Come and Get Caught in My Trap

Come and Get Caught in My Trap,121,720018,GDP?1%9

Enterprise and job creation now involve a new type of risk, that of being trapped by a “blocked exit”.
France has 12 oil refineries with a total capacity of about 100 million tons and an actual throughput of 72 million tons per year. The capacity is heavily skewed toward light distillates, while tax policy has biased consumption away from gasoline and toward Diesel oil. The industry turned to exports, selling 25-30 million tons of gasoline p.a. to the United States at declining margins. Consumption of motor fuel in both France and the US has been shrinking at an average of 1 per cent p.a. in the last ten years and refining in both countries is in a poor way. In France last year, the industry was losing money at an annual rate of 1,800 million euros, burning up about 1 per cent of GDP.

Frances flag ship oil company Total owns and operates 6 refineries in the country. They made a loss of about 900 million euros last year. Total has signified its intention to close down the one at Dunkirk. The plant has 370 workers of various grades. Total has promised to find alternative employment for all of them in Dunkirk in new research and training facilities and an LNG terminal. The union refused the offer, insisted that the refinery be kept open and to press home the demand, the 370 employees went on strike. Totals five other refineries immediately went on strike too, and the countrys foreign-owned refineries also stopped for a short period by way of warning. Similar warnings were issued by the personnel of the countrys oil product storage depots. The reader should bear in mind that for French governments and the media, picketing is an almost sacred institution, so that a handful of pickets are free to close down large plants for as long as it takes to be bought off at or close to the unions terms. This, in fact, was the wholly predictable outcome of the refinery strike.

The president of Total was promptly summoned to see the President of the Republic, and a bargain was struck with the CGT, the ex-communist labour union that has taken the lead in running the strike. Total was allowed to shut down Dunkirk on condition that comparable jobs on the spot are offered to all employees. In return for this permission, Total had to undertake to keep its five other refineries running for a minimum of five years. Given the governments virtuous intentions about reducing greenhouse gas emissions, the capacity of the remaining five Total refineries might prove even more excessive than was that of the original six up to now. Annual losses of 1 billion euros or more are not unlikely.

The strike at Dunkirk is continuing, though given the bargain with the CGT, it will no doubt peter out before the present text appears on readers screens. The Dunkirk strikers claim that they have been betrayed. That is perhaps a pardonable reaction. What is less pardonable is the fury poured out by a large part of the public against Total. Here is a company”so the thundering rhetoric goes”that has made a profit (rather a shameful thing to do at the best of times) of 8 billion euros in 2009 after making 13 billion the year before. Their pockets bulging with billions, they have the cheek to shut down a plant that is perfectly capable of going on doing what it was designed to do. As they are making a profit, and an indecently large one at that, there is no justification for wanting to make even more by amputating the countrys industry and jeopardise the jobs of their workers. They simply must not be allowed to do it.

By refining its own crude, instead of selling it on the world market, Total is destroying value instead of adding it. The value of Dunkirks inputs exceeds the value of its output by about 400,000 euros per worker per annum. If the workers gracefully agreed to retire on any pension less than the princely 400,000 they now cost the country, they, Total, and the nation would all be better off. Before long, one or more of Totals remaining refineries will reach a similar position, or is perhaps already in such a position. Such considerations did not stop the government from obliging Total to keep the plants running for a minimum of five years, and much of the public feels that this was being too lenient with a company that is “obscenely profitable”.

The case of the oil refining industry, which ought gradually to shrink in response to market trends or, better still, in intelligent anticipation of them if government and its electorate allowed it to do so, is but a straw in the wind. Every day brings news of a proposed plant closure or staff redundancy that sparks violent reactions including sequestration of the managers, the blocking of communications and transport, and lurid menaces of worse to come. Since the strike is hardly ever allowed to run its course, but is brought to a relatively successful end by intervention of the Prefect,1 the labour court or the industry minister, the unions and their wildcat rivals on the far left come to believe that they can walk on water and behave accordingly with utter confidence. The public, seeing this, also believe that the unions are almighty, while the government, sensing the public mood, has no hesitation to capitulate or persuade the management to capitulate.2

All this industrial skirmishing and its outcomes cultivate a very particular belief in public opinion about the nature of privately owned business enterprise. Entrepreneurs are cheered on to found new businesses and expand existing ones. Investors are urged to back them with capital, banks to lend them money generously. The job creation that results is welcomed. All this is as it should be. However, all this must be strictly one-way. The entry is free”indeed, it is held almost suspiciously wide open. The exit, on the other hand, is very hard to find, it is narrow, full of obstructions and may be altogether blocked. If the business is not in danger of failing, it must carry on. The key watchword is “They are making a profit”, so they have no right to close down a subsidiary or shed part of an activity that is not earning its keep. Least of all must they be permitted to pack up key machinery and the client list and relocate to some other hospitable country. Those who do so are branded “cosmopolitan scum”.

Above all, there is an unspoken but deep belief that if the entrepreneur owns his business, the worker owns his job. Once he is given it, it must not be taken away. Job protection is as much a duty of the government as the protection of any other property. Indeed, it is more so, for the worker is more in need of it than the owner of land or capital.

It is very easy to grasp that such a doctrine, though vulnerable to reason when it is all spelt out, is so widely shared and cherished when it remains just an unspoken moral intuition. It is hard to think of a people that holds this intuition more fervently than the French.

It is the spoilsports, the killjoys deeply unpopular task to say that if jobs are owned by those who are given them, entrepreneurs will think twice before giving them, since they may have great trouble getting them back again. Hiring looks very risky if firing almost passes for a crime and is costly in money and trouble. The same is true, though less dramatically, of capital investment. Apart from the commonplace business risks, it is now deterred by a new risk as well: the risk of the blocked exit, the difficulty of disentangling capital, of winding down an activity that is no longer warranted by its prospects. Entering a business is now somewhat like stepping into a trap, a trap that society holds open with an inviting smile.

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