

Why France Has So Many 49-Employee Companies - nhebb
http://www.businessweek.com/articles/2012-05-03/why-france-has-so-many-49-employee-companies

======
JVIDEL
Nothing new here, this is what happens when politicians make their work easier
by making everyone else's harder, case in point in Argentina because
politicians there can't bother to fix the deficit they raised taxation to
almost 60% across the board.

Result? everyone from rich to poor evades taxes and the grey market is over
half the economy, with (some say) 2/3 of unskilled workers being paid cash-in-
hand, no questions asked.

Because customs charge a similar 60% on imports plus a 27% VAT on top almost
everybody in the country buys stuff from smugglers, from shoes and clothes to
computers and even cars. Piracy and counterfeiting are so out of control that
some companies are shutting down, leaving people on the street.

So at the end that country losses more money and has an even bigger deficit
than if they had much lower taxes, why? because evading taxes is hard and
risky, you are not going to bother doing it if it barely improves your
numbers.

But at 60% taxation you might go broke if you don't evade! see the problem?

Lots of policies are ridiculous, but others are far beyond that: unrealistic,
you simply can't ask that much and expect the economy to keep going.

EDIT: if you want to know more about the anti-business craziness going on in
Argentina read this <http://bit.ly/lUbWOo>

~~~
tomp
However, it is to be noted, that high taxation is not the problem per se - in
Scandinavic countries, taxation is also high, but the citizens get much in
return: free healthcare, free (and very good) schools, some serious social
security benefits, etc...

~~~
wlievens
It's probably more about _fair_ taxation: knowing that you get something back
and your neighbouring isn't paying less though making more.

~~~
CWuestefeld
_knowing that you get something back and your neighbouring isn't paying less
though making more_

I think you've misunderstood the nature of the debate. Nobody is claiming that
people making more are paying less, at least not significantly so. The
complaint is that some people who are making more have paid a lower overall
_rate_.

~~~
wlievens
That's not what I meant. I simply meant to explain what I meant by fair: the
same laws apply to everyone, i.e. corruption and tax avoidance are to be
minimal, if people are to accept taxation.

------
briandon
Bottom-lining it: Business owners and managers want to enjoy the benefits of a
developed economy with a humane social safety net and strong worker
protections (i.e. an educated, skilled workforce) but will move heaven and
earth to weasel their way out of contributing to it. Nothing new here. It's
what's grinding the life out of the United States.

~~~
planetguy
No, the bottom line is that people respond to incentives, and that politicians
are too blind to notice even the most obvious of perverse incentives in
whatever schemes they happen to dream up.

~~~
briandon
How about this for an incentive: Want your children to grow up in a developed
country with a social safety net so that they won't trip over toothless senior
citizens scavenging for recyclables in garbage bins to sell for spare change
to pay for a place to sleep for the night?

Great, then be a responsible entrepreneur and don't try to slither through
every crack in every law designed to keep the society that your kids will grow
up in healthy.

~~~
hgsj700
The economic illiteracy on HN is a little baffling. The incentive to live in
your utopia is apparently not sufficient enough for those entrepreneurs who
are probably much more concerned about breaking even.

~~~
briandon
People running multiple 49-worker companies and opening satellite factories up
in developing countries to avoid sharing profits with their workforce(s),
having once-a-week meetings, and the like are struggling to break even?

If you would like to see the terminal state of a laissez-faire society, you
can visit Hong Kong. More luxury cars on the road than anywhere else you'll
ever see and plenty of the toothless, recyclables-scavenging senior citizens
that I referenced earlier as well. Hundreds of thousands of people living in
literal wire mesh cages because that's all that they can afford. A wealth gap
that yawns like a chasm.

It's easy to advocate policies when you think that you'll never have to
actually submit yourself to living in the society that those policies will
ultimately create.

~~~
wlievens
I think the argument here is not that it's a bad idea to create a safety net
state. The argument is that as long as no law is broken, there is no such
thing as "exploiting a loophole". Politicians should just learn to design
better laws with less loopholes.

~~~
briandon
_A_ : So you have three 49-person companies ... That's odd.

 _B_ : I employ no more than 49 people in each of my companies and start new
companies as necessary to avoid sharing profits with my employees, having to
deal with worker councils, and the like.

Playing corporate twister to evade the clear intent of laws sure seems like
loophole exploitation to me.

