France and Germany are actually demonstrating that the classic macroeconomic analysis of guns vs. butter. France has made a choice similar to President Johnson of guns and butter. Gemany has made the choice for butter. Both are suffering from a severe restriction on the growth potential of their economies.

In Hernando de Soto's (yes, namesake of the famous explorer) recent book, he demonstrates why poor countries, that collectively have more wealth and capital that the developed countries, fail to live up to their economic potential. A simple example is buying a storefront. In an undeveloped country, this process may take several years and several hundred steps with 15 different government agencies. In the US, that same sale may done in about 6 steps with 3 agencies and 60 days. This more faster and more dependable process leads to a greater liquidity of capital and reliability of transactions. What he notes is that these differences in process lead to the Western countries able to turn land, buildings, and even accounts receivable into working capital quickly, which allows the rapid growth of new business.

I would take his analysis one step further with France and Germany. Their heavily socialized governments freeze a lot of investment capital from creating added wealth and investment opportunity, thus shrinking their economies. For example, the French healthcare system is entirely owned by the government. The government cannot use the investment capital of its assets to grow the healthcare system ordevelop it. The healthcare system must consume tax dollars. This inflexibility leads to higher tax rates and restrictions on the growth of other capital investment opportunities. Compare that to the US where its healthcare system is largely privately owned. Physicians' practices can spring up quickly and adapt to the needs of the community. These physicians can build buildings and get mortgages on the building to allow the practice to focus the money on other service growth opportunities. The dangers of America's healthcare system are when price controls and bureaucratic restrictions limit the physicians' ability to develop and adapt. This restricts the creditworthiness of the physician and limits his ability to unleash his capital.

These capital investment restrictions lead France to have a severe problem in strategic thinking. The French want to follow DeGaulle's, Louis XIV's, Napolean I's, and Napolean III's goal of a strong and independent France. During the last successful development of a strong and independent France under Napolean I, there was not the push for socializing the economy. With the advent of Marxist thought and its integregration with Jean-Jacque Rousseau's world vision and the ideals of the French Revolution (Liberty, Equality, Fraternity), the French have turned their backs on the ideals of the Louis-XIV-era judge Baron de Montesquieue (who said in the Spirit of the Laws, every man has a right to "life, liberty, and property"), who so inspired Thomas Jefferson's "life, liberty, and the pursuit of happiness" (did you know that Jefferson's first draft was a direct quote of Montesquieue?). French domestic politics dictate that government budgets provide a heavy welfare component. This limits the money available for the French military. With these budget restrictions, the Stratfor analysis comes true.

Then Germany. Germany's socialization is pretty severe, but the cost of integrating a former communist system into its own is even worse. It pulls the politicians left. The economic repairs that need to be made requires one or two generations. Germany is in a very good position for these repairs to happen effectively, unlike any ex-other communist country. Nonetheless, the German philosophy of running for the hills whenever a German shows any signs of following any politics that bear a resemblance to Hitler is damaging. It's worse than a reformed alcoholic's teetotaling or an ex-smoker's hatred of smoke's smell. It is absolute and non-negotiable.


The net effect is that we see a case study for capital investment feeding the government's ability to serve its people and man its tanks. American principles are set forth in the Declaration of Independence, the Constitution, Washington's Farewell Address (that is, beware of entangling foreign alliances), the Gettysburg Address, President Wilson's Fourteen Points doctrine (which has good and bad parts), the Marshall plan, etc. The ideals of these documents can only be furthered by liberty to invest without punitive taxes, government spending focused on protection of our system, self-reliance for self-defense, the promotion of democratic republics abroad (preferably of a non-parliamentary variety), and promotion of the economic and military welfare of other nations to minimize the risk of future wars.