C OMPARATIVE PLANNING THE INDIA ECONOMY REVIEW 105
P LANNING P ARADIGM began by taking me on a tour of his estab- lishment that he was about to turn over to the French government — an end to 10 generations of Rothschild banking dating to King Louis-Philippe for whom his forebears had acted as fi nanciers. It was after the name of this street that the Rothschilds named their great Bordeaux estate and its wine label, Chateau Laf- fi tte. “What a pity,” he said, pausing in his bank’s wood-paneled boardroom, sweep- ing his hand across the dozens of por- traits of his ancestors looking down from the walls at the large red-leather chairs, all now empty, that surrounded what seemed like an acre of polished mahogany. “<strong>The</strong>y will be staring down on communists, now sitting around this table.” In all, thirty-six banks and two fi nance companies were taken over by the state, an army of talent turned out, as bureaucrats moved in and took over. But banking was only the fi rst industry targeted by the Socialists. Within a matter of months, the government had seized control of seven of the twenty largest industrial conglomerates in France plus fi ve other major industrial companies whose workers numbered some 800,000 individuals. Every morning, it seemed, the French awoke to news of another private company or industry brought under state control. <strong>The</strong> railroads (SNCF), natural gas and coal, Paris subways, the two French airlines (Air France for international fl ights, and Air Inter for domestic travel), the auto company Renault, the state tobacco company SEITA were all 106 THE IIPM THINK TANK under government control and ownership. Eventually France was forced to issue vast quantities of special bonds to compensate the owners and shareholders of the nationalized fi rms — interest payments alone running 50 billion French francs a year (between $5 billion and $10 billion depending on the rate of exchange which fl uctuated wildly during the 1980s). France’s experiment with overwhelming state capitalism 36 banks and 2 fi nance companies were taken over by the state, as bureaucrats moved in and took over didn’t last long, however. <strong>The</strong> nationalizations proved all but catastrophic to the French economy, society and the entire way of life. Moreover, support for the process all but collapsed. While overwhelmingly positive through March 1983, by October of that year public opinion had turned overwhelmingly negative. <strong>The</strong> Franc had been devalued for the third time in two years, public spending was squeezed, and the right wing, led by the man who would succeed Mitterrand as President, Jacques Chirac, was presenting some very attractive alternatives. Within a matter of months, the nationalizations had begun to be reversed. <strong>The</strong> four Communist Party members had been chucked out of the cabinet. France was reverting to democratic capitalism. In 1987, having spent four years in self-imposed exile in New York, Baron Guy returned to Paris as his son David launched the new Rothschild & Cie Banque in the rue Messine, barely a mile from the building seized from his father. So what is it about democratic capitalism that makes it more successful — hence more appealing — than state capitalism? To a large extent, it’s actually the very fundamentals of the two systems that suggest the answer. In state capitalism, the state dominates the markets for one particular reason — political, rather than economic, gain. To accomplish this, it must necessarily ignore the central reason for the success of a company: profi t. When politics becomes the ultimate corporate driver, the state must take several measures that so often is likely to run counter to the success of a private enterprise. <strong>The</strong> principal motive for a state-controlled company must be preservation of jobs, since an employed worker and his or her family is far more likely to vote for the incumbent government in the next election. Corporate losses mean little when the public treasury is behind the corporation and can continue to pump in funds — which