In addition to working around the intent of laws that empower workers,
organized groups of business owners are constantly trying to overturn those
laws and, in the meantime, discourage enforcement.

~~~
wlievens
I think the problem is with "intent of laws". Laws should minimize the degree
to which intent plays a role, because intent is subjective, and therefore
subject to very expensive and wasteful litigation.

------
ap22213
To me, it seems like a decent structure, and I wish that the US had something
similar. As the article says, there's nothing stopping the business owner from
starting multiple 49-person companies. Therefore, the system isn't technically
holding anyone back. It's just slowing down their greed and consolidation of
resources, which is a good thing.

There's also nothing stopping the companies from outsourcing non-core work to
other 49-person companies. Seems like there's a lot of market opportunities
that entrepreneurs aren't taking.

~~~
tomp
Take a look at how Denmark handles it. Companies are basically free to
hire/fire as they wish, but there is strong social security, meaning if you
loose a job, you're not without income.

The problem with such stringent firing laws is that they only give security to
the people _who are currently employed_. However, they do not necessarily
benefit the society, i.e. new workers won't be hired when they're needed, and
companies won't expand, and the economy won't develop as rapidly, simply
because it's too hard to fire someone when you don't need them anymore.

~~~
ap22213
I don't see it that way. I see it as a society that that imposes big rules on
big companies in a way to help keep many companies smaller.

Maybe the details don't work out well. Perhaps 50 is too small. There are
probably other issues in the details, but in principle, it seems interesting
and useful.

~~~
tomp
> in a way to help keep many companies smaller

That's an interesting idea, but mostly unnecessary - in most economies, the
majority of the economic output is produced by "small companies" (including
contract workers), so such incentive does not seem to be needed.

And if it were needed, you shouldn't encourage the existence of small
companies by preventing the successful companies from growing larger, but by
enabling entrepreneurs with setting up new companies without much hustle! By
effectively imposing a limit on the company size, you just incentivize
business owners to bundle up a bunch of small companies (as you correctly
noticed in your original post), however, that is a purely bureaucratic dead-
weight cost to the employer, and therefore to the employees and to the
society, that produces no actual value, only takes it away! No wonder lawyers
thrive in this environment!

~~~
lmm
>That's an interesting idea, but mostly unnecessary - in most economies, the
majority of the economic output is produced by "small companies" (including
contract workers), so such incentive does not seem to be needed.

Your fact contradicts your point. Productivity-per-worker is enormously higher
in small companies. If a country could get all its workers working in small
companies rather than most of them wasting their abilities in large companies,
imagine how much more productive it would be.

>By effectively imposing a limit on the company size, you just incentivize
business owners to bundle up a bunch of small companies (as you correctly
noticed in your original post), however, that is a purely bureaucratic dead-
weight cost to the employer, and therefore to the employees and to the
society, that produces no actual value, only takes it away!

Successful companies would just go ahead and actually split into smaller
companies - unless you're scrambling for every cent, the costs of the
duplication involved are pretty minimal, and the benefits can be huge as the
income from more successful projects is reinvested rather than being used to
prop up failing ones. It may hasten the demise of some zombies, but that's no
bad thing.

~~~
tomp
I'm no expert in economy, management and logistics, but I imagine that
companies become large because of _economies_ of scale, not because of
_productivity_ of scale. It's hard to mass-produce cars in a company of 49
workers (or 490, for that matter).

Also, 5000 workers might be less efficient (per head) than 50, but at least
you know that if 10 are missing (sick leave/vacation/...) at any given time,
your production will continue uninterrupted.

~~~
lmm
As facile as it sounds, companies generally become large by growing. If you're
making money it's natural to hire more workers to increase your profits, even
if that means you're making less money per worker. As your workforce gets
bigger there's not enough to do on your core product, so you start to branch
out... and before you know it you're where Cisco is today. "economies of
scale" - aka cost synergies - only really become a reason for enlarging
companies if you're talking about mergers between mature companies, long past
the point where they were really economically productive.

Growth seems to be the measure of success, both for investors and
entrepreneurs, so I don't see this stopping any time soon. But imagine a world
where, once companies got to the 20-50 person stage, they started paying
dividends rather than expanding. There are probably other limiting factors,
but if everyone was working in such a company and they were as successful as
they are now, productivity would skyrocket.

------
paulhauggis
" “If you make a mistake in your hiring plans, you can’t correct it.”

This is the problem right here. It doesn't give the business owner the freedom
to fire bad workers easily.

It's funny because unions are mini versions of France (and they come with all
of the same problems).

