Cynical Streak

As investment capital flows ever more freely across borders, why would anyone open a plant in France?

I love Paris. It’s a wonderful place to vacation, lounge, sip wine in the afternoon, stroll. Thanks to the French protesters, employers will increasingly view France as a leisure destination rather than a compelling investment zone.

Thousands of French students are stomping along in their Nikes, texting each other on their mobile phones, protesting capitalism and the affront of having to work hard to retain their jobs. As a student of Mandarin, I can only imagine that their placards read “I Am Bored with Your Capital!” or “Frequent Naps or Death!” (French is such a 20^th century language, who can be bothered to study it anymore?) They have succeeded in securing wall-to-wall coverage of their spectacle on infotainment peddler CNN and the front pages of newspapers worldwide. However, this achievement will cost them dearly over the long term, as unemployment will persist, capital will flow elsewhere, and the deficit will continue to swell under the burden of welfare.

France’s long history of nationalized and subsidized industries, combined with massive social programs, has enabled and nurtured an unattractive work ethic among all but the top tier of skilled workers. Cultural attitudes have inculcated a sense of entitlement into university graduates, who believe that mere graduation from school has earned them permanent jobs. Employers are very reluctant to hire incremental workers in France because of strict labor laws that guarantee lengthy contracts regardless of job performance. The controversial new law proposes to address the unemployment problem by easing restrictions on firing employees. If employers knew they could freely rid themselves of slackers, they would be far more willing to hire more workers. Similarly, the new emphasis on productivity would improve French economic efficiency – integral to global competitiveness. The industries that attract the most capital in France – technology, business services and manufacturing – are among the most vulnerable to competition from the cheap, highly skilled workers of India and China.

Given France’s staggering unemployment, as high as 23% for young people, capital should logically be flowing into the country to capitalize on an eager, available, educated labor pool. However, according to global consultancy A.T. Kearney, in 2003 France was the second largest exporter of foreign direct investment (FDI), which includes long-term investment such as manufacturing plants. This coincides with a dramatic decline in portfolio capital inflows, which includes short-term investments. A.T. Kearney ranked France 35^th among the top 40 services locations worldwide in terms of cost, people skills and availability, and business environment. While French workers rank very highly in terms of productivity per hour, limited work weeks and strict labor protection laws stifle hiring practices. Capital flight combined with an unfavorable labor environment is a recipe for prolonged economic stagnation.

Prohibitively high corporate taxes versus other European countries serve as another impetus to shift capital toward nearby Eastern Europe, which has a far more flexible work force. French workers must demonstrate compelling productivity to compensate investors for France’s high-tax structure, rather than protest such expectations. France has already has to liberalize its capital controls under pressure from pervasive economic globalization. Capital is like water – it will always find the most efficient investment opportunity and will make no apologies for ditching a spoiled work force.

The French protesters should be very concerned about the global image they are cultivating through the anti-hard work stance they have struck. They claim they are trying to preserve their way of life – live more, work less. Their worldwide public display in defense of languor will guarantee that they will be the last generation to chant this mantra.