A Capitalist Revolt In Socialist France
The French government is trying to reign in its deficit by jacking up taxes, including the capital gains tax, which it wants to bring to the same level as the tax on income earned by the sweat of your brow—an old philosophical pillar of the French left.
But an explosive essay published last Friday hit a nerve with entrepreneurs, venture capital investors, artisans, and mom-and-pop business owners.
And their anger, which spread across the social media, the papers, and finally TV news, turned into an open revolt.
The trigger was an editorial in La Tribune by John-David Chamboredon, Executive President of ISAI, an internet startup fund. After the Finance Law 2013 was proposed during the presidential elections, he wrote, “la France du business stopped breathing.” Investments and hiring were put on hold.
The cause: the capital-gains tax provisions. An entrepreneur, for example, who risked his savings, spent 10 years growing his business, created perhaps hundreds of jobs, survived all the challenges, and then wanted to cash out, would have to pay two layers of taxes on the capital gains, totaling, according to his calculations, 60.5%. And so would investors.
It would kill entrepreneurship. Funding for startups would dry up. And growth in the private sector would wither. “If the fiscal maelstrom is confirmed, the sequence of events is quite clear,” he wrote. “Instead of hiring people and developing the business, owners threatened by this confiscation would spend the rest of 2012 imagining ways to escape it.”
There are legal ways, he said, for example by creating a holding company in Luxembourg that would retain the shares of the startup, or by relocating top management to London (which is rolling out the red carpet). Startups funded by large funds could do this. Small operations would be stuck in France. For them, it’s going to be tough. And it would put a damper on job creation in France, he said.
Articles in La Tribune are normally tweeted a few times and liked on Facebook a few more times. But this one was tweeted 1,576 times and liked 5,601 times. Over the weekend, it gave rise to the movement of the Pigeons—which in French also means “sucker.” The revolt of the bosses was born.
“We are the result of the anti-economic policy of the government that has decided to take the thousands of entrepreneurs in this country for suckers (pigeons) and annihilate entrepreneurship,” their manifesto explains. And a demonstration of the bosses in front of the National Assembly was organized on Facebook for October 7.
Anger against the “fiscal overkill” continues to grow. Entrepreneurs and those who invest in them see this law “as an act of vengeance by those who run the government or who live off it!” said Philippe Villin, an investment banker close to the entrepreneurs. “The France that is taking risks and is investing their own money in the jobs of tomorrow, and might lose everything, has the feeling of being rejected by the France that is more protected,” added Agnes Verdier-Molini, Director of iFRAP, a public policy think tank.
Money is already drying up. “We had three deals going. Since Friday, everything is suspended, because with taxes this confiscatory, it doesn’t work anymore for the business leaders,” said Bertrand Rambaud, President of Siparex, an investment fund.
“La France du business stopped breathing,” as Chamboredon wrote, has already occurred. The Services Activity Index dropped to an 11-month low. Orders plunged, and companies responded by cutting their work force at the fastest rate since December 2009. The Draghi-Bernanke effect kicked them in the teeth with higher input costs that they couldn’t pass on. And the Composite Index, which combines the service and manufacturing indices, plunged to 43.2, the lowest since March 2009—the depth of the financial crisis.
It couldn’t have come at a worse time for President François Hollande. Since his election in May, according to the latest poll, voter confidence in his ability to handle the crisis dropped from 55% to 41%. And those who were “not confident” shot up to 56%. He has become unpopular in less than six month—which in France has never happened before.
He can’t afford an open revolt by small business owners—or the label “anti-startup,” when unemployment is at a 13-year high, and when every job counts. So the government decided to do some fence-mending. It has offered to listen to the “Pigeons” and apparently is studying “solutions” to the capital-gains tax debacle to “return to the situation as it was before.” And unnamed members of the government might perhaps negotiate with the Pigeons—who in return cancelled the demonstration.
The Paris auto show, which took place at the same time, should have been exciting. Over 100 new models. Chicks next to some of them. Nausea-inducing colors, downsized motors. Something for everyone. But it had been preceded by supplier events loaded with the dire verbiage of an industry on a death march. Particularly in France, whose private sector is veering into economic fiasco. And now it became official. Read..... Worse Than The Infamous Lehman September: France’s Private Sector Gets Kicked Off A Cliff.
