Friday, October 27, 2006

Doing Business The Good Old-Fashioned American Way

My blog friend Super Frenchie loves polls and uses them on a semi-regular basis, usually to show the areas that France beats America. And according to the polls he shows, there are some areas that France is much stronger in. But here's one poll you probably won't see on SF, anytime soon. It's called the Ease Of Doing Business Index.

Let's face it, France does have areas that far surpass the U.S., but business isn't one you think of, when you compare the two.

Let's look at the numbers shall we?

The overall rankings show the U.S. as being ranked 3rd in the world, while France falls way short at 35th.

Here are the ten sub-categories that determine the overall ranking and the ranking of both countries:

1. Starting a business.

US - 3rd
France - 12th

Not much difference, but still the U.S. wins.

2. Dealing with licenses.

US - 22
France - 26

Close, very close.

3. Employing workers.

US - 1
France - 134

This is where France is at a severe disadvantage. Labor unions in France are very strong.

4. Registering property.

US - 10
France - 160

Another tough category for France.

5. Getting credit.

US - 7
France - 48

Better than labor, but still an advantage for the US.

6. Protecting investors.

US- 5
France - 60

This is probably why foreign companies love investing in American companies.

7. Paying taxes.

US - 62
France - 91

This is not the best score even for the US, but still it beats France.

8. Trading across borders.

US - 11
France - 26

Not much distance in this one, either. But the US stills beats out the Republique.

9. Enforcing contracts.

US - 6
France - 19

Another close one.

10. Closing a business.

US - 16
France - 32

Still fairly close. One thing this may suggest is that it is easier to open a business (in both countries), than it is to close one.

What does this tell us? Certainly not the whole story.

I would tend to agree with most of the findings here, but not because the poll says it. This certainly is one indicator, but the main reason I would find this close to being so accurate is because, the people that I have known throughout the years that have had experience dealing with the French (and other countries) and the US, have told me this. This is what they have told me, as related by their personal experiences.

People that work for and with French companies can tell the story. You still have to analyze the source, but something this abstract and subjective is difficult to quantify. You can play with figures and numbers, but in the end, it's the people that know. They are the experts.

Why am I doing this?

I am certainly not trying to bash the French in anyway here,
this is something that SF and I were discussing on his blog, and I simply wanted to demonstrate a point.

The bottom line here is, there are advantages of living in France and working for French companies, if you are labor. But if you are trying to do business with them or you are trying to open a business, it's a little rougher. But the "ease of doing business" in France, is in no way, anywhere, nearly as harsh, as many at the bottom of this list.

In short, all things are a trade-off. It's what you get, when you lean one direction or another. Personally, I prefer the better business climate, as opposed to the better labor climate. But to each, his own. The French opt for more taxes to pay for the social programs from the government, and they opt for more regulation in the business sector.

I remember the days when I lived, worked, and did business in Terre Haute, Indiana. It was an old railroad town that now has Indiana State University as its largest employer. But that was not always the case.

TH sits at the crossroads of the nation, at the crossing of two national highways that have long been obsolete, US 40 and US 41. The railroads criss-crossed too. From Wisconsin to Florida, east coast to west coast, the bulk of intercontinental travel was on these routes, both road and rail.

The presence of railroads meant unions and the presence of unions meant business suffered. TH could have easily become the city Indianapolis is today, had it not been for a man named Eugene V. Debs, the powerful union leader and oftimes Socialist candidate for US President, in the early 1900s. In those days and many that followed, TH had a bad reputation for vice and corruption.


But it also had a bad rep for unions. For this reason, companies knew not to relocate there. And they didn't.

Even today, Terre Haute has a socialist attitude among the people. It's not likely to change much, either. But, there have been some changes over time. As union demands got too costly, factories left and relocated south. Some large plants shut down. But business is starting to flourish and recently TH was rated high on the list of places best to raise a family. But it still doesn't sit high on the list for a company to relocate to.

