Socialism vs. Capitalism ... French Steel Production ... Public Property or Private Property? ... French President in Action

Succincty put, individual private property ownership is a hallmark of free societies. In socialist countries, however, public property ownership is the norm.

Thus, free people in free market based economies possess ownership rights to use and dispose of their property as they choose. That's freedom and those property rights are protected and enforced by government and the rule of law.

In socialist countries, "everybody" owns the property. That means nobody owns it. Think government.

And then there's a social-democracy like France. The French are different. We all know that -- more socialist than free market but basically a hybrid of sorts, always leaning to the socialistic welfare based collectivist ownership side of the street.

To take a few examples of what make the French different than a free market economy, there are the legislated 35 hour work week, retirement age of 60, the frequent national strikes, the deplorable record of government spending in relation to revenues (sound familiar?), the ~11% unemployment rate and the nation's historically weak economic performance. France is not Germany.

And now recently elected President Francois Hollande of the Socialist Party is proving himself to be a true French "leader" as well. It seems like he has no clue about the respective roles of privately owned businesses and public sector government. Or the property ownership rights of private sector businesses. He's proposing to nationalize some steel making capacity owned by ArcelorMittal (a steel company that intends to shutter some of its loss making facilities) unless the company agrees to keep operating them at a loss. Now that's a new one, even for France.

Thus, President Hollande is poised to do even greater long term harm to an already heavily damaged French economy in the name of helping the French people keep their jobs. If he carries out his threat, how many companies will choose to invest in France in the future? Not many, I would argue.

Compared to Francois Hollande, our U.S. politicians look like free market libertarians.

To repeat, the Socialist French President's latest anti-business idea is to nationalize Arcelor Mittal's private property. Hollande has stated that if Arcelor proceeds with its plans to close some of its loss making operations, the government may nationalize them and strip ArcelorMittal of its property ownership rights.

Which begs the question of what exactly would the government of France intend to do with those facilities? In fact, the government would proceed to lose even more of the French taxpayers' money, all in the name of saving jobs for the short term. And for the longer term, these nationalized operations would prove to be an absolute disaster of an "investment" for the French people.

Hollande Should Steel Himself for a Reversal tells the story of who may end up owning what:

"Decisions taken under pressure can be revealing. Both France and steelmaker ArcelorMittal have had their credit ratings downgraded this month; the former amid questions over its economic model and the latter as it struggles to reduce debt and cut costs. ArcelorMittal's rational response, which includes the closure of blast furnaces in northern France, has generated an irrational response from French President François Hollande: a threat to nationalize the Florange plant to preserve jobs.

True, jobs are a hot topic in France. Unemployment stands at 10.8%, the highest since early 1999 and could rise to 11.3% in 2014, according to the Organization for Economic Cooperation and Development.

But Paris's response to ArcelorMittal's plans ignores the reality facing European steelmakers. There is at least 20% overcapacity in the European steel industry, Wolfgang Eder, president of industry association Eurofer, has said. European steel consumption is forecast in 2012 at 144 million metric tons, down 28% from the precrisis peak, rising only marginally in 2013, Eurofer says. The steelmaker, which employs 20,000 people in France, wants to cut 600 jobs at the furnaces but intends to preserve the rest of the site's 2,000 jobs. Yet French ministers say they want to keep Florange operating as it is.

Mr. Hollande's threat of nationalization underlines the difficulties French industrial companies face in restructuring their businesses, particularly if they are involved in a politically sensitive industry. Only last month, Paris intervened to prevent job losses at auto maker Peugeot. It also sits oddly with recent efforts to boost French competitiveness by cutting labor costs. Indeed, France's labor-market rigidity was one of the key factors in the loss last week of its triple-A rating from Moody's .

 

France's problem is that corporate investment is one of the few potential sources of growth at a time when consumers and the government are reining in spending. Mr. Hollande's threats risk encouraging companies to look elsewhere to invest. No doubt rating firms will watching to see how this spat plays out. What's clear is that France has more to lose than ArcelorMittal."

Summing Up

The French President's actions would be funny if they weren't so stupid.

He's going to run off the very businesses that France desperately need to invest in the French economy and provide jobs and future economic growth for its citizens, including government taxes to clean up its runaway financial debacle.

If he stays on his current path to threaten nationalizing the private property of businesses, he will ensure (1) an unwillingness by businesses to invest in France, (2) the failure of France's future business competitiveness and (3) forfeiture of the future prosperity and economic well being of the French people as well.

Stay tuned. This is all very interesting to watch. Very interesting indeed.

{NOTE: We'll have more to say on the worldwide steel capacity glut and how government interference in free markets generally makes things worse. And in the specific case of the steel industry, much worse.}

Thanks. Bob.