Asymmetrical Information - Megan McArdle

01.23.13

Is Obama Turning America Into France?

Yes, says Pascal-Emmanuel Gobry--in the worst possible way

My friend Pascal-Emmanuel Gobry responded to my piece on Obamacare and the pressure to shift workers to part time by tweeting "The Francification of America".  I asked him to elaborate, and he did . . . at length.  Below, an Amerophilic Frenchmen's thoughts on the direction of America's economy.

In American politics, perhaps the worst accusation you can level against a Democratic politician is the suggestion that she is trying to turn America into Europe. No, wait, that’s not the worst accusation. The worst accusation against any Democratic politician is that she wants to turn America into France.

Supporters of said politician typically respond with those accusations with outrage. And making such an accusation typically gives you away you as the kind of unhinged Tea Party type who wouldn’t recognize a French person if she wore a beret and carried a comically oversized baguette.

Of course Obama isn’t turning America into France!

And yet... and yet...

As a French person who finds much to like in America’s policy mix and much to dislike in my own country’s, I can’t help but shake a feeling that Obama’s policies are turning America into France.

And not in the good way. France’s healthcare system can be legitimately awesome. But Obamacare certainly won’t turn the US healthcare system into a French-style wonderland. But Obamacare, and other Obama policies, just might import French-style mass unemployment to the US.

How so?

Distressingly often, when you meet a successful French entrepreneur and ask him (and it is almost always a him) how many employees he has, he will say “Forty-nine full-time” with a wink. That is because once a company hits 50 full-time employees, all sorts of onerous regulations, like mandatory workers’ councils, start to apply to it. So many companies stay under that threshold, even though they could probably go higher, and make do with temporary workers.

That’s just one example of the thicket of well-intentioned regulations that leave France with low growth, mass unemployment, and a lumpenproletariat of temporary workers.

Well, Obamacare mandates that companies give their workers healthcare coverage or face a fine--that is to say, companies with more than 50 full-time workers. Do you see where I’m getting at?

One way to get around that mandate is to fiddle around the definition of “full-time” and give workers less hours, as Megan has written. This is already bad for workers, employment and growth.

But it’s not hard at all to imagine that over time, if business owners feel the mandate is too onerous (and many have adamantly insisted that it is), they would just limit their business to 49 workers. Already staffing companies are preparing for an expansion of domestic outsourcing as businesses seek to cut down on expensive full-time employment.

This is just one example of this system, where well-intentioned regulations harm growth and unemployment in this perverse way, by incentivizing businesses not to grow. Start with one good intention--”Businesses should provide healthcare!”--add another good intention--”Well, we don’t want to burden small business with red tape”--and you end up with an environment that has this large, implicit (therefore hard to agitate against) tax on employment. It ends up benefiting large businesses, since they get less competition from slower-growing (or never-growing) up-and-comers. The victims are the marginal workers who don’t get employed, and the society at large which has lower growth.

Another example from Obamacare is the requirement that chain restaurants and food vendors with more than 20 locations display caloric content on their food and menus. Want to add one more location to your restaurant chain? Well, you have to redo all your menus and displays and signs. That’s an implicit tax on business growth. It’s not a big tax. It’s not the biggest deal in the world. But these countless regulations have a way of piling up. It’s not clear where the line is between can-do America and stultifying France, but it’s clear which direction America is headed in.

The small business lobby in America is very strong, and this has led to a situation where most federal regulations on business only apply after a certain threshold of employees. It sounds commonsensical--and in many cases it probably is--but all these regulations together add up to a situation where, while things are easier for small businesses, it becomes harder to grow a small business. And job growth comes not from “small business”, but the small minority of fast-growing small businesses. Just the kind that 10%-unemployment, mandatory workers’ councils France lacks, and just the kind that America has historically been so awesome at producing.

Another serious problem in France where America has always been better has been the ability of young adults to be independent early. The cultural ideal is that once children graduate high school, they will move away for college, and after a short four years of study, move away somewhere else to get a job. Now Obamacare mandates that children can stay on their parents’ insurance until their 26th birthday. It’s a “cheap” way to expand health insurance coverage, and it will almost certainly make a serious positive difference to the lives of many people. But it also noticeably moves the needle toward a place where children stay dependent on their parents well into their mid-twenties, as in Europe. And in America the situation is worsened by the problem of student debt. A situation where young adults keep sucking on the parental teat well into their twenties is bad not just for the economy but creates widespread social malaise (just look at the history of student protests in France).

It’s not just Obamacare. Perhaps the most worrisome report of the presidential campaign, which went mainly unnoticed outside fringe right-wing media (and therefore easier to dismiss), was that the White House leaned on Lockheed Martin to delay layoffs until after the campaign was over. This was a painful flashback to the French presidential campaign, when Nicolas Sarkozy flashily bullied almost every large French company into halting layoffs during his reelection campaign.

Beyond the crass politics of it, what is at play here is an extremely worrisome weakening of the rule of law, and expansion of the unholy nexus between Big Government and Big Business, where each scratches the other’s back. In France, the President hires and fires (or at least has a veto over) the leaders of a good chunk of the biggest companies in France. The exceptions (and I wish I was kidding) are the CEOs who inherited the job from their parents. France may be the most corporatist rich country in the world (with the possible exception of Italy), and while we can argue about how corporatist America is, it’s hard to argue that it’s grown less corporatist over the past five years. (And yes, Bush was pretty bad on that score, too.)

America currently finds itself in a place which is very strange for Americans, and very familiar to Europeans: mass unemployment, young and marginal workers struggling, government and big business expanding hand-in-hand, a nagging sense of a dimming horizon. America’s mass unemployment ought to be cyclical--with strong pick-up growth, it can go back to pre-crisis levels. But that’s a big if, and the odds are even lower with well-intentioned regulations that make it harder to hire and harder to grow a business.

So yes, at the risk of looking like one of those guys waving a placard with Lenin’s face on it and shouting “Socialism!”--the Francification of America is a real thing, and Obama is doing it. And it’s very bad.