Friday, March 30, 2012

Considering France’s Strategic Vision: An Essay

TOULOUSE – Lunchtime on any given sunny Thursday in the centre of Toulouse perfectly encapsulates everything Anglo-Saxons envy about the seemingly-idyllic French mode de vie. In the middle of the working day, employees take off an hour or oftentimes more to enjoy a two-course formule du midi or a seasonal plat du jour on a picturesque square like Place St. Georges, all for under $25 including a glass of cold, crisp white wine, locally sourced of course.

When contrasted with the ugly way in which workers in London and New York unhinge their jaws in order to swallow whole pre-packaged sandwiches on the dash back to the office – all in the name of additional, precious trading nanoseconds – the more languid and dare it be said chic Gallic lunch is made to seem all the more desirable.

And why ever not? I am not one to suggest for a moment that the French need to give this practice up, for it does sit rather well with me. Nor should they be required to surrender the practice of retreating from the cities during the month of August when they become veritable sweatboxes. But the Anglo-Saxon with a mild bout of indigestion can at least take some comfort in the fact that said Gallic lunch is a milder expression of all that is wrong with the present state of the French economy and society, one which is stumbling blindly towards a condition of stagnation and sclerosis.

Zbigniew Brzezinski neatly summarises the state of play in his bright if occasionally problematic new work, Strategic Vision: America and the Crisis of Global Power. When addressing the subject of Europe, its position in the world, and relative decline since 1973 in comparison to the United States, Brzezinski asserts that the continent has become “too self-satisfied”, and that it acts “as if its central political goal is to become the world’s most comfortable retirement home” (Brzezinski 2012, 36).

One of the faults with Brzezinski’s work is over-generalisation. Evidently, state largesse is not a continent-wide problem. The United Kingdom government, for example, has recently embarked on a series of austerity measures that seek to scale down the size of the welfare bill as a proportion of government expenditure. And, in Germany, the Hartz reforms of the early 2000s also restricted access to state benefits, reducing the claimant period for the full unemployment allowance to in the most part 12 months, down from 36.

Rather, when Brzezinski references “Europe” in the abstract, he clearly has in mind the profligate nations of Catholic Europe, as it were: those nations like Italy and Spain with bloated deficits and engorged welfare states. Though it has not suffered as awfully as these other Mediterranean states, France could just as easily be indicted for the crime of wanting to become “the world’s most comfortable retirement home”. It is a country which, in the immediate, is suffering the consequences of having a weighty and immobile public sector at a time when the economy needs to be nimble and agile in order to recover and renew itself in this globalised era of interconnectedness and economic interdependence.

Her extensive state structures which own sizeable chunks of ostensibly private companies and employ directly 5.3 million workers, or 20% of the labour force, allowed France to buffet the worst of a recession which destroyed other economics more exposed to massive fluctuations in the health of the private sector. But as the United States is pulling itself out of the doldrums, albeit ever-so-slowly, and the Germans are experienced their lowest rates of unemployment since unification in 1990, the French economy is struggling to pick up steam whilst the rest of the continent suffers the consequences of the single currency and sovereign debt crises.

At least at 2.3% in 2011, the rate of inflation is under control and below the Eurozone average. Scant consolation though, when in January of this year, the unemployment rate hit 10% for the first time since October 1999 (the rate at the time of Barack Obama’s inauguration, for reference, was 8.9%). This, compared with 5.8% in January in Germany, 8.3% in the UK and the US, and even 9.2% in Italy. Growth forecasts for the years ahead are poor to boot. Current projections estimate that France’s GDP will grow a measly 0.4% in 2012, and then 1.4% in 2013. Again, compare this with the 1.5% the United States is projected to add to its GDP in 2012, or even 0.6% in Germany and the UK, and it paints a pretty bleak picture for the coming years.

On the plus side, France is endowed with a number of robust economic sectors, including energy, telecommunications, transportation, defence, banking, and tourism, as well as large, multi-national corporations who trade in and export to nations in and out of Europe: Thales; Alstom; Renault; Veolia;  L’Oréal; Airbus; AXA; and on and on. France’s sizeable export market benefits from the nation’s membership of the European Union and participation in the common market, as well as the increasing strength of the Franco-German relationship within the EU. France is the second-largest exporter in the European Union, and the fifth largest in the world, with 16.4% of all French exports being consumed by Germany. These exports, essential to France’s wellbeing, are only enhanced by the existence of a number of flag-carrying companies such as EDF or Air France, which project France’s economic image on the world stage, by for example assisting in the construction of a new generation of nuclear power stations in the UK.

