Sarkozy Bids Farewell to Capitalism

Government intervention in the economy is something of a tradition in France. As the the 2010 Index of Economic Freedom published by the Washington-based Heritage Foundation and The Wall Street Journal noted, French business “remains curtailed by the pervasive presence of the state in economic activity.” Government spends more than half of GDP and owns or controls many major industries. Taxes are high and so is the state’s expenditure. Indeed, few states spend more than France.

Since the recession struck, President Nicolas Sarkozy, although the foreman of France’s political right, has shown little love for free-market capitalism. He previously blamed the “freewheeling Anglo-Saxon” model of finance for today’s trouble and announced “the victory of the European model.” Sarkonomics have been disappointing for aficionados of the market.

“If there was any remaining doubt that the era of financial capitalism is over and the age of big government has begun,” writes Rana Foroohar for Newsweek, “Sarkozy dispelled it” with his keynote address to the World Economic Forum in Davos, Switzerland last Wednesday. He “seemed to delight in bashing everything from laissez-faire capitalism to overblown banker pay,” according to Foroohar, and he complained that “nothing has gone to labor” during the past years. In Sarkozy’s words, “Capitalism is not an end — it should be a means to an end.” What end? Sarkozy didn’t say.

This sort of vague persecution of capitalism is unfortunate when it is practiced by opinion makers. Coming from a world leader, it is dangerous.

Sarkozy never explains how exactly capitalism failed besides pointing at high bonuses and blaming the short term vision of bankers. He never provides a viable alternative besides promising to “do something” for “labor”. Yet he has enacted greater protectionism of French industry and proposed greater oversight of the financial sector, all intended to curtail capitalism, not do away with it altogether, of course.

The truth is that by curtailing capitalism, it seizes to function. Financial markets have been subject to regulation for years. Their failure is interpreted as proof that more oversight is necessary but more of the same won’t do any good. Punishing banks won’t work.