Not directly related to the French post, but you may find this on Spain of interest
It's a view. Quite strongly held not just on the right in Spain but on the centre left. However Alaman is a serving soldier: a colonel. And it wasn't the only incendiary thing he said.
In the week tens of thousands of protesters surrounded parliament, he told the website Alerta Digital:
"The current situation is very similar to 1936, but without blood. Unfortunately, the data indicate that the situation will only get worse in the coming months and years."
Economics journalists have learned, (thanks to the work of the FT's Gillian Tett), to ask a very brutal and searching question as we parachute into the latest theatre of crisis: look for the social silence. What is staring you in the face but nobody wants to talk about it?
Well Colonel Alaman has answered it.
During the early years of Spanish democracy, forgetting about the Civil War (1936-39) was not just a psychological necessity - it was a political choice.
The "pact of silence" instituted after the fall of General Franco was seen as a price worth paying for rapid, peaceful transition to a functioning democracy - a democracy that, moreover, found space to accommodate a strong, previously clandestine Communist Party alongside the rapidly moderating socialists of the PSOE (Spanish Socialist Workers' Party).
The approach was codified into law, with the 1977 Amnesty Law guaranteeing a blanket immunity from prosecution for those suspected of crimes against humanity during the Franco era and the Civil War.
With Spain now reeling from austerity, its riot police dispensing truncheon blows and rubber bullets against demonstrators and passers-by, the "pact of silence" is falling apart.
Historical memory confronted
The images of violence - not all of them make it onto mainstream television, but the internet does the job - are forcing Spanish people to confront historical memory in a way the various campaigns and lawsuits about the Franco era have not.
For the austerity, and the protests, have summoned the spectre of a clash that defined Spain in the modern period - the clash between liberal modernity and religious, monarchic hierarchy.
This problem haunted the writing of the early modern poets and political theorists in Spain: "A dead, hollow, worm-eaten Spain and a new, eager, ambitious Spain that tends toward life," as the historian Santos Julia puts it.
It's clear now that these two cultures within Spain - as visceral and rooted as the "southern" and "liberal" cultures in the US, or the "intellectual Russia versus peasant Russia" problem - never went away.
But the culture war had seemed suppressed by wealth: the booming economy, the rapid liberalisation of society, and the massive investment in modern infrastructure allowed them to co-exist.
For 30 years after the fall of Franco it was a different Spain - a modernised economy, linked to the European core by its single currency and the Schengen agreement, and benefiting on top of that from its links to the rapidly expanding economies of Latin America.
When the economy took a nosedive, and the first austerity plans were launched, it was striking that the political and social settlement seemed actually to be helping mitigate the effects.
Despite the 50% youth joblessness figures, the family took the strain: people moved in with their parents, borrowed their grandmother's car; in small towns and villages, barter systems sprung up.
And as with high finance the illusion was that complexity reduces risk. The Spanish constitutional settlement, which makes Opus Dei and Pedro Almodovar films two of the country's best known cultural exports, was complex.
Spain's regional government system would also act as a shield to the needy: less than six months ago the Socialist/Left coalition government in Andalucia told me confidently it would soften the impact of austerity measures demanded by the centre. Now it is bust.
Now in rapid succession, numerous signifiers of political crisis have appeared: acute class divisions, regional politics, street violence, outright civil disobedience and un-addressed corruption; the removal of migrants' rights to free health care; the sight of uniformed firefighters clashing with riot cops, helmet to helmet, on the streets of Madrid.
With it, you get the resurgence of references to the bloody conflict in which the "two Spains" tried to kill each other.
To the right there are people like Col Alaman.
To the left you get the camisetta Republicana. It's a version of the Spanish soccer team's red and yellow strip with the addition of a big swathe of republican purple: the colours of the flag Franco tore down in 1936.
I first saw one of these in the village of Colmenar, 40km north of Malaga. When Mayor Sanchez Gordillo's roving protest march arrived in the town, I noticed people wearing this unusual football shirt.
The shirt was produced in 2011 as a limited edition for enthusiasts. Now you are beginning to see it a lot around protests.