Notwithstanding the foregoing, France remains faced with a jobs crisis and an inability to renew itself related in no small part to inflexibility in the labour market as well as the burden of social structures and welfare safety nets (Brzezinski’s “comfortable retirement home”) successive governments have built and maintained on the back of previous fiscal successes (and public borrowing, of course; France’s public debt amounts now to 85.5% of GDP, more than Germany, the UK, and the US).

As to the former, the Heritage Foundation asserts that whilst France has an excellent or efficient regulatory framework, the labour market is “burdened with rigid regulations and lacks the capacity to generate more vibrant employment growth”. Whilst French workers benefit from greater job security and more full-time positions than her greatest competitor in Europe, Germany, the labour code, the institute argues, “hurts competitiveness and increases unemployment”.

This, compared with the way in which the Heritage Foundation praises German capacity for improvisation and flexibility, noting that “employers and workers have worked cooperatively to adjust wages and work hours in response to the changing economic environment”. For, whereas German trades union maintain a cooperative relationship with employers and businesses on matters regarding wages and working conditions, the union movement in France is all the more combative and strident, perhaps to its detriment.

This cost of labour – one of the most noteworthy barriers to progress and differentiators between France and Germany – is only exacerbated by the regulations which surround the 35-hour working week, introduced by the socialists Lionel Jospin and Martine Aubry in 2000. Under this reform, French workers are entitled to overtime – an additional 25% on top of their existing salary – on the first four hours of extra work they complete after the original 35. Where once labour costs were some 10% lower than Germany before 2000, since the introduction of the 35-hour week French workers have become 11% more expensive, and therefore less competitive.

Yet when French governments previous and current have attempted to enact reforms which might go some way to liberalising labour laws, such measures have been met with vociferous counter-demonstrations on the streets of cities the length and breadth of France. In 2006, then-President Jacques Chirac attempted to introduce the Contrat Premiere Embauche (CPE), a specific employment contract for citizens under 26 years old, which allowed for a two-year trial period that would have made it easier to hire (and in turn fire) them.

On the one hand, whilst the CPE might have been effective in making younger people more affordable and thus more employable in the short term, it would have done little to fix the systemic faults which keep them out of work. For, in comparison to Germany, young people in France without a university education suffer from a deficiency of practical skills which would enable them to enter into vital manufacturing jobs, due in part to the absence of a cohesive national system of apprenticeship training. Germans under 25 are enhanced by their education and training system: first, they are able to transition through a tiered education system that caters to different levels of attainment; second, they benefit from the most robust apprenticeship scheme in Europe which offers years of on-the-job training with the very real promise of a job or career at its end.

Yet whilst flawed, the intent or motivation behind the CPE was an honest and correct one: to tackle the specific problem of youth employment which burdens Western and Southern European nations in particular. At present, the unemployment rate for French citizens under 25 is 23.3% (higher than the EU average), compared to 8.5% for those aged 25-74. The attempt to introduce the CPE instead drew millions of students and trade unionists onto the streets through March and April 2006, which some occupying university campuses, temporarily forcing their closure. The climb down that followed signalled the effective end of the Prime Minister Dominique de Villepin’s political career, and transformed Chirac into a lame duck in the twilight moments of his presidency. Youth unemployment is higher now than it was in April 2006.

France’s other crux at this time is the size of its welfare state. The liberal and social democratic traditions invariably had a positive impact on Western European nations, not only for the poor or less able but all citizens, in terms of encouraging the introduction of universal benefits including unemployment insurance, healthcare, and old-age pensions. That residents of London, Paris, and Berlin no longer have to rely on charities and the Church for sporadic access to essential and necessary medical care, for example, is undoubtedly one of the most positive developments in Europe’s otherwise bloody and dark twentieth century. The particularities of the social contract in France, however, differ substantively from those of other European nations of equal size such as Germany and the UK, in terms of its benevolence and reach.

The New York Times overreached itself when Steven Erlanger described its system of unemployment benefits are “lavish”, but they are unnecessarily and almost destructively generous at a time when the European economy is teetering on the brink of a continental debt crisis. Full unemployment benefit is available for up to 24 months for those under 50, and 36 months for those past that age. The level of remuneration is tied to one’s previous income, and is equivalent to anything between 40.4% and 75% of one’s last salary per annum. Those who become unemployed as a result of redundancy are entitled to enhanced benefits. The present cap on unemployment allowance is 6,366.80 per month.

The aforementioned Hartz reforms in Germany – in this case what is called Hartz IV – clipped access to full unemployment benefits, Arbeitslosengeld I, to 12 months as a rule. Once this expires, the longer-term unemployed are moved onto Arbeitslosengeld II, a monthly payment which bundles together a number of social benefits including day-to-day necessities as well as access to school books and clothing for instance, and is fixed at 374 for an individual. The Hartz reforms, as well as Jobseekers’ Allowance in the UK, promote something akin to Welfare to Work, recognising the need to get as many people as possible of the unemployment rolls, for their benefit as well as the state’s. Hartz III, for example, reorganised the Federal Labour Office as the Federal Labour Agency, placing an emphasis on the idea that the agency’s role was to assist the unemployed to find gainful employment.

