Crazy Socialist Ideas Are Not the Way to Economic Growth
The latest French election saw a rise in socialism, as new President Francois Hollande set out tough, left-leaning ideas on how to generate economic growth. The French president has some of the same misleading and erroneous ideas for how best to generate job creation and economic growth. The problem with socialists is that they prefer to punish success in the name of job creation, whereas I prefer to offer incentives to create economic growth. Be aware that this is not something that happens just “over there.” This weak level of job creation is causing politicians all over the world to think of all kinds of wacky ideas to try to stimulate economic growth. Most of them are completely insane and will serve only to damage the economy, possibly permanently.
Hollande thinks that part of the solution to all of the economic growth problems stems from rich payments to CEOs. His proposal is for French state-owned firms to have a salary cap in which the executive pay may not be higher than 20 times that of the lowest-paid employee. This will mean large pay cuts to most, if not all, of the state-run firms’ CEOs. Okay, you might say, why is this a bad thing? Economic growth comes from the incentive to work hard. This hard work should have rewards.
Will this new rule help average salaries? Nope—just the opposite, for several reasons. First of all, if this is enacted only on state-run firms, then all of the top people will leave and go to the private sector. This will leave only the worst managers to run these state-run firms, which will end up hurting everyone. If you were a highly qualified manager filled with good ideas, you would avoid these state-run companies like the plague. If the state-run firms are poorly run, this means that they are less profitable, which means less money available to be spread to all of the workers. In fact, most likely, they would be so poorly run financially that they might end up cutting jobs.
If this rule is enacted across the entire country, it would be suicide for economic growth and job creation. Any company that could move to another country would. No one in his or her right mind would stay and be under the thumb of a government bureaucrat telling him or her how to run a business. Even someone who isn’t an expert can figure out that if companies leave en masse, this is not a good thing for economic growth and is certainly a negative for job creation. The obvious net result of a crazy rule like this is massive unemployment as companies leave the country.
While everyone is worried about economic growth, the answer is not in these gimmicky socialist schemes. The answer to job creation is to try to offer as many incentives as possible for people to start businesses and bring companies to our shores. Economic growth comes from the fertile landscape of low regulation and ease of business. The less red tape companies have to deal with, the more they’re interested in doing business. This ends up being a virtuous cycle, as these businesses then push up job creation, which stimulates economic growth. The answer is in eliminating red tape and structural reforms to the labor market, in addition to helping train employees for jobs in new industries. The answer is not in gimmicky policies, which is obvious to anyone who’s read a history book.