Thursday, August 30, 2007

"Creators" vs. "Predators"

President Sarkozy chose the Summer University of the business association MEDEF at Jouy-en-Josas to deliver a major speech on his future economic policy. The venue itself has been contested by union leaders Bernard Thibault of the CGT and François Chérèque of the CFDT, even though Chérèque is himself a guest of the MEDEF. This year's principal theme is the environment, and the MEDEF's brochures have green covers (pictured left, thanks to Versac) to reinforce the point, but this didn't stop Sarkozy from laying down his condition for a Suez-GDF merger, which has been in doubt since Suez apparently issued an ultimatum to the Elysée: he insists that Suez divest itself of its "environmental" arm to concentrate on its core business, the supply of energy. The strategy behind this maneuver may be to ensure that the state retains sufficient stock in the merged company to exercise a blocking vote and prevent "excess" layoffs, which would complicate life for the government. Some friends of Sarkozy are also in the environmental protection business and may be looking to make an interesting acquisition.

Of course this little maneuver isn't supposed to be the headline issue of the speech, which is so full of quotable tidbits that the media can choose which crowd-pleasing aspects of the speech to play up and which to play down. For those who like their economics replete with heroes and villains, for instance, there is the attack on "predators" and "speculators," to whom Sarkozy says he prefers "to oppose producers, inventors, and creators." Le Monde leads with this line, and goes on to mention the president's desire to "help small and medium enterprises to grow and export" and to encourage "a capitalism of entrepreneurs, not a capitalism of speculators." Of course this division of the world into white hats and black hats ignores the frequently heard lament that one source of weak French growth is the underdevelopment of French venture capital--the very "speculators" whom Sarkozy denounces--so that French "inventors" and "creators" with marketable ideas are forced to seek financing and in some cases even to relocate in the United States or Great Britain or Ireland.

Another major theme of the speech was Sarkozy's desire to improve the "purchasing power" of French households. As he did during the campaign, he arraigns the European Central Bank for indifference to this issue and says "I don't want people to go on thumbing their noses at the French with price indices that mean nothing, that don't measure the cost of living, that have nothing to do with the reality that households confront." It would be useful if the president were a little clearer about what he has in mind. Certainly indices can always be contested, but what exactly does he mean by "purchasing power?" If prices are too high--the always highly symbolic price of the baguette has just gone up--does he intend to impose some sort of medieval theory of the just price of things, or does he have in mind some market solution that will induce firms to reduce prices while maintaining wages and salaries and still finding the wherewithal to invest in the good ideas of the "inventors" and "creators" whose work he also extols? Because this seems to me a circle that can't be squared. If, on the other hand, the problem with purchasing power is that it is unequally distributed, with far too many French workers crowding the bottom of the wage ladder, between the SMIC and 1.5 times the SMIC, then why is his fiscal package tilted toward those whose purchasing power already exists?

To be sure, he does propose to achieve a reduction of prices by modifying the Galland Law, about which I have written previously. At the same time he proposes an increased tax credit for research and development. This is probably a wise move--R&D in France need to be encouraged--but the details will be important. Yet he also notes that "if you tax labor too much, you get outsourcing, and if you tax capital too much, it flees. In the world as it is, directly taxing the factors of production, directly taxing labor and capital, condemns you to lower employment, less production, lower growth, and less purchasing power." An impeccable analysis, but that leaves the option of indirect taxation on final consumption, the much-bruited "social VAT," which equally impacts "purchasing power."

The slipperiness of all this rhetoric will, I'm sure, not go unnoticed. Yet the man whom Sarkozy has put in charge of reflecting on "impediments to growth," Jacques Attali, delivered himself yesterday of a stupefying attack on the profession of economics, which hardly inspires confidence in the soundness of the advice the president will be receiving on economic policy. Attali's anti-intellectualism hardly becomes a mover-and-shaker who has at times professed a certain intellectual competence. His attack has not gone unanswered.

For La Tribune's roundup, see here. Versac's edgier take is here.


Anonymous said...

This post is another reason why your blog is so valuable. Just in case you needed a "thank you."

Unknown said...

Thanks, francofou. Encouragement is always important.