With growing inequalities and salary gap, left-wing politicians are asking for social reforms in some countries (I am thinking of France).

Social reform include: equal pay for women, maternity leave, increasing minimum wage, higher taxes on multinationals, lowering retirement age, etc.

In all these countries, people are threatening that if these changes come into effect, "the money will leave".

I seem to recall similar threats: Ford threatening to close its plants in the UK after the 1968 strike if the women pay were increased, some French based companies after the 35h-week reform (all worked hours above 35 in a week are considered extra and payed more), and currently politicians in the US when people speak of holidays or maternity leave.

My questions are:

1: is there any historic precedent of these threats to "leave" being actually carried out and

2: does it even make sens from an economics point of view ? I can understand manufacture going to Asia, but Starbucks, McDonald, and all these companies that have to stay in France to make profit and, with a clever manipulation, do not pay taxes on the companies in France (impôts sur les sociétés), would they really leave ? Starbucks makes 2 billion benefits in France, so if social reform and it paying taxes would mean it would only make 1 billion benefits, wouldn't that be still worth it ? And even if the benefits are less than that, wouldn't McDonald stay in France, if only to maintain the hegemony (leaving would mean taking the risk of someone taking its place, like Burger King or something, and that would mean losing the monopoly, which I would think is a bad thing for such a company). And even if they do leave, couldn't France just introduce a 5 years tax-free period for any new start-up replacing them ? It's not getting its taxes anyway, better give it up for 5 years than for ever... no ? Am I being naïve ?


1 Answer 1


What's going on when a for-profit company makes a threat?

The same thing that is happening when does anything. It is trying to increase its profits, relative to what would happen if it didn't do the thing.

In this case, it's trying to influence policy to protect its profits. It has decided that issuing the threat gives their profits a better chance than not issuing the threat. That probably means that they believe that their profits will be lower with the new policy than without it.

The thing it's threatening is, in a sense, neither here nor there: the threat itself is the action.

Should the policy that a company opposes, get implemented, then the company then has a choice, to stay or to go, and the decision criterion will be: will them staying result in higher or in lower profits than them staying. That's a completely different issue to the thing they issued the threat over, and the threat doesn't tell us anything useful about it.

And companies are often wrong about the impacts of policy anyway. In summary, treat their statements on policy with a lot of scepticism.


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