing workers and limitations on working hours.
The results of a French model that combines onerous regulation of the labor market with government discretionary interference in the merger and acquisition market are dismal. It is not widely commented upon by our press, but the per capita income of France as whole is below that of our poorest state –Mississippi. French employment has been high for a long period with the current unemployment rate standing at over ten percent. And since unemployment is one of the greatest sources of unhappiness, this is the cause of much despair. France’s lack of economic dynamism also makes it hard to integrate its largely immigrant minorities into the rest of society. And youth—at least those with skills—are departing the nation in record numbers for London and even the United States. The word “entrepreneur” has roots in French but French entrepreneurs are taking their startups elsewhere.
France remains a wonderful place to visit. But its greatest value to Americans now is as a warning—a reminder that with a more heavy-handed state the glory that was France could become the glory that was America.
