France: Protectionism with a Human Face

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At the end of the day, efforts to protect domestic businesses are always paid by the consumers. Nothing is free, the same is true also for protectionism. It leads to higher prices and worse quality of services that protected businesses offer.

It will not be different in France, which announced its plans to protect strategic businesses. Companies that do not try to innovate, improve their products, better communicate with customers, and generally become better, are often driven out of the market or swallowed by competitors. And, of course, the competition often comes from abroad. Even only a fear that this could happen is often enough to make companies more successful and offer their customers better goods and services at lower prices.

If we remove these fears from companies, their motivation to improve will be lower. What should my motivation be given that nothing can happen to me? As a strategically important company, I cannot go bankrupt, because I know that, in case of trouble, the government will save me. And even a foreign business cannot take my company over and improve the situation. Competition also does not come in because I’m doing business in an over-regulated industry where the state just does not let anyone to enter.

It is still a good old protectionism, just with a human face. In the past, without much embarrassment, the monopoly privileges of the king’s power were given for money or military support. The king thus ensured that the company did not have to compete, which increased its profits. Everyone was satisfied but the consumers. They paid higher prices.

Today, something so simple would not work. We have understood that competition is an irreplaceable element of a free society. Corruption has become a symbol of evil in that society. Companies are pushing more sophisticated agenda.

In addition to the classic argument for a “young industry” that needs to be protected before it is big enough to compete with foreign countries, protectionism has also emerged to protect consumers “for their own good”. Typical examples today are the efforts to regulate the shared economy around the world.

Another new feature is the protection of foreign workers. Over-regulated domestic companies are in harsh competition with those in the developing world which do not have to spend hundreds of hours a year dealing with unnecessary bureaucracy. As a result, poor working conditions and low wages of foreign workers have become an argument.

Strategic industries are just another point in a long list of efforts to make companies more profitable and prevent competition from entering. It is difficult to argue against such a state intervention because it does not necessarily increase prices and aggravate quality. Very often it only prevents the entry of competition, which would hypothetically reduce prices and lead to innovation and better quality. If we look back after few years, we may find that prices are the same. Unfortunately, it is not very likely that they would be reduced. Protecţionism does not change.

Dominik Stroukal
Liberalni Institute