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"That's exactly what you should not do. They're ... complicating instead of simplifying," says Anders Aslund, an economist with the Peterson Institute for International Economics in Washington. Aslund says the government should avoid giving grants for specific industries and instead help all industries
-- with permanent tax breaks, for example. Last year, Montebourg unveiled a plan to give several hundred million euros in grants and tax credits to car companies and subcontractors in an effort to encourage the development of electric cars and batteries. But economists say the French government should not try to invent successful sectors. Never mind that France is an unlikely place to incubate an auto revolution. Its car industry can't compete with global rivals like Volkswagen and Hyundai that have lower labor costs and stronger cultures of innovation. For example, French research institutions lack the strong links to industry that allow entrepreneurs in other countries to quickly convert lab discoveries into products. The flip side of France's efforts to create booming new industries is its aversion to letting struggling ones die out. "A saved job is always a victory," Montebourg, who is on the far left of the Socialist party, said at a recent lunch with journalists. He declined to be interviewed for this story. But that's not how many economists see it. Part of Germany's success is its willingness to let some lower-level manufacturing jobs move to other countries, says Christian Ketels, a researcher at Harvard Business School. That allows German companies to stay competitive and keep high-skilled, higher-paid jobs at home. "To my knowledge, France is really the only country in Europe that is upset about outsourcing," says Aslund.
One of the most glaring examples of this no-job-left-behind policy has been France's campaign to block steelmaker ArcelorMittal from shuttering the two blast furnaces at its processing plant in Lorraine, eastern France
-- in spite of the fact that local mines are used up, it's far from ports and its furnaces are out of date. That plant is "a perfect example of what you should close down," says Aslund. Instead, Montebourg took up the cause, threatening to nationalize the plant and declaring that the company wasn't welcome in France. It's unclear how much of this rhetoric was in line with government policy
-- the suggestions of nationalization were quickly struck down by the prime minister
-- but the affair deeply bruised France's reputation as a serious place for business. In the end, the company will close the furnaces but other steel-processing operations at the plant will continue. Montebourg also tried to save a Goodyear plant in northern France by asking American tire manufacturer Titan if it was willing to invest. The answer from Titan's CEO mocked France's work practices in an embarrassing public letter
-- and Montebourg took the bait, shooting back an equally chest-thumping missive. There looks to be little hope of saving the Goodyear plant, but litigation could drag on for months if not years. Just this month, Montebourg vetoed Yahoo's attempt to take a 75 percent stake in video-sharing website, Dailymotion. Citing concerns about Yahoo's health as a company, Montebourg said the government, which owns a stake in Dailymotion's owner, France Telecom, would only approve a 50-50 deal. Yahoo walked away. Business owners say that the government remains more of a hindrance than a help. There are too many regulations and too much paperwork even for mundane tasks. But the fundamental problem French manufacturers face is simple: Workers get paid too much to make products that cost too little. The French government argues that its hourly labor costs are not much higher than Germany's
-- 34.20 euros per hour on average in 2012 versus 30.40 euros per hour, according to Eurostat. But France's range of products
-- with some notable exceptions, like Chanel handbags or Moet & Chandon champagne
-- is generally of a lower quality than Germany's. In other words, if it costs the same to make a Peugeot as it does a BMW, guess which company is going to have more left over to reinvest in innovation? And investing in innovation is how you make a Peugeot more like a BMW. And it's not even that France pays top dollar to attract the best workers. Its wages are above average, though not spectacularly so. But its payroll taxes are the highest in Europe. The government's new "competitiveness tax credit," which will eventually give companies up to 6 percent back on some workers' salaries, is a step toward lessening this burden for a time. Early surveys, however, show few companies are taking advantage of it, according to study by consultancy Lowendalmasai. How come? The paperwork is too complex.
[Associated
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