France? Don’t Go There!

September 24, 2005

A review of the French tax and legal systems reminded me why it’s crazy for an Anglo to live or start a business there.

One book, although nominally boosting France, paints a picture of classic Low Trust society in decline.

Erosion of Trust
The French tax system is based on the practice of “denunciation” – people are encouraged to denounce neighbors to the French tax authorities and are rewarded with a cut of the penalties the authorities impose.

Erosion of Justice
Tax investigation assumes guilt – parties denounced must prove their innocence.

Erosion of Property Rights
Like any other state, French state takes property for infrastructure projects, however the legal resources available to the citizen are much more limited than in Anglo societies. Plus there’s a nasty trick called “preemption” that applies to 90% of all properties in France. This allows the local mayor to step in and take a property that you’ve signed up to buy. Or, after you’ve bought, require that you give up part of your property for redevelopment.

It’s thought that about 60% of Brits who move to France give up and return home within two years. They’re the lucky ones – many can’t afford to return, having lost their capital to the locals.

The corporate level is just as bad. Here’s a WSJ view (subscription, my ellipsis):

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…1,240 positions in France, had better make sure his lawyers have read the fine print of the French legal code.

France’s staggering (10%) jobless rate is largely the result of a fundamental misunderstanding of capitalism. Somehow, the country’s fabled “social model” assumes that companies should operate like nonprofit organizations. But neither do 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.”

Many French understand that their current model is not sustainable, but – as in Germany – those with entitlements outnumber those funding them.

Stay away.