But alas, it was all too late for me. I have since left TH. Pricing labor right out of the market is a dangerous thing, sometimes. It's one of the many drawbacks to big labor, as I see it.

So. Agree, disagree; French, American. What do you think?

(Note-I generally don't use a lot of polls, but made an exception to illustrate something. I especially eschew pre-election polls. The only election poll that counts, is the one on Election Day.)

17 comments:

superfrenchie said...

I'm up for it.

So one of the most important measures about business would be how it is taxed, right.

So let me ask you this simple question: Who, between France and the US, has the lowest corporate tax rate?

Hint: One is 39.3%, and the other is 35%.

croquette said...

I discover your blog via superfrenchie. I think i'll come very often. My engish is not very good, but I'll communicate very well. Labor Union are not at all strong in France. See you later LA. best regards.

superfrenchie said...

Let me add this:

First, while I am indeed fond of polls, the 'freedom of the press' post you are referring to did not rely on what I would call a poll, but rather on a study. The study did ask questions of people, but it did not ask their opinions. It asked for facts about press freedoms in their own countries.

Not to say that those facts were all necessarily judged objectively by either the respondents or by those who presented the results. But it's not like I would just take one of those CNN web page polls and present the results as facts proving everything I ever wanted to prove. Overall, I tend to be somewhat serious in my choice of polls and studies (see here for how serious I am in my choice of studies...)

Having said that, my larger point in making the comment above about the corporate tax rate is that IMHO, the proper response to a post that relies on a poll or a study to make a point, is not to dismiss it out of hand as being "just a poll" that could be easily "picked apart," but to present counter facts, such as other polls or other studies or simply just other facts that would tend to contradict or go against what the said poll or study says in the first place.

It's also more enriching to the debate. As while it may not necessarily sway one's opinion overall, any open-minded individual will still end up with a more complete picture and understanding of the issue.

For example, the combination of your poll presented in your post and my counterpoint about corporate taxes should, I think, make any open-minded person less critical of the overall negative business-friendly image of France in the US. I may not have changed your mind, but I have opened up an area of discussion that you may have overlooked, and your negative perception might just have become a little less negative.

The other point would be that in the absence of such counter-facts or contradictory polls or studies or whatever, one would tend to be reinforced in the belief that the original poll is indeed very much reflecting reality and valid.

Assuming that you don't believe that to be the case, then it's even more important to look for such counter-facts. Just dismissing the study as being imperfect will not achieve that.

LASunsett said...

Croquette,

Thank you. Please come back as often as you wish.

Also thank you for correcting my misconception about unions in France. What do you think is the reason France scored so low in the labor category?

LASunsett said...

SF,

I understand what you are saying, but know that my purpose was not to say that there is no value in studies, whatsoever.

What you and I disagree on is, how much emphasis should be placed on them. There is no perfect study. Most of them end up answering some things, but mostly they end up posing new questions, not yet considered. All studies have flaws and I merely pointed out what I believe to be one valid criticism of the press study you cited.

I work in a scientific-based field, which yields much more concrete findings than something as abstract as the ones found in the press study and to a large extent, this one on business. So, let me ask this: If the concrete science studies can be scrutinized (and believe me, they are), how much more can we critique the findings of something that is much less measurable?

Now, do not get me wrong here. You can use whatever means you want to argue your point, polls, studies, or whatever. I have no criticism of that.

But I just like to look at the whole picture. And the one thing that still stands out about your press study is the questions about reporters being thrown in jail. They didn't take into account that a lot of reporters are jailed because they got into power struggles with judges over sources in a criminal case. Judges sometimes want them to reveal their sources in criminal cases, reporters feel they must protect their sources at all costs. Bam, reporter gets jailed until someone blinks (usually the judge)

The questions asked by those that did the study and the implications you made from your interpretation, gave the distinct appearance that reporters are jailed for their views. (At least that's the impression I got.) And I do not believe that is the case at all.

