Lessons learned from French leftist gov`t economic reform

French President Francois Hollande decided on Thursday to scrap tax for the rich, which was his pledge during the 2012 presidential election. It gives us a lesson that ‘a policy that goes against power of the market must fail.” Since 2013, France’s socialist government has been collecting 75 percent of tax at maximum from the super-rich who make one million euros or more as an annual income. However, the tax revenues collected for the past two years accounted for less than 1 percent of the entire income tax and the taxation drove about 850 companies to move their headquarters outside France, resulting in drainage of the national wealth. Gerard Depardieu, one of the most loved French actors in France, changed his nationality to avoid heavy tax. On top of all, sluggish economy has never changed even with the tax on high income brackets - growth rate has remained around zero and unemployment rate has hovered 10 percent. That’s how the leftist French government had to give up the "tax bomb" on the rich after two years of failed attempt.

President Hollande appointed Emmanuel Macron as the economy minister in 2014 when his administration entered its third year in power. The former investment banker at Rothschild has been driving the market-friendly economic reform consisting of 107 deregulation bills. At the center of this reform package lies deregulation and competition, such as easing restrictions on Sunday stores opening, lowering entry barriers to specific professionals such as lawyers and notaries, and reducing taxes on businesses that increase employment. Macron’s economic reform bill is hailed by more than 60% of French citizens as the young minister claims that real "progress" is to protect businesses creating jobs and young people eager to work, rather than protecting only laborers and the unemployed.

This year, global economy including France is expected to be under shadow of economic recession. CEOs of domestic conglomerates revealed commitment to "turn a risk to an opportunity" in their New Year’s greeting speeches. Hyundai Motor Group Chairman Chung Mong-koo promised to “substantially increase investment in R&D,” and LG Group Chairman Koo Bon-moo emphasized “differentiated value for customers.” Samsung Electronics Vice Chairman Kwon Oh-hyun promised to “develop future competitiveness through new business,” and SK Supex Council Chairman Kim Chang-geun vowed for “strategic innovation that works as a game changer.”

At the New Year’s kick-off meeting for the Ministry of Strategy and Finance, Economy Minister Choi Kyeong-hwan also stressed “Economic reform will feed the public,” indicating that many advanced nations in Europe are stumbling because they missed opportunity to make a reform. The government makes a commitment for labor market reform. But if it pursues only economic reform rhetoric such as the retirement age extension up to 60, increase of minimum wages and expansion of the scope of ordinary wages, instead of increasing flexibility in the labor market, it will end up with increased burden for business. A prosper business produces job opportunities. Opposition parties, which always cry out progress, and the ruling party, which has a sense of debt to the "economic democratization" campaign pledge, must take lessons learned from the "direction shift" of the French leftist government.