Beneath this battle of signifiers there is a serious potential for fragmentation in Spain.
Last week the Catalan government called snap elections. The ruling party - the Convergence and Union party - contains a strong minority which advocates outright independence, though informed observers think its leader Artur Mas, will use the election result to extract maximum fiscal autonomy from Madrid.
The smaller far left in Catalonia also supports independence.
The move follows a demonstration that saw 1.5 million Catalans take to the streets, with many calling for the region to become the next country to join the European Union.
Analysts are split over the significance of the Catalan move.
As the second richest region, with a GDP of 220bn euros a year, it has always been seen as an empty threat to go for full independence, the cynics saying Catalan flirtation with slogans around secession are mere posturing to gain a better fiscal settlement with Madrid.
Others on the ground are saying "this time they mean it".
Either way, the Catalan gambit has triggered responses in Madrid that have shocked a generation lulled by the "pact of silence".
There is Colonel Alaman, threatening to defend "the non-negotiable principle of Spain's unity…even with our lives."
Next, the AME, an association of retired military personnel, which insisted that "any flicker of secession to be suppressed": those calling for it "will have to respond with all rigour to the grave accusation of high treason under the jurisdiction of military tribunals".
Before the Madrid government has to deal with Catalonia, however, it also has to face two regional elections: in Galicia, which the ruling PP also runs and should hold, and the Basque region - where it is getting complicated.
The Basque Country has traditionally been run by the Basque Nationalist party - a centre right party.
At the last election the socialists won, but in the past year left nationalist forces have managed to form a very effective electoral bloc called Euskal Herria Bildu.
Bildu, for short, is led by figures formerly associated with Herri Batasuna, the political wing of ETA (making it something like a cross between Sinn Fein and the Greek Syriza party).
It currently is running neck and neck with the right wing nationalists and could win - precipitating a constitutional crisis with Bilbao that then sets the scene for one with Barcelona.
Thinking the unthinkable
Before the austerity hit there were a whole series of unthinkables in Spain: that the Civil War divisions, of right and left, could ever be reopened; that the military could ever again intervene into politics (the last time, the Tejero coup of 1981 descended into high farce); that the modernization and growth that Spain enjoyed could ever be reversed; that the federal state could never shatter.
But numerous unthinkables have already begun to happen: the effervescent lifestyle associated with the Spanish miracle has dissipated.
Millions of super-cool Spanish youths, who were supposed to be "apolitical" took to the streets in May 2011 in a protest that invented the Occupy tactic. The banks are bust. And the Partido Popular - which always resisted a bailout - is being forced to take one.
Mariano Rajoy's government is now committed to in excess of 90bn euros of austerity in the next two years.
It will work only if the economy shrinks by a relatively meagre 0.5% next year: most commentators believe the shrinkage will be triple that.
And it is a budget that, whatever the best intentions of its designers, hits the poorest in Spain hardest: it hits public sector workers, all wage earners, and only avoids hitting pensioners by dipping into a contingency fund that is supposed to cushion them.
Wherever you go in Spain - from angry Barcelona to angry Bilbao to angry Andalucia, Valencia, the seething estates at the edges of Madrid - you hear outrage at what is seen as economic injustice: hitting the incomes and services of the poorest while bailing out the banks that had become political playthings for the elite.
The unrest of this month certainly moved the markets: bond investors are split, now, between those most worried about the sovereign debt crisis and those trying to price in the risk of state break up or violent unrest.
"These are risks we're used to pricing in the emerging world," bond analyst Nicolas Spiro told me last week; "but not in the developed world."
The crisis has got some commentators asking, is Spain slipping the way of Greece?
But, having reported both situations, I think this is the wrong question.
In Greece the Civil War happened a decade later than Spain and though vicious, took place as part of the onset of the Cold War.
The "story" of the civil war sits alongside the story of Communist-led resistance to Nazism; and the "percentages agreement" between Churchill and Stalin, which placed Greece in the Western camp.
In Greece the Civil War is openly talked about.
In some villages it is still common for the different parties - and by implication the competing survivors from the conflict - to sit in separate kafeneions.
Conversations among those who survived the conflict often drift towards it, as if it were yesterday. And there has been no formal pact of forgetting.
