Ah the French

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Dear Mr. Montebourg:

I have just returned to the United States from Australia where I have been for the past few weeks on business; therefore, my apologies for answering your letter dated 31 January 2013.

I appreciate your thinking that your Ministry is protecting industrial activities and jobs in France.  I and Titan have a 40-year history of buying closed factories and companies, losing millions of dollars and turning them around to create a good business, paying good wages. Goodyear tried for over four years to save part of the Amiens jobs that are some of the highest paid, but the French unions and French government did nothing but talk.

I have visited the factory a couple of times. The French workforce gets paid high wages but works only three hours. They get one hour for breaks and lunch, talk for three, and work for three. I told this to the French union workers to their faces. They told me that’s the French way!

The Chinese are shipping tires into France – really all over Europe – and yet you do nothing. In five years, Michelin won’t be able to produce tire in France. France will lose its industrial business because government is more government.

Sir, your letter states you want Titan to start a discussion. How stupid do you think we are? Titan is the one with money and talent to produce tires. What does the crazy union have? It has the French government. The French farmer wants cheap tire. He does not care if the tires are from China or India and governments are subsidizing them. Your government doesn’t care either. “We’re French!”

The U.S. government is not much better than the French. Titan had to pay millions to Washington lawyers to sue the Chinese tire companies because of their subsidizing. Titan won. The government collects the duties. We don’t get the duties, the government does.

Titan is going to buy a Chinese tire company or an Indian one, pay less than one Euro per hour and ship all the tires France needs. You can keep the so-called workers. Titan has no interest in the Amien North factory.

Best regards, 
Maurice M. Taylor, Jr.
Chairman and CEO

French Labor Strike

French Labor Strike

Today’s New York Times brings a story that will warm the hearts of believers in free markets everywhere At least one U.S. capitalist understands capitalism.  That gentleman is Maurice Taylor Jr., the head of Titan International, a U.S.-based tire manufacturer.  He has been in “negotiations” over the last four years aimed at keeping the Goodyear plant in Amiens, France, open.  As of today that deal appears off the table.  Ah, the French. They would rather cut off an arm than seek treatment for the infection.

France: Home of the 35 Hour Work Week

France is the home of the original 35 hour work week.  This law, 13 years old this month, limits workers to 35 hours per week at no change in weekly pay. Economists recognize this as a negative supply shock that leads to higher unemployment and short-term inflation.  The law is based on the long-discredited “bundle of work” economic hypothesis.  If there is only a certain amount of work that can be done in an economy, then limiting workers’ hours will spread the work among more employees.  On its face, that is an attractive model.  But it assumes the amount of work is limited.  In fact, the quantity of labor in any economy is directly related to the country’s gross domestic product — which, as almost everyone knows, fluctuates.  The quantity of labor demanded is not fixed, but varies in response to a number of variables.

Titan, the Amiens Plant, and the French Government

Some facts are in order.  The Amiens plant employs 1,173 French workers.  Four years ago the French government asked Titan to try to save the plant.  Rather than describe the course of the negotiations, I’ll simply quote Mr. Taylor’s letter to the French industry minister, Arnaud Montebourg (text from BusinessInsider, typographical and grammatical errors inin the BusinessInsider version). See pullquote →

Comparing the U.S. and France

Using OECD data, I assembled two economic indicators: the growth rate of real GDP per capita and the unemployment rate.  Both variables covered the period 1990-2011 (the latest annual data available in the OECD online database).  Here are the averages:

Country Average Unemployment Rate (1990 – 2011) Average growth, real GDP per capita (1995 – 2011)
France 9.01% 1.00%
U.S. 5.84% 1.39%

Pay close attention to that last column.  The difference in the growth rate is 0.39% per year.  Doesn’t sound like much, does it?  First, you should know that real GDP is the same as the purchasing power of income (per capita).  Let’s consider these growth rates over 30 years (usually the definition of one generation).  If the annual income in year 1 was 20,000 (dollars or euros), after 30 years French income will be $26,992.89 versus $30,258.12 in the U.S.  The U.S. economic standard of living will grow faster than that of France.

Let’s look at some graphs of the same variables.  There’s something disturbing about one of them.  I’ll point it out below.

Unemployment Rates

 

 

 

 

 

 

 

 

 

GDP per Capita Growth

Did you spot it?  Since 2008 (the beginning of the Obama administration) the U.S. unemployment rate has risen to French levels.  You may draw your own conclusions.  I’ve written about this issue many times before.  You can read my thoughts by clicking here and here and here.

As always, my data sources and methods are transparent.  Click here to download an Excel 2007 file containing all data and calculations.

Conclusion

Mr. Taylor has stated his case very well.  France is traveling the same road that Greece, Spain, and some other European countries followed years before.  When the French economy begins to collapse I doubt very much that the German government will bail them out.