September 23, 2005

The French Disconnection: Absurd Labor Policies and Protectionism Kill Economic Growth

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 10:35 am

This would be funny if it weren’t true (requires subscription):

If you thought starting a business in France was difficult, try closing one.

Last month, a French court ordered Nestlé to reopen an unprofitable factory shut down in June. Apparently, the Swiss food giant hadn’t met all of France’s labor law requirements — even though it had offered the 427 workers in question early retirement schemes or jobs in other Nestlé plants in France.

So when President Jacques Chirac asked his cabinet Tuesday to ensure that Hewlett-Packard “fully respects” its obligations under French labor law, it was no empty threat. CEO Mark Hurd, who wants to cut 14,500 jobs world-wide, including 1,240 positions in France, had better make sure his lawyers have read the fine print of the French legal code. Mr. Chirac even appealed to the European Commission for help but Brussels mercifully rejected the idea of interfering with business decisions.

….. entrepreneurs create jobs out of charity nor do they lay off people out of malice — despite French Employment Minister Gerard Larcher’s calling Hewlett-Packard’s plan “brutal.”

It is the much-maligned drive for profit that creates growth and jobs. Labor laws that make it costly to lay off workers are not “social”; they discourage companies from hiring. And when not even unprofitable plants can be shut down, it will hardly prompt investors, foreign or domestic, to open new ones.

Even more bizarre behavior:

France isn’t very investor-friendly to begin with. Rumors in July that Pepsi might take over dairy food company Danone put Mr. Chirac into protectionist overdrive. The government is drawing up a list of industries to keep out of foreign hands. Even Paris will have difficulty though arguing yogurt production is a matter of national security.

It is a wonder that anyone does business in France. It is a double wonder that anyone would start up a new business anticipating the need for employees who, to paraphrase the last two lines of “Hotel California,” check in when you hire them but (apparently) can never leave.

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