TCS Daily

French Free Fall

By Hans H.J. Labohm - January 4, 2005 12:00 AM

In a previous life, I worked in France. There I lived in a Parisian suburb, in a lovely valley near Versailles. Since it was a small village, the mayor was able to maintain close contacts with its citizens, facilitated by the fact that he was at the same time the local general practitioner. During his visits we also used to discuss politics. Once I told him that I was impressed by French politicians since they seemed to me quite capable. I added that I particularly admired their intellectual approach and the linguistic virtuosity with which they succeeded to get the subtleties of their political messages across. Many of the most prominent politicians have even written books, which is quite rare in other countries. I the next fifteen minutes or so, I came to deplore what I had said, because the mayor/doctor became very upset with me. I had to endure a lengthy philippic against the French political class, which, in his view, had turned a blind eye to the many problems which France was facing and had alienated itself from reality because of political correctness and self-interest.

The memories of this event came back to me when I recently read 'La France qui tombe' (France in Free Fall) by Nicolas Baverez. Baverez is a practicing attorney and economist and is part of the French establishment. Yet he fiercely opposes the way France is run, which in his view is the major cause of its downfall. It should be recognised, however, that soul-searching about the country's place in the world is a popular pastime among French intellectuals, which usually causes only few ripples. But this time it is different because Bavarez is a right-winger, and as such he is supposed to be on the side of the government. But the government was pretty annoyed about his book. Moreover, his message is receiving wide acknowledgment within the French establishment.

But why should the right complain? After all in the last presidential elections in April 2002 it carried the day -- quite unexpectedly by the way. But yet the right is dissatisfied because nothing has changed. That's why critics nicknamed the present Prime Minister, Raffarin: Ra-fera-rien (French for: 'does nothing').

Bavarez' central message is that there is a hard core -- consisting of politicians, civil service mandarins and union officials, including both left- and right-wing elites -- which is keen to preserve the rigid social statist system in France, which protects their jobs and status. Their consensus transcends the differences between the main political parties. Bavarez believes that this system is incapable of meeting the challenges of a modern globalized economy. Therefore he advocates a shock therapy for France.

Bavarez argues that from the beginning of the eighties France has declined because it is incapable of modernising. During this period average annual economic growth went down from 3% to 1.8%, while the productivity growth declined from 4.2% per year to 1%. Consequently, France is the only developed economy in which, over a quarter of a century, the level of unemployment exceeds 9% of the active population, whereas 20% of the potential labour force has been excluded from the labour market, while the participation rate remains the lowest for the whole OECD area (58%, of which 48% for the private sector).

Meanwhile public finance is completely out of control. The accumulation of deficits (4.1% of GDP in 2003) has resulted in an explosion of public debt, which will soon reach 1,000 billion euros (62% of GDP against 23% in 1980).

The vicious circle is due to structural factors. Contrary to the US, France is unable to cope with the risks of an open society. It uses a major part of its funds to finance the public sector (14.5% of GDP) and social transfers (22.5% of GDP) at the expense of investments (2.5% of GDP).

The 'desertification' of the enterprise sector, which has been struck by many bankruptcies, as well as industry, in which half of the jobs have gone since 1975, is accelerating, whereby the traditional champions of French industry have proved to be particularly vulnerable. These are either overtaken by foreign competitors (e.g. Pechiney), or had to file for chapter 11 (such as Vivendi, France Tele­com and Alstom). More serious than capital flows, of which outflows are twice as high as inflows, is the brain drain. Research potential is collapsing. The French share in worldwide patents dropped from 8.8% in 1985 to 6% today.

According to Bavarez, the crisis does not only manifest itself in France, but extends to other coun­tries in Europe as well. Because it is not able and/or willing to reform its welfare state, Europe has in fact opted for low growth and mass unemployment. The result is that since 1990, the reduction of the gap between Europe's standard of living and that of the US, has reversed gears. In 1945 European GDP per capita amounted to 50% of that of the US; in 1990 it had risen to 80%; subse­quently in went down to 65% in 2002. Its future development is threatened by the aging of Europe's population, by the growing technological gap vis-à-vis the US and Japan, as well as the expulsion of its industry and trade by Asia, especially China, which is becoming the workshop of the world.

Bavarez accuses the government of schizophrenia. It professes to promote a more rapid moderni­sation of the private sector. But at the same time the public sector keeps growing, shielded from any competition and pressure to improve productivity.

Bavarez laments that all this has contributed to the marginalisation of France in Europe and in the world at large. Therefore he believes that it is high time to take action, to depart from obsolete utopian schemes, to crack the rigidities, corporatism and the many taboos, such as an excessive social protection system, the trade unions and 'progressive' ideas at large.

The introduction of the 35 hours working week by the previous left-wing government -- headed by prime minister Lionel Jospin, a former Marxist of Trotskyite vintage -- offers perhaps the most topi­cal and revealing example, which was qualified by some as a triumph of ideology over reason, of what is wrong with France's economic policy. Some years ago, this leftist political hobby horse entered the stage at the time that it had already been abandoned in other countries. The socialist government argued that a reduction of the number of working hours per week would lead to an increase in the number of jobs. Surprise, surprise ... it did not improve overall unemployment figures. Because of their ideological predisposition French policymakers had preferred to blithely ignore empirical evidence -- it had been tried before in other countries with the same results: on balance destruction of jobs.

Perhaps Nicolas Bavarez is a little bit too critical of the present government since it is taking some steps to undo the shortening of the working week, which it inherited from its predecessor. It is convinced that the 35-hour working week has been a financial disaster that costs the state some 15 billions of euros annually in additional social charges, without which France would have been able to remain below the critical ceiling of 3% public deficit, laid down in the EU's stability pact. The government wants to reform the system. But it remains to be seen whether it will be successful in doing so given fierce union opposition.

However, the dispute about the 35 hours working is only one tiny element of the 'mal francais'. Much more remains to be done. But according to Bavarez the government lacks a credible overall vision to tackle France's problems. Well ... really? What about infusing a healthy dose of Yankee capitalism into France's model?


TCS Daily Archives