Research (ČP Invest)
Investor's window  |  January 11, 2013 11:41:44

France: Capitalism with a human face


Zwangwirtschaft is a term for various forms of state capitalism, where the owner can not dispose of his property according to his discretion, but must submit to state power. The French government has successfully applied this model. Peugeot and ArcelorMittal are a shining example.

France is a very beautiful country and the French have almost everything. Good wine, excellent cuisine, high mountains, the sea, the Riviera, the rich history and culture. France is also one of the most industrialized countries in the world. One would think that this may seem paradise. Local politicians, who are mostly of Socialist thinking, it also believe. Therefore, try this paradise for the French to keep at all costs.   But in today's global world, nationalistic-socialist-demagogic politics associated with strong trade unions is not the best way to sustainable stable growth, or at least to maintain the current situation (stagnant) economy and living standards.

French economy over the past few decades, moving from a relatively market economy to mixed economy, but in recent months appears to slow the signs of   Zwangwirtschaftu. This term was coined by Ludwig von Mises, who is a representative of the Austrian School of economic thought. Zwangwirtschaft is a term for various forms of state capitalism.   It's the economy, in which the possession of private persons, but in fact the owner can not dispose of his property according to his discretion, but must submit to state power. This actually looks like a capitalist economy, but in reality it is a form of socialism.The most famous Zwangwirtschaft was in Nazi Germany and France are now the model economy starts taking giant steps closer.

Peugeot shareholders but not the nation

The first major case in the recent past (this summer) is the case around the car manufacturer PSA. PSA produced by Citroën and Peugeot, and has been since 1890. PSA has decided to close one of its factories, which would release eight thousand workers.This aroused a wave of indignation in government circles and the owners, ie Peugeot family had come to the rug in front of the Minister of Industry, who is instructed what patriotism. The Minister also declared that Peugeot are not only shareholders, but is part of French history, its territories and national thinking.   Therefore, the government together with the union requires that production was maintained.

The government and unions probably live outside of reality. Peugeot sells half of its production in Europe and the financial crisis in 2008 and 2009 and the current debt crisis caused a fall in demand for cars.Therefore, production of new cars in France over the last seven years has fallen by an average of 42 percent. Therefore, the Peugeot in the loss of every month whilst maintaining existing capacity and even the loss of the number of employees increased by 140 million euros.  

Despite these negative numbers, the government and unions trying to preserve jobs. This may work but only temporarily. On the contrary, in the long term it is counterproductive, because of the loss can not bear to infinity and there is a high probability that the Peugeot completely fail and then would not come for jobs only eight thousand, but all employees, which is over 200,000.

French automakers are not competitive. Strong unions pushing up wages, which in the last ten years increased by eight percent. In comparison with German automakers increased wages for the same period was only 1.6 percent. Peugeot and Citroen to focus more on the lower class cars. In this segment between manufacturers price war rages, and together with lower demand for cars and also the requirements of the government to maintain the production and trade union demands for wage increases, the profitability of PSA meta absolutely unattainable. It is a deadly cocktail that would not be able to withstand any private car.

Another example is expanding Zwangwirtschaft ArcelorMittal steel mill. The French government set up trumps on the table when Mr. Mittal threatens nationalization of its assets. The local executive has a problem with the fact that the steel giant wants to lay off more than six hundred workers because of the closure of two furnaces. The reason to limit the operation is again economic reasons and weak demand for steel. For example, China's annual steel production exceeds demand by 200 million tons, and it is the economy, which, unlike France has economic growth.

Liberty, Equality and Fraternity

French economy during the last thirty years has lost competitive advantage in almost all directions.   Investors are starting to France to avoid a big arc, because Zwangwirtschaft is a huge risk. Flowing into the country to investment capital, technology development to a minimum, and the word innovation from French companies have long since disappeared. Inflexible legislation, rampant bureaucracy and government regulation dictating the terms of the state, not France, in the long run to maintain the current economic level. This way of operation is only a matter of time before France will play "third fiddle" and not the other, as it is now.Already lost the best credit ratings by S & P and Moody's y. Unemployment climbed to an annual maximum of fourteen and the labor market slowly begins to freeze. French famous motto liberty equality and fraternity have probably came out of fashion - at least thus the freedom.

Author: Michal Valentík, chief investment strategist at CP INVEST

written for the company Broker Consulting

Michal Valentík

Michal Valentík

Působil jako senior makléř a proprietary trader, nyní je hlavním investičním stratégem investiční společnosti ČP INVEST. Vystudoval VŠE v Praze se specializací na finance a ekonomické teorie. Absolvoval stáže na Hongkong University of Science and Technology a Friedrich-Alexander Universität Erlangen-Nürnberg. Ve svých článcích a analýzách se zabývá především aktuálním vývojem na kapitálových trzích, investováním a ekonomickými teoriemi. Ve volném čase se věnuje horolezectví.

Logo ČP INVESTČP INVEST investiční společnost, a. s., je spolu s mateřskou Českou pojišťovnou, a. s. součástí mezinárodního finanční skupiny Generali PPF Holding B.V., která působí ve 14 zemích střední a východní Evropy, kde poskytuje služby více než 13 miliónům klientům a spravuje aktiva ve výši přes 15 miliard euro.

ČP INVEST poskytuje služby v oblasti kolektivního investování. Základní nabídku investorům tvoří 12 podílových fondů ČP INVEST vedených v CZK, které jsou projektovány pro široké spektrum klientů. ČP INVEST je zároveň celosvětově výhradním distributorem EUR fondů Generali PPF Invest. Správa portfólií fondů ČP INVEST i Generali PPF Invest byla svěřena společnosti Generali PPF Asset Management, která disponuje velmi silným analytickým zázemím a je největším správcem investic v České republice.

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