Week with “The Economist”
by Chandrakant Sampat and Niti Sampat-Patel
  
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This is what we found interesting from the current issue of the “The Economist” (June 23rd – 29th June 2012).

 

While going through this issue we came across a very interesting write up titled—‘Schumpeter: Adieu, La France’. It is about the new French government contemplating risky experiments to strengthen its economy. It is ignoring the wisdom of Charles Darwin when he asserts that “the world needs a single government”, and a single currency. Darwin further said that if this doesn’t happen, “Man will kill Man.”

 

There is also a lesson to be learned from the success of German integration in the nineties which was based on the notion of a single currency and one, unified Germany. The French government must acknowledge this and the fact that in today’s global economy, Capital flows are the true masters and they will ultimately decide the state of the economy and not the sovereign State.

 

Additionally, France proposes a marginal tax rate of 75%. Pay, to the bosses will be kept at twenty times the lowest paid worker. In some cases the cut will be to the extent of 70% of the pay they (the bosses) are used to now. Since there is only a single currency but no integration in Europe, Capital flows will decide the state of the economy.  Thus, it will be hard to imagine the state of France when Capital flows move out!  And since France is a part of the Euro, their decisions may cause more trouble for the ailing Euro economy.

 

The implications of these decisions attest Richard Dawkins’ premise in his book, The Selfish Gene, that Human beings are essentially selfish.

 

Schumpeter: (68)

 

  1. “The Socialists are unlikely to be terribly successful at preventing the destruction of jobs, but they may be all too effective, however unintentionally, at stifling job creation. Among the party’s most popular campaign promises was to tax incomes of more than 1m euro at a marginal rate of 75%. The likely consequence will be much less admired. Some big companies will leave France or move management abroad in order in order to shield their executives from the tax. That will lead them to invest and hire more overseas rather than at home. Already, top foreign executives no longer want to join French firms. A new extra tax on dividends has further angered the business world.”

 

  1. “Paris is full of rumours of hasty departures, PPR, a luxury-goods group which owns Gucci and Yves Saint Laurent, is reported to have plans to move its entire executive committee to offices in London as soon as this summer. Technip, a global oil-services firm, is rumoured to be about to move its official headquarters across the Channel, (PPR declined to comment, and Technip said it has no plans to move for now.) To the fury of a French member of parliament, David Cameron, Britain’s prime minister, this week promised to ‘roll out the red carpet’ for French companies on the run from the new tax.”

 

  1. “Marc Simoncini is one of France’s best known entrepreneurs—and one of the few business leaders to denounce the new measures publicly. Why, he recently asked, would anyone want to start a business, invest and succeed in the most taxed country in the world?”

 

  1. “Last week Pierre Moscovici, the finance minister, announced that pay for bosses of companies in which the French state holds the majority of shares will be capped at a flat rate of 450,000 euro, or roughly 20 times the wage of the lowest-paid worker.”

 

  1. “In some cases it will lead to a 70% pay cut.”

 

  1. “Socialists are simply not aware of the damage their plans will do…”

 

Acknowledgements: All quotes are taken from ‘The Economist’ --- June 23rd-June 29th 2012.

 

Your feedback is welcomed at nitisp@gmail.com and sampat@capitalideasonline.com