The point you brought up about the corporate tax is valid in critiquing this study (and they are many more too). So we can say that you did in one way, demonstrate my point.

But another difference is made clear. Whereas you want to refute studies and polls with other studies and polls, I want to critique the flaws in the studies so that the next study is done better and may yield better and more accurate information.

superfrenchie said...

Yes, there are areas of the study that can be countered. The example you gave about reporters being thrown in jail is a good one, as it opens up a whole debate about whether it is right to jail reporters for not divulging their sources, and whether or not that would affect their future behavior in reporting. I believe that's totally relevant to the point, and one that should be discussed. So yes, a study should not be accepted without some scrutiny. All I am saying is that it should not be rejected out of hand either.

And to my point on counterpoints (!), let me make a stunning admission (!)(*). Not too long ago, in response to some criticism that the French no longer won the Tour de France, I made a post harshly criticizing the US for no longer winning anything on the international stage, from baseball to tennis to eating competitions.

I was roundly criticized for indulging in America-bashing. But I was not challenged on my facts. Nobody brought up counter facts. Nobody!

That surprised me. Because there were some. For example, I said that the US had not won the baseball Olympics since 2000. That was a trick: there has been only one Olympics since 2000! Nobody called me on it. Or I did not bring up swimming, where Americans hold almost every world record there is (although French swimmer Laure Manaudou is doing quite well). Or track. Or extreme sports. Or the fact that the US brought back 100+ medals in the 2004 Olympics.

In other words, people spent I don't know how many comments to denounce my criticism and my discourse, but did not challenge a single fact. I just happen to believe that they would have made a better case for themselves by calling me on the facts.

(*) Don’t repeat it, OK... ;)

superfrenchie said...

About the unions. I think you mimsunderstood Croquette. Labor unions in France are very unrepresentative. Only 8% of workers belong to them (US is 18%). They are however fighting way above their weight class. They are indeed very powerful, as the government consults them and negotiates with them on almost anything it does. Which makes some people uncomfortable, since 92% of the workers have chosen not to belong to them.

LASunsett said...

SF,

//All I am saying is that it should not be rejected out of hand either.//

I agree. And contrary to what BF said, I didn't reject it based on the results that were displayed, either. I just looked at the questions and didn't like them. I suppose if other variables could have been taken into account, the results may have been similar. But we cannot know that.

// I made a post harshly criticizing the US for no longer winning anything on the international stage, from baseball to tennis to eating competitions.//

I remember the post, but I am not a trivia expert on Olympic sports. Therefore, I could not have been much of a help, but if I had been, I would have mentioned it. ;)

//Only 8% of workers belong to them (US is 18%).//

This is surprising to learn. I have read and heard how powerful unions are in France, but naturally one would tend to think that is because membership was high. But, as I have learned here, that is not the case. Thanks to you and Croquette for pointing this out. This is another thing this index doesn't explain.

superfrenchie said...

More onthe French unions from wiki:

//Membership in France's labour unions accounts for less than 10% of the private sector workforce (in 2003, 8.2% of the workforce [7]) and is concentrated in the education, manufacturing, transportation, and heavy industry sectors. Most unions are affiliated with one of the competing national federations, the largest and most powerful of which are the CGT, FO, and CFDT.

French unions are fairly weak, and strikes are uncommon in most of the economy (see France: a nation of strikers?). On the other hand, unions are powerful in some parts of the public sector. This is especially true of public transportation (SNCF national railways, RATP Paris transit authority, air traffic control...), where strikes have an instant effect on the general public and attract the attention of the national and foreign press.

In the case of the private sector, the weakness of the unions often leads to their calling for the government to intervene in workforce conflicts. Another issue is that unions compete between themselves; this occasionally leads to power struggles in some areas where they are powerful, even degenerating into strikes.//

http://en.wikipedia.org/wiki/Economy_of_France#Unions_and_strikes

superfrenchie said...