The fact that Greeks overthrew the colonels' regime in 1974 (and staged a "Greek Nuremberg" for the deposed officers) allows Greek people to calibrate modern rightism and leftism against some level of historical accounting.
Contrast this to Spain.
In the Spanish Civil War, the people of Spain were abandoned to a fascist coup by democratic countries more worried about communism than fascism. The British navy famously stood by while Franco's navy sank British merchant ships, while Hitler's Condor Legion bombed Guernica.
Consequent on Spain's neutrality in World War II, Franco was tolerated within the post-war order. And once he died, a managed transition to democracy occurred which left the perpetrators of torture, massacre and more unpunished.
All these factors allowed the events of the Civil War itself to be officially forgotten: there is, even now, no official record of the atrocities.
The relevance to today is this: the peaceful transition created a new political system in which the old elite populated both sides of the political spectrum - but without any formal accounting of the events during fascism.
Today it is hard not to see that as one of the roots of the corruption that, as right wing daily ABC said two years ago "is drowning Spain".
It is facile to search for "national" sources of corruption: corruption happens in a market economy everywhere it is allowed to.
It's been rife, as we now know, in the London and New York financial systems; it was present in the German car industry; it is present across the Italian system of government.
However in Spain the post-Franco settlement gave corruption a particular form.
There is heavy and open nepotism in the appointment of business executives; there is - say foreign business people - an unstated regulatory bias in favour of Spanish-owned large companies.
And there has been mismanagement of resources, leading to the wasteful spending and lax planning that has left numerous Spanish regions with white elephant projects and tens of thousands of unsellable homes, with local banks driven to insolvency as it all went bad.
The 60bn euros bailout of the banks currently underway under-estimates the economic price of such mismanagement considerably.
If Spain is not yet Greece in the intensity of street conflict, and the collapse of old party loyalties, there are other indices on which it is has to cause concern: the potential for a showdown between Madrid and Catalonia is one; the potential for a clash with a government led by left-nationalists in Bilbao is another; the rise of high-profile civil disobedience campaigns such as that launched by Sanchez Gordillo in Andalucia.
And the long-standing cultural and political tendency for movements to bypass official power and set up alternative power structures of their own.
The Greek left was always communist - ie hierarchical: it is even now - in the opposition parties Syriza and the KKE, (and the Democratic Left inside the ruling coalition), shaped by Marxism.
By contrast Spanish radical movements were heavily shaped by anarchism and anti-clericalism: you can see this even in the current movement of the jornaleros - farm workers - in Andalucia, whose distrust of the main socialist party the PSOE goes back, not to last year, but as one told me, "to 1931".
The problem is not that Spain is a "young democracy": young democracies can be vigorous, culturally revolutionary, fun places to be.
No, the problem is that, as Spanish people gaze at TV images of metre-long truncheons being wielded against passers-by in a Metro station, the discourse tends to head straight to where, for 30 years, they have avoided it heading.
In his interview with Alerta Digital, Colonel Alaman gave a very clear example of this. Asked whether the Catalans are "inevitably" nationalist, Col Alaman said:
"I rebel against the claim that the Catalans have always been nationalists... The Catalan volunteers who made war on the [Francoist] side were far superior in number to those who defended the republic. The Blue Division [a Spanish unit in the Wehrmacht] had nearly 500 volunteers from the region…"
When the reference point for the Catalans' alleged "non-nationalism" becomes their preparedness to fight for Nazi Germany and General Franco, you know the "pact of silence" is not really working.
Spain has the power to explode in a way that Greece does not.
It is a major global economy. Its hitherto strong post-fascist political settlement is rapidly weakening. Its survival as a federal state is under threat.
And there is a perception factor. The Greek political class knows it has messed up; it is never surprised to see negative GDP projections surpassed on the downside; it is reconciled to the emergence of radical parties of the left and right and knows the parties of the centre will have to be reinvented.
But in my numerous contacts with Spanish politicians and economists during this crisis there has been an insistence - which crosses party boundaries - that "everything is alright": Spain is really a strong economy, the white elephant projects are really "infrastructure" which will prove a good investment in the end.
