Sunday, July 8, 2012

A "Shock of Competitiveness"

What French businesses need to compete, the Cercle des Economistes seems to think, is a "shock of competitiveness":
L'ancien patron d'EADS Louis Gallois, classé à gauche, a fait l'unanimité en réclamant d'urgence un « choc de compétitivité », lequel devrait passer en France par une baisse massive des charges pesant sur les entreprises. « Il faut créer un choc de compétitivité sur les secteurs de l'économie française exposés à la concurrence étrangère. Il est impératif que le gouvernement transfère 30 à 50 milliards d'euros de fiscalité pour faire baisser les charges sociales de ces entreprises ».
"Il faut oublier les Etats. Ils en ont pour des années avant d'assainir leurs comptes et sont souvent dépourvus de vision à long terme." Yet it seems that the state is being called upon here to play an essential role by shifting the tax burden from firms to workers.


meshplate said...

Shifting the tax burden from businesses to workers! Sounds like a page from the John Boehner play book.

Mitch Guthman said...

I gather that what these people mean by “competitiveness” is entirely related to greedy workers and their living wages, medical care and social security. The other thing that’s left unspoken here is French and European workers will never be competitive with Chinese, Indian and Bangladeshi workers until they accept the same low level of wages; the same third-world standard of living; the same unsafe and oppressive working conditions. When you look at third-world countries with their Dickensian poverty, extreme distributions of wealth and no middle-class, and environmental degradation, you are seeing both Europe’s past (from which it evolved) and its globalized future. That is part of the meaning of “competitiveness” in a globalized, laissez-faire world in which every extreme of the free market is deemed an unalloyed good.

Art Goldhammer said...

Mitch, Your recent comments have exhibited a tendency to carry useful insights to unhelpful extremes. What is at issue here is not a race to the bottom in wage competition with the third world. France, after all, is quite a successful exporter of many goods in markets where its highly educated work force and unusually high productivity enable it to compete successfully. It is quite misleading to assume that competition in all markets requires equalization of factor prices across the board. The problem is that France has been losing ground not to China and India but to European competitors in markets where it used to compete successfully but where it has allowed wages to rise faster than productivity and tax wedges larger than its neighbors to build to the point where it can no longer compete with its peers. To portray the issue as one of greedy capitalists seeking to tighten the screw on exploited workers is to misdiagnose the problem in the demagogic fashion of Mélenchon and Le Pen, as is the suggestion that the euro can never work because it is comparable to the gold standard. No: the euro is like the US dollar, which is perfectly viable despite large economic differences between individual states. But it would not be viable without political union and substantial transfers between states via the federal budget and social programs. If Europe can muster up the political will to implement a comparable system, the euro can survive. There are good reasons for pessimism like yours, but it's best not to allow pessimism to turn into paranoia, which only empowers the extremes.

Mitch Guthman said...


Point taken. Certainly, especially as a reaction to an article making recommendations with which I happen to agree. You are right that France needs reforms similar to Schröder’s Agenda 2010 although, I believe that even trade within Europe is in the long run, I do believe that if Europe does not address the problems and consequences of globalization then the scenario I outlined will become inevitable. Certainly the effects of globalization have already begun to show up in the decline of labor unions and the ability of capital to unmoor from a physical presence in a state.

As for the euro, however, I fear we we will continue to disagree. Much of the reasoning behind the comparison between the euro and gold is laid out in this paper by the economists Barry Eichengreen and Peter Temin called “Fetters of Gold and Paper”. It is partly summarized by Eichengreen in this article in the Japan Times:

(The essential analysis was done by Eichengreen in his book “In Golden Fetters: The Gold Standard and the Great Depression” and his paper with Peter Temin extends the analysis to the euro situation).

Also, the eurozone isn’t like the US because its neither a currency union nor a “United States of Europe” and isn’t likely to become one anytime soon. Germany and the allied group of Northern countries are unwilling to make transfer payments to the countries of the periphery without absolute control over the budgets of those countries, which, in turn, implies absolute political control, too. This isn’t “Germany bashing” because I am in total agreement with the arguments which have been made by many people in Germany, Finland and elsewhere against fiscal union absent such control and I consider their fears concerning both political and currency unions to be well founded.