French capitalism

Biting the hand that feeds it
Jan 31st 2008 | PARIS
From The Economist print edition

France has a paradoxical attitude to financial risk


“THE Che Guevara of finance”; the “James Bond of SocGen”. It did not take long for French pundits to elevate the Société Générale trader to the status of anti-capitalist folk hero. By humiliating a leading bank, as Nouvel Observateur magazine put it, Jérôme Kerviel “has over the course of one weekend become a modern hero”. In many ways, the SocGen drama encapsulates the contradictions of France's attitude to capitalism: on the one hand, there is widespread suspicion of the markets; on the other, world-class financial skills.

The French seem peculiarly hostile to the forces of capitalism that have made their economy the world's sixth biggest and their companies global leaders. In a 2006 poll, only 36% agreed that the free market was the best system available, compared with 71% of Americans and 66% of the British. Suspicions about wealth creation have a long history. Honoré de Balzac once wrote: “Behind every great fortune lies a forgotten crime.”

Politicians have worked hard to sustain this sentiment. At last year's presidential election, five of the 12 candidates stood on explicitly anti-capitalist platforms. Even President Nicolas Sarkozy, who promised a “rupture” with out-dated economic attitudes, has repeatedly laid into financial speculators, as if their activity was some sort of optional bit of the capitalist system.

Yet France's financiers have helped develop the very markets the political elite professes to deplore. French financial innovation is considered world-class. In the 1980s, Société Générale was a pioneer in the development of sophisticated equity derivatives, based on the complex mathematics in which the elite French education system excels. It drew on a steady stream of brainy graduates of the grandes écoles, such as the École Polytechnique or the École des Mines, many of them trained as much in civil as in financial engineering.

It now looks as if SocGen was rather better at devising risk products than at managing them. All the same, the gap between French skill in financial engineering and popular contempt for financial markets remains wide. This week, Mr Sarkozy once again declared: “We want a capitalism of entrepreneurs, not a capitalism of speculators.”

Mr Sarkozy may simply be pandering to popular distaste but this does seem to reflect a limited sympathy for economic liberalism. Not only did he hint early on that the head of SocGen, a wholly private bank, should resign. His prime minister, François Fillon, also insisted that the bank remain French. With liberals like that, no wonder the French have trouble trusting the markets.