The deficit reduction plan will work. On good days they wake up and convince themselves there will not even need to be formal conditions set in Brussels, Frankfurt and Washington DC.
Is it facile, dangerous even, for foreign journalists to raise this problem of historical memory and immature democracy?
When I've raised it with Spanish politicians I've sometimes felt that it is about as welcome as "mentioning the War" in Fawlty Towers.
However, Col Alaman has mentioned it.
So have the protesters, who continually designate the European Union now a "Fourth Reich".
And we are approaching a crunch point. After five years of property bust, and a year of abject downturn, the Spanish economy is about to be hit by an almighty shock: austerity.
It might work, and it might not.
Right now Mariano Rajoy's government is running Spain as if it is inevitable that the medicine will work; that a Greek-style implosion, with the implosion of mainstream parties and the collapse of social order, is impossible.
For the past six months in the euro crisis I have said: "Spain is the unexploded bomb, Greece the detonator."
You need to move the bomb and the detonator away from each other as far as possible in time and space, so that when Greece "goes off", it will not take down Italy and Spain with it.
Mario Draghi's 6 September bailout proposal - the OMT - is designed to do just that.
Many EU politicians would be at best agnostic about Greek exit from the euro once Spain is stabilised.
But what the politics of protest do, and the politics of regionalism and nationalism accentuate, is to create unpredictability in Spain itself. The danger is that - as Rajoy prevaricates over bailout, and the political temperature crisis - Spain becomes both the bomb and the detonator.
Defusing it is still possible. But we've had a sense last week of what the explosion would look like.
www.bbc.co.uk Article by Paul Mason
So, between Greece, Spain, and France what do YOU see as happening, or coming next? Are there solutions or only more demonstrations, conflict and violence?
Yes sorry, I didn't consider the length of that when posting!
My shot in the dark guess for what will happen with those 3 countries is that Greece will end up leaving the Euro, just don't see the people there having the will to stay in & I don't see the EU having the will to keep fighting the battle to get them to accept the bailout terms.
France I think is probably the most stable of the 3, but Hollande having run on a platform of hitting the rich has to make a show of it, my suspicion is that he will backtrack once a bit more time has passed from the election. Could also be an element of brinkmanship in it to try & force Germany to be more forthcoming with support for the currency.
I traveled through France & Spain this summer & am heading back to Spain shortly, I did not ever get the impression of any unrest but I was not in areas with any separatist feeling or in main business areas. The main factor for me which could see Spain grow a bit more unstable is the 50% unemployment for those under 24, if young people don't think they have a future then they may lash out but very much a guess.
As far as a solution goes...I don't have a clue, austerity, inflation, more debts to get growth going, all these seem to have supporters.
Makes me glad I am not in charge in all honesty...
We have pockets of young Blacks and Hispanics where unemployment hits 50%, mostly in urban areas, but also in some agricultural communities. I feel a simmering just under the boiling point and if we need to implement (I mean when we do implement) austerity measures and have to quit paying unemployment benefits for two years, welfare, food stamps, and government pensions... that will cause the pot to boil over, I am afraid.
I predict that entrepreneurship will not dry up. Those that demand high capital gains for their investment will be replaced with leaner, hungrier, more hard working individuals who will increase the GDP of France.
Time will tell.
It will take time for the leaner individuals to make it up... if they are even able to get started.
That is the fear here, of course... that government has so inhibited the ability of companies to get started that we won't have new start ups and if they do get started, then they won't make enough to expand and hire anybody.
To avoid austerity programs, you do NOT spend more than you have.
It is simple really.
Only the stupid refuse to see something so obvious.
Why do YOU refuse to acknowledge it?
Where has spending more than you make ever worked?
As I have explained repeatedly, if everyone stops spending because times are bad it makes the situation much worse. When markets are "sticky" due to economic shocks or other factors it is essential for government entities to restore fluidity or capital will simply shift to what makes the most profit, social implications be damned.
