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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.
“They 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. The 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. The 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. The 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. The 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. The 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