~~~
simias
We have a trial period when a company hires someone, I think it's 4 months
that can be extended to a maximum of 7 months. During this period you can fire
the new hire if he or she doesn't fit.

So if after 7 months you suddenly realize that you've hired a bad worker,
you're doing something wrong.

Being able to fire people easily is good for the business owner but bad for
the employees. That's part of the reason unions exist and are useful.

~~~
paulhauggis
"Being able to fire people easily is good for the business owner but bad for
the employees. That's part of the reason unions exist and are useful."

This line of thinking has ruined the auto industry in the US and it's one of
the the reasons we have a terrible education system.

If I have a bad worker (even after 7 months), I should be able to easily get
rid of them (with cause). As a business owner, I shouldn't have to waste my
time going to court or having some sort of 3rd party vote on whether I can
fire them or not.

Businesses will never thrive in this sort of environment.

~~~
TazeTSchnitzel
I have no experience in business or the workplace, but I wonder if the "need"
for unions would be lesser if it was easier to get a job, i.e. it doesn't
matter you've been fired, because you can easily find a job somewhere else?

~~~
faboo
Historically, in the United States anyway, unions were less about making it
harder to fire people (per se), and more about forcing employers to think
about things like safety, reasonable work hours (supposedly, one of the first
major labor wins was the bakers' 10 hour day), reasonable wagers, and
harassment.

An employment market with too few workers (where it's easier to find a job) is
good, but isn't enough if all the jobs require 14 hour days, working with
deafening machinery with little to no safety equipment or training, for paltry
wages.

Now, if we're honest, modern unions work for all of those things too, even if
major unions are sometimes seen in less positive light sometimes.

------
Luc
Contrary to its stated bottom line, the main idea I got from this article is
that being an employee in France is pretty sweet.

~~~
endersshadow
Good luck getting a job, though.

~~~
simias
It's extremely easy to find a job as a developer in Paris. The problem is
always with the unskilled workforce, in France and elsewhere.

I find all the reactions in this thread about how we should "just remove all
those silly laws and the unions and let the good job creators do what they
want and everything will be great and everybody will have a job" a bit naïve,
to say the least.

The problem is complex and global, the "49 employee company" is just a red
herring.

------
aristidb
When even Germany has a comparatively flexible labor code, you're doing
something wrong.

~~~
wlievens
Germany's labor code is very flexible compared to the rest of Western Europe.

~~~
aristidb
Which countries comprise Western Europe for you? Is, say, Denmark included in
that set?

~~~
wlievens
I'm not expert on labor laws in Europe, sorry. I do know that my country's
labor laws are certainly more strict than Germany's. I'm from Belgium.

------
maybird

      After the owners of the Lejaby lingerie factory in
      Yssingeaux won court approval in January to fire about
      half their 450 employees in France and shift production
      to Tunisia, the company found itself thrust into the
      center of this year’s campaign.
    

So Tunisians are to France what Mexicans are to us?

~~~
dusing
There is fundamentally something wrong with needing to go to court to get
permission to fire your employees.

~~~
ernesth
There would be something fundamentally wrong if your employees could not go to
court to contest their being fired.

~~~
wlievens
If fired for an urgent reason, without compensation, then surely.

If fired with a sensible (defined by law) severance package, then absolutely
not.

------
chris_wot
Worst. Logic. Evar. "if cars are more complicated today than ever, why
shouldn't our labour laws be as complicated?"

------
paulhauggis
After reading through the article, it looks like one big shell game to me.
They are forcing companies to keep people employed, even if profits are low.

Not only that, they are trying to solve the job problem by just adding a bunch
of jobs to the government dole.

Eventually, this will catch up to them and it won't be pretty. I just hope the
proper people are blamed and they learn from their mistakes.

------
thrill
The books "A Year In Merde" and "Au Revoir To All That" are poignant reads.

------
briandon

      Tired of delays in getting orders filled, Pierrick Haan, 
      CEO of Dupont Medical (not to be confused with chemical 
      company DuPont (DD)), decided last year to return 
      production of some wheelchairs and medical equipment to 
      France. The 150-year-old company, based in Frouard in 
      eastern France, created 20 jobs making custom devices at 
      a French plant—and will stop there. Faced with France’s 
      stifling labor code, Haan probably will send any 
      additional production of standard equipment to what he 
      calls “Near France”—Tunisia, Bulgaria, or Romania. “The 
      cost of labor isn’t the main problem, it’s the 
      rigidities,” Haan says. “If you make a mistake in your 
      hiring plans, you can’t correct it.”
    

The cited reason for moving production back to France (from where?) is
production delays, which is safer than admitting quality problems.

The company is based in France and the fact that it had to move its
manufacturing back to France constitutes an admission that the French workers
are more productive than the previous batch of non-French workers.

The manufacturing jobs that this company is going to create in what Haan
ludicrously refers to as "near France" (developing economies where labor is
much cheaper -- but Haan isn't chasing cheaper labor, oh no) will be lower-
skilled and/or that the resulting products will be labeled "Made in France"
because those twenty workers in France were made to breathe on them or affix
stickers to them at some point?

