No Crisis? France’s Private Sector In Deeper Trouble Than In 2009

Maybe it worked. He needs all the help he can get: when French President François Hollande was paraded around Washington D.C. by President Obama, the French government-owned TV channel France 2 described the two as exhibiting, or at least trying to exhibit, “harmony.” Then Hollande showed up here in San Francisco and Silicon Valley to hobnob with French and American entrepreneurs, some of them billionaires, presumably to find out from them what exactly it would take to put some oomph into the French economy and particularly in its anemic private sector.

Perhaps it will give Hollande the boost he sorely needs at home, because at home things are getting ever more mired down. The economy shriveled or had no growth in five of the last eight quarters. And it would have shriveled a lot more had it not been for the dominant government sector, including a slew of state-owned or state-controlled coddled and protected monopolistic mega-enterprises. And despite incessant talk of austerity, that government sector continues to grow.

When Markit, a global business survey company, tried to figure out why its private-sector Purchasing Managers’ Index for France was so much worse than France’s GDP figures, though they track pretty closely for most countries, it found that output of the government sector has grown 2.1% since the second quarter 2012. But once the government sector is removed from the equation, private-sector GDP actually declined during that period by 0.2%. And it remains 3.2% below the pre-crisis peak. The private sector has never recovered!

Evidence is piling up that the private sector is now getting into deeper trouble. It shows up in the number of business failures that in 2013 exceeded those of crisis year 2009!

In 2013, there were 63,452 business failures, up 5.3% from 2012, and for the first time, they’d crept above the level in 2009 (63,204), a level that at the time had been considered catastrophic. Particularly nasty were the second and third quarters when business failures jumped respectively 9.8% and 8.2%.

Business failures began rising in 2008 as the Financial Crisis gnawed into France and soared in 2009. Then they began to decline ever so gradually until mid-2012. Outgoing President Nicolas Sarkozy was patting himself on the back. Alas – and certainly by coincidence – they began to rise again just as Hollande was still busy hanging up his suits at his new residence, the Elysée, and before he’d even had a chance to inflict any tax increases on these hapless businesses and their owners.

Many of the smallest outfits, the “individual enterprises” with one employee, never made it past the crisis. So in 2013, business failures among them, at 16,261, were 13.3% below those of 2009. They weren’t recovering. There just weren’t that many left.

But failures among “commercial enterprises” rose to 47,191 – 6.2% higher than they’d been during the crisis year of 2009! While these failing companies had on average four employees, there were some big ones in that group, including Mory Ducros with 5,000 employees. It is these companies that are now getting whacked.

The costs of these failures set a new record in 2013 of €4.82 billion, or 0.23% of GDP, a smidgen higher than the 2009 crisis total of €4.7 billion. And these failures put 211,716 jobs at risk.

It was broad-based. Only one sector – chemicals – saw a reduction in failures. All other sectors experienced increases. The biggest loser was “distribution” (includes retail) where failures jumped 9.7% from a year earlier! As everywhere, the sector was undergoing structural changes forced upon it by the internet. But it was also dragged down by strung-out households struggling with rampant unemployment, and these folks were watching every euro they spent. Failures of bookstores soared 17.5%, including some chains with several hundred employees each. Flower shop failures jumped 12.8%, toy store failures 45.8%! Even in the sector of the future, “electronics, IT, and telecom,” business failures jumped 9.2%. It’s tough out there.

Hollande has been presiding over a steady deterioration of the private sector. Making up for it haphazardly by boosting the government sector with the stroke of his ingenious pen or a vote in Parliament is predictably not producing any results in the private sector – other than possibly creating more mayhem. But it nudges up GDP a tiny bit and makes his government look like it’s doing something.

Yet the lifeblood of the economy is the hundreds of thousands of smaller and larger companies struggling on a daily basis to stay afloat. The fact that they fail at record numbers, still, five years after the crisis, should tell Hollande and his government that something is seriously wrong with the business environment in the country – something that can’t be solved by hammering these hapless businesses with even more taxes.


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