Tuesday, May 08, 2007

The Spirit of Sarkozy

All along, Nicolas Sarkozy ran for president in France as a capitalist and a friend of America. He made it very clear that he wants France to move toward a true market economy—one that creates a more hospitable environment for business, investors and entrepreneurs.

In particular, he hopes to appeal to young people, so they will stop migrating to London and New York in search of wealth creation. Smart, ambitious French expats have been proliferating in Britain and the United States in search of financial opportunities that are denied in abysmally high-taxed France. So, Mr. Sarkozy will attempt to reduce taxes, curb unions, and reform labor laws.

Essentially he wants a new France where it pays to work and invest, after-tax.

Many of the labor restrictions on working will be loosened or removed. He also wants to cut spending, especially the bloated French bureaucracy of socialist planners. Think a dose of Thatcherism—a freeing of the French economy. Hopefully he will not protect French companies from fierce global competition.

However, Sarkozy still has a dose of protectionism for the EU. This could be a problem. And, of course, he needs a much better national assembly, which has been where the left wing union and crazy socialist parties have thwarted French efforts for decades to move toward American-style capitalism.

The top personal tax rate in France is 49.6 percent, plus a near 20 percent value-added tax. Corporations are taxed at 34 percent.

Of note, in the run-up to the Sarkozy election, the French CAC stock market from mid-March rose 14 percent in Euro terms, and 17 percent in dollars, thereby outperforming the S&P 500’s 9 percent gain in the U.S.

The Sarkozy win also suggests that Ségolène Royal/Hillary Clinton won’t win here in the U.S. It also suggests that Jacque Chirac/George W. Bush (although this is terribly unfair to Bush) will not necessarily weigh down their party’s candidate in the next presidential election.

After watching the debates by Republican and Democratic presidential contenders in the U.S., I believe the low-tax, strong on defense GOP will recapture the White House against the high-tax, defeatist on defense Democrats.

In any event, the Sarkozy story is a good one. It lifts the spirits for freedom-loving capitalists like myself.