~~~
swombat
Please don't post 3 separate root comments replying to the same story, making
it look like there's a lot of people agreeing with you when there are not.

Instead, edit your comment to add updates.

~~~
bryanlarsen
His three comments address three separate points. If he put all 3 points into
the same comment, then it would make the subsequent reply thread much more
difficult to follow.

~~~
swombat
They all have the same faintly fanatical tinge of opposition to whatever
specific point the article might be trying to say, while disregarding the
overall message.

~~~
briandon
No, you are mistaken _again_.

I am _quite_ clear on the overall message of the article. I think you get the
point of it as well but you're intelligent enough to not bother trying to
defend the indefensible, so you complain about me and ad-hominem me as a
fanatic.

The gist of the article is that many French business owners are willfully
weaseling out of meeting their social obligations as set forth in the laws of
the society in which they live and run their businesses.

There's really no way to put a pretty face on that. It is what it is.

It's explicitly stated in the article that the people in question are keeping
the headcounts at their enterprises artificially low by starting multiple
49-person companies and, in other cases, by farming out the low-skilled bits
of their process to countries with much lower wages and much weaker worker
protections specifically because of wage and workplace rule differences.

The best justifications that the businesspeople quoted in the article can come
up with is that they don't want to have to see their workers' reps every week,
that it's a pain to ensure that their HR people are aware of periodic changes
in social security witholding rates, and the like.

They are eerily silent about profit-sharing, which is one of the
responsibilities that they are evading, and evidently none of them had the
stomach to try to explain why it would be a good thing for society for them to
be able to suddenly lay off large numbers of employees without having to
provide any sort of justification.

~~~
swombat
My view is I would not start a business in France in a thousand years (I'm
swiss and have a house in France) because of the legislation and generally
disgusting attitude that french people have towards their employers.

Work is not a right, it's a privilege. Moreover, it doesn't exist in a vacuum.
We live in a globalised world where if you're not competitive on the world
scale, you're dead or dying. Laws that severely constrain firing make french
companies uncompetitive.

I recall a news story about an entrepreneur who had to lay off 25 of his 125
employees because there wasn't enough revenue. As someone who has laid off
people before, I can guarantee you that he sweated blood before coming to this
decision. So what did his lovely remaining employee do in response? They went
on strike.

My reaction to this would be: "Oh really? Then I'll shut down the business and
move to another country."

You're a fucking fanatic. That's why you've been downvoted all over this
thread. Grow up and learn that the socialist-fanatic point of view is not the
only one (not even in France).

~~~
briandon
This is a case of the pot calling the kettle black. Judging by your posting
history and your attacks in this thread you are, at the very best, an ill-
mannered fanatical libertarian type and possibly suffering from
emotional/psychological problems.

I'm someone who currently lives in the sort of society that I suspect you
would build given a chance ... whereas you seem to live in the UK and, as you
mention, have a residence in France and Swiss citizenship. Better yet, I live
on the very edge of the developed world smack dab next to one of the places
where dangerous and low-skilled, low-wage work gets done in your "globalized
world".

I also own and run a business that employs people and I manage to do it
without behaving like a 19th-century robber baron or whining about not being
able to treat everyone around me like Bob Cratchit or some other poor,
downtrodden SOB in a Dickens novel.

To the extent that I have been down-voted, it's because HN posters skew to a
younger, less-life-experienced demographic ... or self-deluded wannabe tycoons
like yourself -- who don't see the idiocy in lecturing someone with many years
of experience of having their boots on the ground in a near-laissez-faire
environment in the developing world from a comfortable perch in a developed
economy where the negative effects of your sociopathic tendencies are at least
somewhat restrained.

At any rate, I appreciate the few moments of entertainment that your mouth
frothing has given me.

