TCS Daily

Hope for France? You Bet

By Johnny Munkhammar - May 3, 2006 12:00 AM

The French government obviously failed miserably with the one minor liberalizing reform proposal it has pursued. Facing demonstrations by trade unions and young people demanding "Regulation!" and life-long protection for jobs they don't even have, the government backed down. So there will be no decrease in the number of obstacles to jobs for young people. Some commentators conclude that France is ungovernable. The Economist published a classic painting of Hell on its cover and implied that reform in the biggest EU countries may be beyond reach.

Indeed reform can be very difficult, due to things today's politicians can't really do much about. Some of these can be attributed to the policies of previous governments; some are determined by other stakeholders. Most people have a resistance to change as such, particularly reforms over which they do not have complete control. Resistance to reform has been cemented in many Western European countries as a consequence of the political rhetoric for decades. If people have been listening to the same thing over and over again, they will start to believe it: "The European Social Model is superior both when it comes to economic efficiency and social justice," is the ruling mantra. Recent campaigns on that theme - and against others such as the US - make the problem even worse.

The model perpetuates itself. Government agencies that have been created to centrally plan parts of society and people's lives will do all they can to show they are still necessary. And when a majority of the adult population - the voters - are dependent on the state for their income and welfare, they will act to preserve the system. The insiders will try to protect what they believe is a privileged position.

Still, many countries have managed to implement market-oriented reforms that decrease the size and scope of the state. Many of these also have faced exactly these problems with resistance to change. It is definitely within the reach of governments in every country to reform. How did the successful reform countries do it?

Consider a few examples. The Netherlands had economic problems so severe they were called the "Dutch Disease", until the beginning of the 1980s, when reforms were pushed through. Since then, growth has been better and the employment increase during the last ten years has been the third highest in EU-15.

In the late 1970s, Britain was "the sick man of Europe" and per capita one of the poorest countries. The worse problems got, the more old policies were pursued. But finally, during the 1980s, there were substantial reforms, particularly concerning privatization and de-regulation. Subsequent governments have done nothing to reverse the policies, despite their often intense opposition at the time they were introduced. The positive effects have simply been too obvious.

Ireland, of course, is a famous case. The Irish have decreased their public spending as a share of GDP from 57 percent in 1982 to 35 per cent in 2004. The labor market is relatively free. They have experienced the biggest increase in employment in EU-15 between 1995 and 2004 and the average income grew by 101 percent during the same period.

Finland, too, managed substantial reform during the 1990s. In particular, it reduced public spending. Even in Sweden, there were quite a few reforms that took place in the 1990s, such as Central Bank independence, marginal tax rate cuts and a pensions reform.

All these countries had in common a certain resistance to change. With some differences, they also shared roughly similar starting points when it comes to political system and economic standards. This last point is why the many Eastern and Central European countries that did radical reform with great success are not mentioned here, despite the fact that they are indeed great examples of reforms.

To get a mandate for change, it must be agreed that there are problems. But this is not sufficient. There must also be a political leader who knows the reasons for the problems and that market-oriented reforms are the solution. That knowledge must be combined with an iron will, a determination to act with a clear aim of solving the problems. Since many politicians are largely preoccupied with clinging to power and not actually achieving change, that is sadly uncommon.

A reform government cannot allow itself to wait for everyone to support its proposals before they are enacted. Often, it has to push trough reforms against the current opinion of both a majority of the people and strong opinion-makers in the society, be they farmers or trade unions. And facing the parliament of the street, the government must never back down. Then the case is lost, change can be shouted away and no reform will take place.

History shows that most people will support the reforms later. One particular step may seem risky, but when it is done, very few would like to have it undone. Especially if the reforms already have had some positive effects. That is why a reformist government should do a few -- three or four -- quick and substantial reforms as soon as possible when it comes to power. That way, the positive effects will reveal themselves before the next election and create support to do much more.

A broad consensus in Parliament for the reforms is positive if it can be managed; the Swedish pensions reform is an example of when this occurred. But the reforms must not be watered down just to have consensus. In that case, they will not produce any substantial results and the positive circle of development where good results create support for more reform will not happen. The risk of not having a broad majority behind reform is that the other side wins the next election and has everything undone. But that has not happened despite change of governments in reformist countries, implying that the risk is exaggerated.

Reform is possible -- even in France. It is a matter of knowledge, determination, strategy and communication.

The author is Program Director of Timbro, a Free-Market Institute in Sweden.


1 Comment

Leaders and followers
Britain was able to achieve its reforms because of talented leaders appearing at the right time. Thatcher caused change that the public was willing to accept for a brighter future.

When Europe today has sunk to the equality of the lowest common denominator, few in the public want to rock the boat for fear of upsetting someone in the boat. Political leaders of course want to keep getting elected, so do not try what would actually improve the "equality of mediocrity".

Until a Thatcher comes along for Europe, there appears to be little hope of a renaissance for Europe.

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