Sarkozy To French Companies: Give People Money. That’s An Order.

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Barack Obama, don’t try this at home (as if…):

French President Nicolas Sarkozy is attempting to fulfill his 2007 campaign promise to boost long-stagnant household purchasing power—easily the biggest plank in a wider election platform that has, also, mostly come to naught. So, four years on, monumentally unpopular, and up for re-election in just a year, Sarkozy is now looking to get a lift by finally putting money into peoples’ pockets. How will he do that–by cutting taxes? Nope. Radically boosting minimum wage? Wrong again. Increasing state-funded income assistance. Negativo. Buying everyone in France a lottery ticket? Newp. Instead, Sarkozy has decreed from on-presidential-high that many companies—privately owned and operated companies–will simply have to give their employees bonuses. No ifs, ands or buts–and before long, workers will be walking around with a lot more money in their pockets, and feeling happy about his leadership. Easy peasy lemon squeezy.

Time to be fair: as invasive as it may strike market liberals (or just about anyone outside of France), Sarkozy’s plan isn’t so broad and intrusive that it seeks to force every company in France to shell out wads of cash to every employee. The measure will “only” apply to businesses with staffs of 50 people or more, and who are increasing dividend payments to shareholders. But even in that relatively limited form, Sarkozy’s plan serves as a reminder of just how much more interventionist the French state is in economic issues–and in the private sector–than most of its European neighbors, not to mention the U.S.

According to Thursday’s daily le Figaro—known in France as conservatives’ Pravda for its obedience in broadcasting and praising the messages and policies of the ruling right—Sarkozy’s scheme will require any company paying increased dividends to shareholders to also provide bonuses to employees–a means, the president says, of sharing increasing profit around. Contrary to initial indications, the obligatory payment scheme won’t be a one-off deal, but instead will remain a standing requirement for years to come. The consequences could be huge in both directions. Elysée officials figure nearly eight million French workers stand to benefit from the plan, first among them employees of the 40 companies on the Paris stock market’s CAC 40 index, which are set to pay a collective $62.3 billion in dividends to shareholders this year alone.

Early reports indicated all companies would be forced to share increased profits with all employees at a flat bonus rate of  $1,450 per person. The sweeping reach and cost of that elicited shocked from France’s employers’ union—and even astonishment within Sarkozy’s cabinet—and led to revisions in the new, more flexible version using higher dividend payments as the starting point. Meanwhile, the amount and form of payment to employees (cash, stocks, etc.) must be hammered out between companies and unions—giving bosses negotiating powers they did have earlier. Also, all remuneration shelled out under the plan will not be subject to the social taxes employers usually pay on top of salaries. (Benefiting employees won’t be so lucky, however, and will see about 8% of their extra take go directly to taxes—before they’re subject to income tax.)  Finally, the hundreds of thousands of smaller French companies with staffs under 50 people are no longer covered by the requirement–but may stand to receive tax or other breaks if they volunteer to participate (ah, the charm of wishful thinking).

Pundits say the measure is transparently aimed to help refute accusations that Sarkozy’s 2007 purchasing power promises came to nothing, and give him a lift with bonus-giddy voters as he heads into next year’s presidential election. Economists, meanwhile, question Sarkozy’s contention that forcing companies to share profit around is reasonable “in this period of economic recovery”. France’s GDP grew just 1.6% last year, and isn’t expected to be much higher in 2011—making “recovery” a very relative term. Meanwhile, the obligation to finance bonuses on top of increased dividends could eat into funds companies need for investment, expansion, and hiring—or inspire them to avoid the new cost by holding payout to shareholders steady, and thereby motivate stock owners to seek investments elsewhere providing continually higher returns.

Though companies understandably oppose the obligatory bonus plan, unions are also unexpectedly hacked off about it. Many are angry the initial scheme was scaled back in favor of stricter criteria involving fewer potential companies. As a result of that, union leaders say, millions of employees working for smaller companies will wind up feeling left out and cheated, while those from big groups will be dissatisfied if their take comes in under the initial $1,450 flat bonus proposed. Labor leaders also warn against businesses reacting to the extra cost involved by prolonging de facto freezes of salaries that have caused household income to stagnate or decline for the past decade—the main cause of tumbling purchasing power in the first place.

Given such unhappy reaction, the bonus scheme doesn’t just work as an example of how much more willing the state and government is to wade into the workings of private sector businesses in France than in most other countries. The fact that Sarkozy is intervening in this way to win disgruntled voters to his cause—and is getting nothing but complaints for his efforts—is also a signal of just how difficult it will be for him to reverse his plunge into unpopularity in time for a 2012 re-election. Difficult, difficult, lemon difficult, even.

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