~~~
DanBC
> _possibly suffering from emotional/psychological problems._

> _At any rate, I appreciate the few moments of entertainment that your moth
> frothing has given me._

These are not needed and are offensive. Please would you consider striking
them, especially the psychological problems? Using mental health problems as
an attack is not acceptable.

> _To the extent that I have been down-voted, it's because HN posters skew to
> a younger, less-life-experienced demographic ... or self-deluded wannabe
> tycoons like yourself_

You might want to think a bit more about why you're getting downvotes.

~~~
briandon
Given the other poster's unnecessarily hostile and repeated personal attacks
and use of profanity (e.g. _"You're a fucking fanatic."_ , _"Grow up and learn
that [...]."_ , etc. from just that last post)., I honestly suspect that he is
fighting some sort of personal demon.

As I said, I'm getting downvoted here because, in general, the postership
skews towards younger, sheltered types with relatively little life experience.
Then there are some slightly older folks who have gotten some experience under
their belts but who are convinced that if they could just treat everyone else
and society at large worse, they could scramble up over them and declare
themselves kings of the hill.

The end result is that HN sometimes ends up being a venue for people who have
grown up in privileged situations in developed countries, benefiting
enormously from social safety nets whether they're conscious of that or not,
to gnash their teeth over not being able to tear apart those same social
safety nets.

They don't seem to grasp that, if they had grown up in the sort of place that
they want so badly to create, they themselves would likely be stuck on the
bottom couple of rungs on Maslow's hierarchy of needs, preoccupied with just
earning enough money to feed, clothe, and house themselves. They aren't even
eager to go and live in places like their dream kingdoms, because those other
swashbucklingly entrepreneurial places aren't as nice to live or raise
families in as the evil socialistic, freedom-destroying places that they
currently live.

------
gren
This is a bug for me, it seems we have a discontinuous function in the Code Du
Travail !

------
briandon

      “For the 100 employees we have in France, we have 10 
      employee representatives, for whom we have to organize 
      weekly meetings even when there is nothing to discuss,” 
      Haan says. “Every time a social security contribution 
      changes, which is frequently, we have to update software 
      and send our HR people for training. We can’t fire anyone 
      without exorbitant costs.” 
    

Instead of viewing the weekly meetings as a chance to touch base with his
employees, learn about them, pick their brains for ways to improve the
business, and the like ... he whines about the requirement to have the once-a-
week meetings.

Then, he complains about having to tweak their payroll/withholding software
and send the HR folks for training.

He must shed actual tears when regulatory agencies in the countries he sells
his products into change the requirements that affect the design and source
materials so that he has to have them tweaked or even redesigned from the
ground up.

Sociopathy in management/leadership is a very real problem.

~~~
tomp
What the fuck are you talking about?

He's not complaining about having to tweak his accounting software - he's
complaining about having to do that frequently, and seemingly without any good
reason.

Usually, when regulatory standards about material products change, they change
for good reasons - e.g. poisonous plastics in children's toys. Anyone can
understand why such changes are needed. However, if you're changing this or
that detail of a country's tax code, without any good motive (i.e. when the
politicians are obviously just picking up the low-hanging fruit to please the
superficial (majority of the) public, but allow the deeper, structural
problems in the economic incentives to persist), you just incur an unnecessary
cost on the companies!

Kinda reminds me of the "menu costs", an implicit cost associated with
inflation, which is the cost of reprinting the restaurant menus when the
prices change too much. An economic cost that exists because of the inherent
inefficiencies of our system.

~~~
briandon
How often do you think that the French government is changing the social
security contribution requirements? Every week?

W/re to "menu costs", if you're running a restaurant in Weimar-era Germany or
some other milieu where hyperinflation is running rampant, then maybe you'll
have to use xeroxed paper menus for a while. Obviously the cost of reprinting
your menus is not going to be your chief problem. Under normal conditions,
"menu costs" and the like (reconfiguring software to increase or decrease
workers' social security contributions) is not going to be a business-breaking
expense.

Pretending that it's such a hassle that it will drive him to madness or sink
his business is ridiculous.

