One of the facts that people still have a hard time dealing with is that all nations are part of the global economy. While we like to discuss our circumstances here in America, we have to remember that for a strong economic recovery to emerge, we need to become more attractive relative to other nations in the global economy.
Here’s a perfect example of what not to do:
Recently, France-based Alcatel-Lucent (NYSE/ALU) reported it needed to cut 10,000 jobs in an attempt to try and turn the company around.
Obviously, no one likes to see a company cut jobs, but if the firm is unprofitable and it can’t raise revenues, then there is little choice.
What really surprised me was the response by French Prime Minister Ayrault, who stated that unless the unions agree to the company’s plan, the government won’t allow these cuts. (Source: “Alcatel plan won’t be accepted if no union deal,” Reuters, October 9, 2013.)
How can the government “force” a firm to keep all of its workers when the company is losing money?
While neither the company nor the government wants to see job cuts, if an economic recovery is to take hold, then the firms that are left functioning need to have the flexibility to both expand and contract operations in accordance with how both the domestic economy and global economy are functioning.
By preventing a company from taking action to try and improve its profitability, the government is essentially telling the global economy, “Don’t do business in our nation.”
And while you might assume all the job cuts will occur in France, only 900 jobs will actually be impacted in that country; the rest of the cuts will be spread throughout the global economy.
Of course, I understand why a politician would make such a statement to boost their popularity by appearing to be supporting the average Joe; however, this stance could eventually have the exact opposite effect, backfiring on Ayrault.
Let me explain: If you own a business that can operate anywhere in the global economy, you’d likely want to operate in an area that will help you expand and grow your business. So if the country you’re operating in institutes heavy-handed regulations that could threaten your business’ health, with every little step having to be approved by a government official, would you continue to operate in that country?
I think the answer is quite obvious: you wouldn’t. You’d move your business elsewhere, which would likely mean more than “just” 900 job cuts in that country.
With the economic recovery still weak both here in America and in the global economy overall, governments should provide every edge possible to give to our business owners the opportunity to prosper, which usually means getting out of the way.
So, can something similar to what’s happening with Alcatel-Lucent and the French government happen here in the U.S.? And, how would this impact your investments?
With the trillions of dollars of debt that the U.S. federal government is accumulating, I’m asking myself: are our politicians making decisions, like the one Ayrault just made in France, which will help or hurt our economic recovery…and our own wallets?
I’m sure we can all agree that the current situation in Washington is ridiculous, but I don’t see any long-term solutions being brought forward that will help America. One real worry is if you are holding long-term U.S. bonds.
As a bond holder, you are hoping that our politicians will get the federal government’s house in order. As anyone who has maxed out their credit card knows, at some point, firms will stop lending to you.
What happens when nations like China stop investing in our bonds? This will result in higher interest rates, which will have a massive negative impact on our economy.
If we go down the path of French politics, trying to only fix a short-term problem and ignore the long-term mountain of debt, we will only be digging a deeper ditch from which to get out of.
The bright side is that America has many things to offer, including our people, our resources, and our technological know-how. But if increased regulations stifle our economic recovery, rest assured that companies will look to other parts of the global economy to set up shop and take jobs with them.
This article France’s Mistake: Is the U.S. Government on the Same Path? was originally published at Investment Contrarians