Monday, May 19, 2008

French Fail Basic Economics

As I mentioned in an earlier post, our politicians seem to want to push us, one step at a time, in the direction of the European economic model. That model produces lousy results, but is supposedly more humane than the American version of capitalism. What it really does is attempt to ignore the basic laws of economics in favor of feel good laws. The French lead the way in attempting to have their economic cake while eating it too:

Rising fuel and food prices are worrying consumers all over Europe. Concerns about purchasing power are an especially hot issue in France. President Nicolas Sarkozy's unpopularity owes much to his failure to boost it as he promised. Inflation, at a 17-year-high, is not the only problem. This week, he dropped in on a Yoplait yogurt factory to declare that “there is no reason why we should have the highest prices in Europe.”

Yet if voters want lower prices, they are less enthused by more competition. Christine Lagarde, the finance minister, is promoting a new law to inject more competition into retailing. It would make it easier to build out-of-town hypermarkets, and would scrap a rule stopping retailers from selling below cost. In many places, hypermarkets have de facto local monopolies, and so are protected from competing with each other or with the big discounters, which account for only 13% of food retailing, next to 30% in Germany. Nor can hypermarkets negotiate freely with suppliers, which retailers say allows big brand-names to impose high prices.

So why are consumers not cheering on the new law? The Socialists say the fringes of historic towns will be destroyed. Deputies in Mr Sarkozy's own party, lobbied by food producers and small shopkeepers, want to dilute the text. When asked by Ifop, a pollster, how best to raise their purchasing power, only 42% of respondents picked out more retail competition. Some 85% preferred a cut in the sales tax, and 72% a rise in the minimum wage. Scepticism about competition has deep roots, ranging from a lingering influence of Marxism to a fear of American capitalism trampling the French way of life. Above all, voters see competition through the eyes of producers—as a menace to jobs and factories—rather than consumers.

If you legislate away competition, you reduce the overall supply of goods and therefore raise prices. That is Economics 101 and the French are failing. Why would we want to follow this example?

No comments: