TCS Daily

Au Revoir, Les Entrepreneurs

By Nima Sanandaji - August 30, 2006 12:00 AM

European media reported earlier this month that the French economy had grown by 1.1 percent in the second quarter of 2006, the biggest quarterly jump in five years for the country. Could this mean that France has become more attractive for entrepreneurs?

Perhaps. But on the other hand, there are signs that the country's traditional obstacles for growth and innovation are still in place. Recently, the Washington Post ran a story about how wealthy citizens choose to leave France due to its punishingly high taxes on the successful. The article cites a government study which concluded that on average at least one millionaire leaves France every day to settle in a more wealth-friendly country.

Denis Payre is an example of this. He built a successful high-tech company from scratch and decided to quit at the age of 34 to spend time with his family. Instead Payre was forced to leave France as the government sent him a tax bill of nearly $2.5 million on paper assets he couldn't cash in. Payre, who is now 43 years old, has started a new company in Brussels and tells the Post that he did nearly $32 million in business this year. He has little sympathy for the French system which penalizes success. "The loss in income for the government is the smallest part," he said. "The big issue is the loss of all that creative energy this country is dying for."

That high-earners and entrepreneurs choose to leave is yet another indication that France's welfare system is broken. The French economy is stagnating. Even though France, like other European welfare states, hides some of its true unemployment in various government programs, joblessness stands at around 10 percent. In 2004 only 13 percent of unemployed workers in the US could not find work within 12 months - in France the same number was 42 percent.

In 2002 the French lost more than twice as many weeks per worker due to sick leave compared to the US and a recent study by US and European researchers found that the wage and benefits returns to long-term employees in France has since 1976 been consistently lower than in the US. According to the "Global Entrepreneurship Report 2000" the percentage of those who were starting new businesses was five times higher in the US compared to France.

The problem is not only that the French economy punishes the very rich, discouraging them from working and creating businesses - but that it does the same for those with low incomes. The French welfare state creates a high "unemployment trap" for low-wage earners.

An unemployment trap is a measure of the percentage of gross earnings which is "taxed away", through social security contributions, higher tax and withdrawal of government benefits, when a person returns to employment. The calculations are based on a single person without child who earns 67 percent of the average earning of a full-time productions worker in the manufacturing industry. In France the unemployment trap corresponds to around 82 percent - creating a very small economic incentive for low income workers to actually go to work.

The French economy showed impressive growth in the second quarter of 2006, but this has not been the long term trend in the last few years, as the French economy has stagnated and fallen more and more behind more market-oriented economies such as the US and Ireland.

The long term consequence of an economic policy that punishes entrepreneurship and hard work regulates the job market while creating ample options to live off government remains the same: stagnation, high unemployment and gifted people fleeing the country.

That the French economy has its fair share of problems is no mystery for anybody with a slight understanding of economics, or just plain common since. What is more puzzling is why the American left is so eager to reform their own nations economy towards the more socialist and clearly failed model of France.

The author is the president of the Swedish free market think tank Captus ( He is also a PhD student in biochemistry at the University of Cambridge.



The problem with France
Our highly intellectual President Bush put it like this: "The problem with France is that they don't have a word for 'entrepreneur' ."

Summary of the present article: In the US, the rich (the "successful") live well while the poor live poorly. In France, the rich live poorly.

French soon fried
Yeah, and I've been reading that between Dover and London, there are many thousands of french guys who have moved in because they realize they might have a chance to get ahead,instead of trying in France. Can anybody imagine some guy like Bill Gates, or Walton or anybody with a bright idea try to get it off the ground in France? I don't think so. Here's another example of hide bound they are. Before they had the market for high class wines, right? And they didn't even bother putting on the label what grape it came from. Nowadays when they have competition from good wines from all over, they had to very grudgingly, kicking and screaming, put on the label what grape; cabernet, etc. But they hated even changing that much. The only change that they readily do in France is to convert churces into mosques.

The USA poor are fat, have TVs, cars, cell phones, ....
I guess they have enough cake to eat, too.

Yes the poor live poorly, but only for a while...
In America, people tend to leave lower income brackets after a few years. In France, they never have the chance to do so.

A few statistics from

"Only five percent of families in the bottom income quintile (lowest 20 percent) in 1975 were still there in 1991." (University of Michigan Study, cited by the author of the above web article.)

"The U.S. Treasury found that 85.8 percent of tax filers in the bottom income quintile in 1979 had moved on to a higher quintile by 1988 - 66 percent to second and third quintiles and 15 percent to the top quintile."

Democrats BEWARE --- as if you Care
It sure sounds like our Democrats had a penchant for French policy --- which will lead us down the same road.

In the US,
the poor live better than do the French middle class.

The problem with France, is that it has been occupied by the French.

Heck, look at LG's post
he actually approves a system where everybody is poor, over a system in which only a few people are poor, but some people are allowed to get really rich.

Any system that spurs economic growth is good
A system that can do that while all-but eliminating poverty is better. That is why the current American economic system is close to as good as it gets.

America has enough welfare programs to keep the poor from starving, but not enough to keep the majority of them from wanting to work and better themselves. An economy that doesn't tax the rich into poverty or keep the middle class from enjoying what they make. While it could get better yet, the U.S. is still the best place to make a buck and enjoy the fruits of your labor.

In France...
In present-day France, there appears to be a homogeneity of mediocrity.

In the Grand Plan of French egalite, everyone is entitled to be equally miserable. Ecxept that some will be more miserable than others.

Thus, the exodus of the successful to climes where egalite really means something. Those left behind are...left behind.

The poor didn't starve before the current welfare programs
Even in the darkest days of the Depression (which was caused by the govt) nobody starved.

On the other hand, it's easy to show that the taxes necessary to support the massive welfare state have slown down the growth of the economy, tremendously.

The only thing that will ever eliminate poverty, is economic growth. Programs that slow down that growth hurt the poor.

Since it's easy to demonstrate the welfare programs do not benefit the poor.
It's also easy to demonstrate that the taxes necessary to support the welfare programs dampen economic growth.

It's hard to justify the existence of the welfare programs.

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