:: The Park Paradigm ::

Markets for the Digital Generation

“[The State] is the great fictitious entity by which everyone seeks to live at the expense of everyone else.” - Claude Frédéric Bastiat (June 30, 1801–December 24, 1850)

For those of you who have not been following the French election (here is a good synopsis of the first round from Tim King at Prospect), this weekend France will choose between two very different visions of the future. On Wednesday, I watched the televised debate between Sarkozy and Royal. And having led the field throughout, if you believe the betting market, he will be the next President, with over €1mn traded he is currently priced at 1.12 on Betfair (1:8 on, or c. 88% probability):

Given the well known predictive powers of such markets, I have been somewhat dismayed not to see this referred to once during the campaign; obviously I haven’t read or watched every bit of mainstream press coverage of the election but I have been following the campaign closely and have never seen a mention of the Betfair market (or InTrade which although less liquid has a similar price, efficient markets oblige!) not even in the Economist, relying as with the rest of the press on polls alone (these too have Sarkozy ahead with c. 53% of the expected vote.)

Many sense that this election may mark a turning point for France. Volume is high (as they say in the trade) - giving real significance to the result on Sunday (from The Economist):

This weekend’s presidential election has captured the imagination of the French like nothing else for years. On Wednesday May 2nd, a huge 20m-plus people tuned in to a two-and-a-half-hour television debate between the Socialists’ Ségolène Royal and the Gaullists’ Nicolas Sarkozy—nearly as many as watched the 2006 World Cup final. Campaign rallies have drawn tens of thousands. Turnout in the first round of voting was at its highest since 1974. The burden of expectation about the start of a new era, after 12 stagnant years of Jacques Chirac, is almost worryingly high.

If Sarkozy wins, my view is that it will be due to a strong vote from the (usually) silent majority who (as witnessed in the enormous turn-out) have had enough. France is clearly not the only democracy that suffers from capture by motivated and vocal advocates of what ultimately are views held only by a minority, but for many many reasons (enough to fill several books I’m sure) France has had a particular bad time of it in this respect over the past 20 years. But every once in a while, when enough-is-enough, the silent majority makes itself heard. And for its rarity, the sound is reverberates that much louder.

The French are just as capable, intelligent, innovative, industrious as any other nation, possibly more than most, making the politics of defeatism, fear and envy that have monopolized the economic and political scene in France since (at least) 1981 even more frustrating and depressing than they would naturally be. The apogee of this incredibly pessimistic world-view, utterly lacking in self-esteem is embodied by the thinking behind ‘les 35 heures’ - the government legislated work week; a policy that is rooted in the fallacy that there is a fixed amount of work that needs to be ’shared’ and yet another example of the State micro-managing the economy. Indeed the conviction that the State can and should seek to ‘fix’ all the problems of the nation and its citizens is a belief that has historically had significant currency in France. It will be interesting to see if - by voting for Sarkozy - the French have had enough of being treated like children by an over-ambitious State. Indeed one of the great (unintended) tragedies of French government policies - especially policies with respect to taxes (including social security ‘contributions’) and suffocating labour regulation - has been to expatriate hundreds of thousands of some of the brightest, most ambitious of their citizens. One only has to look at London which with several hundred thousand French nationals is probably the wealthiest and most dynamic ‘French’ city. How many great French entrepreneurs have had to leave the country in order to successfully get their business off the ground? Of course these are the very people who are the key catalysts of job creation, only the jobs are not being created in France. What if France took the approach Ireland took a decade ago and created a environment friendly to business and to success? My personal opinion is that you would see a flood of expatriates returning home, creating hundreds of thousands of jobs and significant wealth.

Both candidates have made much noise about how they want to help entrepreneurs and small business owners. Royal wants to give special tax breaks and institute a number of State run programs to encourage small businesses. But what is really needed is for the State to get out of the way. Less not more. Sarkozy is at least acknowledging that there is a need to stop suffocating business and entrepreneurs, although he - perhaps through conviction, perhaps through electoral pragmatism - also advocates a strong role for the State in the workings of industry. It’s is unfortunate that he chooses to highlight the rescue of Alstom not as a sound and (very profitable) ‘trade’ - which it was - but as a chauvinistic protection of French industry. Rather than rail at the evils of hedge funds, he should be striving to bring the same dispassionate performance-driven approach to managing the assets of the State and helping the French to understand that the best - the only - defence against ‘insecurity’: unemployment, low wages, poor prospects, is a flourishing, dynamic and wealth-creating economy. It is also the only true guarantor of the sustainability of generous and high quality public services over time.

Perhaps, just perhaps, the French people are ready to stand up and take their individual destinies back into their own hands. As Mr. Sarkozy is wont to say:

Il n’y a pas de fatalite.

If indeed he is elected though, I hope he will be able to temper his own prediliction for seeing the State as a means to every end and perhaps take another look at the thinking of Bastiat: a great French classical liberal theorist, political economist, and member of the French assembly (quoted at the beginning of this post) who managed to combine sound economic thinking with eloquence and wit. I always wonder why his arguments never seem to be used in the French political arena to defend liberty and markets; I mean after all he’s not some dodgy foreigner like Adam Smith or Milton Friedman! In an article published in July 2001, The Economist does a good job of summarizing Bastiat’s contribution to the economic canon:

Bastiat is best known for an essay in which he petitions parliament on behalf of the candle makers of France. His complaint is against the “ruinous competition of a foreign rival who works under conditions so far superior to our own for production of light that he is flooding the domestic market with it at an incredibly low price.” The rival is the sun. His proposed remedy is the mandatory shuttering of all windows. That, he claims, using all the standard protectionist arguments, will benefit not only the candle industry but also all the industries that supply it. As a compelling statement of the case for free trade, this essay is hard to beat.

During the building of a railway to Paris, it was proposed that there should be a break in the line at Bordeaux because it would help businesses there, such as porters, storage firms and hoteliers. Brilliant, said Bastiat. What better way to boost prosperity in France than to have similar breaks at Angoulême, Poitiers and all intermediate points? “By this means, we shall end by having a railroad composed of a whole series of breaks in the tracks, ie, a negative railroad.”

Noting the popular view that exports are good and imports bad, Bastiat wondered if the best outcome would be for ships carrying goods between countries to sink, thus creating exports without imports. Debunking the “lump of labour fallacy” before it was even given that label, he suggested that to parcel out the limited amount of work available, people should be required to use only one hand, or even to have a hand chopped off. Missing the irony, France recently imposed a maximum working week of 35 hours a person, hoping to share out available work.

France is a remarkable nation, and as my adopted country I have been enormously frustrated by the policies and mindsets that have tied it up in knots. Indeed its success despite these shackles only serves to underline the tremendous potential that could be unleashed. So Sunday I hope that whatever the outcome, this election will have marked the moment when the French decided that the politics of envy and dependence were not worthy of them and they deserved the opportunity to fulfil their vast potential.

And of course anyone wanting to hedge against the possibility of a Royal presidency can get a pretty cheap option at c. 10 to 1 at Betfair, and given the unpredictability of the French electorate, if I were running a small business in France I would probably plonk down a few points of my turnover on such a hedge, at least then if Royal won, I’d have a nice windfall to cover my increased taxes and administrative burden!

Share This