And more here

LASunsett said...

The question that this information poses with me is, how does the low union membership translate to such a low score for France in the labor category? I would think it then becomes a matter of strong government labor laws and regulation. Is this the case?

Anonymous said...

Hello LASunset.
Regarding the rate of affiliation to trade unions in France, I kind of remember it is compulsory for the Government to hold talks with unions as soon as anything has to be decided in the realm of work relations. The same with education. It certaily dates back to the "Accords de Grenelle" in 1968 and even probably before.
Note that only 5 unions are deemed representative in France since 1966 based on a rather unexpected criterium: honourable conduct during the Occupation (1940-1944). See here . No English version of this text... But there are French readers among your visitors I guess...
That means only these 5 unions are eligible to talks with the Government (Or smaller unions affiliated with one of them).

As SF mentioned, there are lots of bickering between some of these unions notably the CGT (communist) and the CFDT (more or less socialist).
FO .

There are some "yellow" unions also, notably among Michelin and Citro├źn. Well, that was the case when I was a student in the 70'... But it certainly still is the case in middle sized companies. These so-called unions cannot participate in talks with the Government.

All these inner fights within the union movement doesnt exactly help their cause as you can imagine. This is one of the reason why the affiliation rate is the lowest in Europe.
Other reason: people rely on the unions knowing they're doing their job because they're obliged by the law to do so.
Once again, it's written in the French psyche that the State has many legal obligations toward them and that it will fulfill them.

We probably have here another noticable difference between the two countries. It's on a one to one level in the US (each company with its union) whereas it's more between global entities in France: The Government vs. the Unions acting in the name of all workers (affiliated or not).

If L'Amerloque were there he'd bring definitive answers to all these matters...

Flocon

tokvil said...

I schemed the study and I don't like it, because it was done by common law trained lawyers who don't get the subtleties of Civil law countries. It's a perfect example of what I would call "legalocentrism" where one read a foreign legal system with the eyes of its own legal system, w/out understanding that the foreign legal system has different priorities.

Always On Watch said...

Maybe I missed it...Does the chart indicate the size of the businesses started?

In my own experience, I have found that starting a sole proprietorship here in the States is very easy. But I know from other entrepreneurs that such ease doesn't apply to more-complex businesses.

LASunsett said...

Hi Flocon,

//It's on a one to one level in the US (each company with its union) whereas it's more between global entities in France: The Government vs. the Unions acting in the name of all workers (affiliated or not).//

I think this is an excellent point.

This is a huge philosophical difference that explains a lot, especially of why the attitudes of the French and the Americans are so different.

Union membership in America is going down. That is why we see the current assault on Wal-Mart. As companies that make durable goods have down-sized and even sent some manufacturing overseas, the membership has dropped.

As a result, the unions are looking to replace the revenues lost with dwindling memberships. So they set their sights on a successful retailer to make it up (and then some).

LASunsett said...

Hi Tokvil,

//It's a perfect example of what I would call "legalocentrism" where one read a foreign legal system with the eyes of its own legal system, w/out understanding that the foreign legal system has different priorities.//

I think this is (at least to a great degree) a valid argument. The French and American value systems are very different for a great many reasons.

Both countries' different histories can explain it. France was an older country that endured more time under absolutism. Americans were made up of people that fled that type of government, so they dealt with it from more of a distance. The French, had to reform the established status quo, the Americans fled it, then reformed it where they lived.

Because of this and other contrasting characteristics, Americans have been apt to take far more risks.

But try as all of us might, we can only judge a situation and/or a condition based on what our biases are, before coming into the debate. A similar study by the French may have yielded closer results, if it were based on what you imply is the French set of priorities.

LASunsett said...

Hi AOW,

//Does the chart indicate the size of the businesses started?//


Unless I missed it, I do not think it did.