France’s Potemkin Economy——Fake Companies, Fake Jobs, Fake Propserity

The jobs gap that has characterized the global economy since the crisis has cost some $1.2 trillion in lost wages and nearly $4 trillion in GDP. Employment growth worldwide has been just 1.4% since 2001, well below the 1.7% pace that prevailed prior to 2008. The result: there are 61 million fewer people employed globally than there would have been if pre-crisis trends had prevailed. 

In the eurozone, where unemployment stands at 11.3% and where some countries — Spain being a prime example — are struggling under unemployment rates that approximate what the US experienced during the Great Depression, the ECB has been forced to effectively abandon its “single mandate” of promoting price stability in favor of a stance that’s more in-line with the Fed’s dual mandate that encompasses both price stability and maximum employment.

Against this backdrop, many Europeans are struggling to find work, but have no fear, Europe has a solution: fake jobs. The New York Times has more:

At 9:30 a.m. on a sunny weekday, the phones at Candelia, a purveyor of sleek office furniture in Lille, France, rang steadily with orders from customers across the country and from Switzerland and Germany. A photocopier clacked rhythmically while more than a dozen workers processed sales, dealt with suppliers and arranged for desks and chairs to be shipped.

Sabine de Buyzer, working in the accounting department, leaned into her computer and scanned a row of numbers. Candelia was doing well. Its revenue that week was outpacing expenses, even counting taxes and salaries. “We have to be profitable,” Ms. de Buyzer said. “Everyone’s working all out to make sure we succeed.”

This was a sentiment any boss would like to hear, but in this case the entire business is fake. So are Candelia’s customers and suppliers, from the companies ordering the furniture to the trucking operators that make deliveries. Even the bank where Candelia gets its loans is not real.

Candelia is one of a number of so-called “Potemkin” companies operating in France. Everything about these entities is imaginary from the customers, to the supply chain, to the banks, to the “wages” employees receive and while the idea used to be that the creation of a “parallel economic universe” would help to train the jobless and prepare them for real employment sometime in the future, these “occupations” are now serving simply as way for the out-of-work to suspend reality for eight hours a day. Here’s The Times again:

These companies are all part of an elaborate training network that effectively operates as a parallel economic universe. For years, the aim was to train students and unemployed workers looking to make a transition to different industries. Now they are being used to combat the alarming rise in long-term unemployment, one of the most pressing problems to emerge from Europe’s long economic crisis.

Ms. de Buyzer did not care that Candelia was a phantom operation. She lost her job as a secretary two years ago and has been unable to find steady work. Since January, though, she had woken up early every weekday, put on makeup and gotten ready to go the office. By 9 a.m. she arrives at the small office in a low-income neighborhood of Lille, where joblessness is among the highest in the country.

While she doesn’t earn a paycheck, Ms. de Buyzer, 41, welcomes the regular routine. She hopes Candelia will lead to a real job, after countless searches and interviews that have gone nowhere.

“It’s been very difficult to find a job,” said Ms. de Buyzer, who like most of the trainees has been collecting unemployment benefits. “When you look for a long time and don’t find anything, it’s so hard. You can get depressed,” she said. “You question your abilities. After a while, you no longer see a light at the end of the tunnel.”

This comes as Europe’s long-term employment problem deepens and triggers what we have described as a sell-fulfilling prophecy wherein unemployment leads to lower aggregate wages which in turn spells lower consumer spending, crippling the economy and discouraging companies from hiring:

Yet long-term unemployment — the kind that Ms. de Buyzer and nearly 10 million others in the eurozone are experiencing — has become a defining reality.
Last year, a staggering 52.6 percent of unemployed people in the eurozone were without work for a year or more, the highest on record, according to Eurostat, and many of those have been jobless more than two years.

“If you have a significant part of the population that’s not integrated, they won’t increase their spending, which dampens a possible recovery,” said Paul de Grauwe, a professor of European political economy at the London School of Economics. When a large number of people go jobless for long stretches, “you also subdue optimism, which will weigh on an economic turnaround”…

“It’s worrisome because we’re talking about many people who have been out of work for a very long time,” said Stefano Scarpetta, the director of employment, labor and social affairs at the Organization for Economic Cooperation and Development. “Their skills can become obsolete. They get stigmatized. They risk being disconnected from the workplace and society, with negative implications for them, their families and the economy.”

Of course, in today’s global economy, it’s difficult to propser even if you’re a make-believe company which is why it shouldn’t surprise you to learn that “Animal Kingdom”, a fake pet store, is on the verge of fake bankruptcy:

She looked at a stack of invoices, including some orders from virtual companies that had not been paid. “If this keeps up we’ll go out of business,” Mrs. Banuelos said, handing the papers to two women with instructions to follow up. “What’s our strategy to improve profitability?” she asked the group.

But never fear Potemkin companies, because you are not alone. There are other entities out there who are going bankrupt on paper while making things up as they go along in a “parallel” universe — those entities are called “central banks.”