Capitalism is inherently unstable, it produces cycles of booms and busts and flow of capital from one society to another, but properly managed in the right areas it does drive long term growth. In reality, within a reasonable range up to a critical point, in bad times you borrow money to invest in the future which keeps people employed on productive work, and if you pay it back when times turn better, you are fine. The USA is suffering from decades of underinvestment in its domestic infrastructure and short term thinking. The debt we are leaving future generations in terms of the decay from living off what was accomplished post WW2 up to the early 1970s when speculation and short term thinking took over is far worse than the actual deficit. However the USA is not at that critical point where it faces a death spiral, there is still enough productivity and intellectual capital to get out of this situation with the proper focus on investments in the future. We cannot afford an austerity program here. We can make better decisions about how to spend the money we have and on sound investments until prosperity returns, and we need to have the discipline to pay down the debt then. Austerity defined as carefully considered weighing of how to spend money is not a bad thing, but austerity as you define it is.
Historically, what happens instead is that conservatives get elected and "give" the money designed to pay the deficit back to the "people" as a short term stimulus to keep themselves in office, while kicking the can down the road on paying for depreciating long term items. That is what Bush did with the money that was paying down the deficit, and it went mainly to the rich and to the defense industry.
More spending at the right time has worked over and over. What do you think drove Reagan's recovery? They choked off the money supply to curb inflation, then created huge deficits and defense spending increases which along with releasing the curbs on pent up demand by renewed money supply led to rapid growth. Sorry, it wasn't supply side economics.
Lets examine some things:
"... if everyone stops spending because times are bad it makes the situation much worse. When markets are "sticky" due to economic shocks or other factors it is essential for government entities to restore fluidity or capital will simply shift to what makes the most profit, social implications be damned. "
Agree that is almost true. There can be times when government should invest in things to help stimulate an economy. There are things that government should invest in just because the venture is too large for private industry, such as the space program in the 60's. Those times can be in both good and bad times economies. In a free market capitalistic system, capital and investment will always go to where the profits are... and that is always decided by supply and demand, independent of whether the economy is good or bad.
"In reality, within a reasonable range up to a critical point, in bad times you borrow money to invest in the future which keeps people employed on productive work, and if you pay it back when times turn better, you are fine."
Agreed. However, nothing this administration has done is "reasonable" and it has gone way past the "critical point". Also, rather than "paying back" the excessive spending done in the early days, this administration has continued with outrageous spending and deficits at almost $1.5 TRILLION per year which has ballooned the debt to well over $16 TRILLION.
Considering that the BO administration has NOT created and passed even ONE budget in almost four years, this does NOT come close to "reasonable", "limited", or "paying back".
"Austerity defined as carefully considered weighing of how to spend money is not a bad thing, but austerity as you define it is."
Besides asking "HOW do you think I have defined austerity?" i must say that:
we are NOT "carefully considering weighing how to spend our money". We have increased the welfare roles, food stamps, social security to illegal aliens and payroll, benefits and retirements to government workers way in excess to the private sector. We are investing tax payer money in lavish conventions for government bureaucrats while we duplicate and triplicate government agencies and programs. And, government is investing in companies (as if they were private speculators) that (at best) are risky investments with most of them going belly-up, costing tax payers up to $500,000,000 in Solyndra alone.
Here is where you get ridiculous:
"... what happens instead is that conservatives get elected and "give" the money designed to pay the deficit back to the "people" ... while kicking the can down the road on paying for depreciating long term items."
While it is true that Bush and previous administrations have been moving the can down the road and making things worse, the BO administration has made things exponentially worse.
And as for kicking things down the road, every major decision has been kicked down the road to a lame duck session. We are facing the "Fiscal Cliff" now because there has been NO leadership from the WH in getting Congress or the Senate to face up to any of our well know problems.
p.s. You could point out to your buddy chaz that the "wall" not only listens, but responds to thoughtful discussion with thoughtful replies. It is only trivial, meaningless, stupid questions that get ignored.
Still, I applaud your civility in your last post despite my disagreements.
What we want to see (at least me cuz I don't speak for Thumper) is a reason for your disagreement. Remember, you can't lose an argument if you have one good reason for your views. I want to see if you know what you are talking about so that I can see if I know what I am talking about.
What I do detest is the statement, when you run out of reasons, that "I want to fence" or argue for the sake of argument. Say what you think and mean what you say. I can respect that, but if it is BS I'll try to point that out. I expect the same from you and DM.