As to the proposition that France is fast becoming little more than Europe’s finest retirement village by the sea, attempts to dispel this notion were too met with protest and opposition when Nicolas Sarkozy successfully raised the retirement age from 60 to 62, still amongst the lowest in the European Union and far earlier than Germany or the United Kingdom, whose workers retire at 65 and will likely continue until 67 before too long. Although later retirement ages in a manner of speaking nullify attempts to get more young people into employment, since older workers are forced to continue in wage labour for longer, such measures are strictly necessary given the size of the pension burden on European governments. This condition is made all the worse, given both the size of the generation coming up to 62 years of age – the Baby Boomers – and of course the higher unemployment rates which reduce the amount of money governments are able to collect in taxes.

Given the precarious position France finds itself in, and the urgent need for some kind market-orientated reform agenda, and bearing in mind that the first round of the presidential elections but one month away, what is slightly concerning is that few if any of the candidates seem to have any solutions to pulling back France from the precipice. The worst offender in this regard is François Hollande, whose economic engagements for France centre around a tax-and-spend agenda which would see the creation of 60,000 teaching posts, plus another 150,000 state-funded jobs for young people.

All this would be paid for by spending reductions in the tax code worth 30 billion, and even introducing a new tax bracket of 75% for all earned income above £1 million. Rather than reducing France’s dependency on the munificent state, Hollande would expand its role through artificial job creation and the formation of new tax brackets and the elimination of deductibles that would surely only result in a flight of capital and talent to Belgium, Switzerland, and the United Kingdom.

As Roger Cohen outlined in a recent column in the New York Times, France already suffers tremendously from the flight of young professional across la Manche, to the point where more than 300,000 now live in London, making it in effect the sixth-largest French city. “Paris-on-Thames”, as Cohen describes it, has “that raucous mix of innovation and grunge missing in a too-perfect Paris”. Moreover, as the Heritage Foundation again notes, the United Kingdom maintains an “efficient and transparent regulatory framework encourages entrepreneurship”, noting that it “with no minimum capital requirement, it takes 13 days to establish a business”. For those already in London Hollande offers nothing, Cohen concludes, arguing that “Hollande needs to personify a new French left that will not punish creators of wealth even as it calls for growth: His proposal [on taxes] does the opposite”.

Sarkozy by contrast professes to have seen the light in this regard. In a televised address on January 29 of this year, he proposed the introduction of what The Economist called “two specific German-inspired measures”. First, Sarkozy would seek to remove €13 billion of social charges currently paid by employers, and transfer that cost to the individual or consumer by increasing the sales tax rate from 19.6% to 21.2%. Second, he recommended easing the rigidity in the labour market by allowing employers to negotiate changes to working time at company level, in return for the company agreeing to keep the worker in the job.

In his statement, Sarkozy expressed his wish to see his measures enacted by the conclusion of first term in May. In reality, much like the budget debate between the White House and the Republican-controlled Congress, Sarkozy’s plans are designed to be taken to the nation as proposals, as a manifesto for a second term. When the French voter goes to the polls for the first round on April 22, they might of course very well ask the legitimate question, “If you believe that our economy requires essential root-and-branch reform, M. President, where were you for the last five years?”

One cannot help but feel – particularly whilst wandering laboriously through the alleyways and down the boulevards of Toulouse after one of those aforementioned Gallic lunches – that France has taken on a feeling of faded grandeur. As with other European nations Brzezinski so reviles, France in its pursuit of a social climate with the cosiness of a retirement village became corrupted by decadence and government largesse. Brzezinski rather astutely suggests in Strategic Vision that, amidst the quest for the good life funded by “escalating public debts unrelated to economic growth”, France has become “unsure of its larger purpose” (Brzezinski 2012, 22).

It will not be the case that, if France fails to renew itself, its economy will collapse, or the social order will break down, or anything of the sort. France is not Greece, and whatever the international order of things, it tends to have the capacity to muddle through. But this is exactly the problem: if France wishes to have a dynamic economy and vibrant social order, one with an American-esque ability to innovate and reinvigorate itself, and reduce the numbers of young people out of work, then the solution cannot be additional dependence on the state for sustenance and subsistence, as François Hollande is proposing.

France does not have to become Germany, or the United Kingdom or even the United States, in order to full its potential and drag itself out of its current funk. Surely France – remodelling its economic house of those solid foundations – can carve out a third way where it becomes more capitalistic and less reliant on the public sector, without losing what makes it so idyllic in the minds of those who long for its sundrenched lunches and languorous Augusts.