Thursday, April 17, 2014

Le Monde Backs Valls' Turn to Austerity

Le Monde takes the view that critics (like me) of Valls' "courageous" insistence on shrinking the bloated French state despite persistent recession are lamentable and pathetic, unwilling to face reality, etc.
Bref, dès qu’il s’agit de réduire – ou plus exactement de tenter de réduire – les dépenses de l’Etat, des collectivités locales ou de l’Etat-providence, ce n’est jamais ni le bon moment, ni la bonne méthode, ni la bonne politique. Toujours moins, implorent les uns ; toujours plus, réclament les autres.
Le Monde, in short, is playing the role aptly dubbed by Paul Krugman that of The Very Serious Person (VSP). In the blogosphere, this tactic is known as "concern trolling." We are deeply concerned, intones the newspaper of record, that those who are screaming cris d'orfraie at the latest turn of the austerity screw, do not realize what an unconscionable burden they would have us leave to generations still unborn from now until eternity.

Duly noted. Nevertheless, je persiste et signe: this is a stupid policy, it demonstrates both lack of economic understanding and lack of fortitude, it plays into the hands of the political extremes, it further disconcerts and disorients the left electorate, and it fails to address the real difficulties of the French economy.

On TV last night, Valls angrily responded to a question about pressure from the European Commission by saying "France is a sovereign nation." Like Hollande, he avoids exploring or explaining his actual economic analysis by treating "debt" as a moral rather than an economic category. He does not explain why a debt of 97% of GDP is an intolerable burden for future generations while a debt of 80% of GDP is not. He avoids detail about the precise timing of the various receipts and outlays he proposes to tamper with. He discusses. legitimately enough, the need for reform of the state but fails to say a word about the need for reform in the private sector and how the state might encourage it--and this is the crux of the matter.

France has been slower than some of its European partners to react to changes in the global marketplace and shifting factor supplies and prices. The challenge for the government is to lead a transformation that it cannot control in detail: dirigisme's day is over, but the government still has a role to play in guiding the restructuring of the private sector. A true leader would be able to articulate a vision of the "social market economy" of the future rather than simply invoke it as a slogan. Valls appears to think that he can get by by putting a tough face on a continuation of the status quo. It won't work.


FrédéricLN said...

"fails to say a word about the need for reform in the private sector and how the state might encourage it" I share this concern.

But we can read a very very tiny, but positive, sign in this direction: the indication that the price at which the Sécurité Sociale (well, the State) pays pharmaceutical drugs, should (in the future) be in relation with the benefits of these drugs. When we hear about Mrs Cahuzac then Morelle (both have been in charge of the relations with pharma companies under the Minister of Health, both have acted as lobbyists for the same companies), such a sentence, as shy as it seems, is a change.

(France pays presently drugs at a higher price than any other European country used as a comparison basis. The present law does not foresee any call for tenders process).

FrédéricLN said...

oops, Mr Cahuzac then Mr Morelle.

Anonymous said...

Even the austere UK, with the fastest growth in the G7, hasn't cracked the secret of export-led growth. Supplying luxury brands to the Chinese is a limited option. France's big problem is its declining balance of trade, and that's very bad news for the whole European project.

Obviously all this crap about the burden on future generations is an irrelevancy. Without thriving Italian and Spanish markets for French industrial goods, it's difficult to see how any amount of macroeconomic tinkering is going to help. Wolfgang Schäuble has a lot to answer for. Europe's nations really need to be buying stuff from each other.

Focussing on the basics - like unit labour costs - is a start, and anybody who can move France in that direction deserves backing. France's labour laws haven't worked - or haven't worked for everybody. Time to make some hard choices again.


Mitch Guthman said...

@ JM,

Although I largely agree with what you say (particularly about the need to have some kind of economic growth in Europe), I would certainly hope that discussions about reducing labor costs would be a part of a real debate about globalization and the unrestricted mobility of capital. In that context, labor costs are clearly far from the most significant impediment to increases in French exports. As you observe, the example of Germany demonstrates that the secret is to be exporting to other, prosperous eurozone countries.

In other words, France’s most significant problems remain finding a strategy to avoid being forced to compete directly on labor costs with Vietnam or Bangladesh and getting out of the euro straightjacket so that it can sell to sell to thriving european markets and be competitive elsewhere.

A focus on labor costs is very much like telling a man who is being forced to run a race with a 50 pound pack of rocks that the best thing he can do to improve his speed is to remove his shirt. Even in the best of times, the euro is a deadweight for any country that isn’t Germany but, at times like these, it’s the kind of handicap that can make winning impossible.

DavidinParis said...

Art, I whole heartedly agree with your take on this situation. This stated, France needs to shrink its expenses and I can certainly identify where to start. It is called bureaucracy (administration) that paralyzes every aspect of life here by creating a large sector of people whose very job is to slow innovation and emergence of new ideas, jobs and small companies. Shall I recount my own experience here? Perhaps, but I know that many others have this same position. With a top heavy administration, it somehow still takes weeks to get responses, permissions, access to the marché, etc. etc. To give one example from my own place of work (French University), it is easier to permanently employ a gestionnaire and virtually impossible to employ someone who actually does research. Not to belittle one job versus the other, but the situation is very lopsided. More recently, we researchers have been informed that working later than 7pm or even briefly on the weekends or holidays requires a pre-clearance in written form 72 hours ahead of time to be signed and submitted to 2 different offices. What kind of message is this sending to students, to young scientists and the next generation? How about the absurd rules being imposed that sending emails off-hours is now verbotten? Critics of these new rules will be duly informed that France remains more productive than the US and the UK and that these anglo-saxon critics should be quiet. I wonder if this is really still the case?

Anonymous said...

@DavidinParis It never ceases to amaze how foreigners moving to live in foreign cultures carry on relentlessly about the "failings" and "shortcomings" of the host country they have chosen to live in. Every country on earth runs itself in the manner to which it is accustomed so who are we foreign residents to go around muttering "Why do the French/Portuguese/Spanish/Italians/Greeks/Japanese do this/that/or t'other..." prior to offering up our own culturally-bound "solutions". Surely there is no point to beating up over the "why". That's how it is. Foreigners taking up residence anywhere presumably do so in part to enjoy the cultural differences, learn the language and savour native norms, folkways and mores. Otherwise why not just stay home?

FrédéricLN said...

@DavidInParis: as a French-born and French-based Frenchman, working in France and not especially admiring the way (USA) Americans work, I fully share your point of view.

But such a way of doing is not typically French, in the sense where it would express some kind of "éternel français". It did not happen this way in the years 1946-48 for example, that I studied a small bit, and maybe not in the early 1970's.

It's a typical organizational behavior in the largest institutions, esp. the public ones, in the present years. They just loosed any kind of compass, "perdu le Nord". It will change some day, some revolution will come — probably just from the iPhone people already have in the pocket, and use in their professional tasks, as conservative as they may seem to be.

We were not able to deliver change, so we import it, at our expense, and unconsciously, but it's better than nothing.

FrédéricLN said...

Approval rates on Mr Valls's plan are quite the same (and in the same order) among voters of the right, or of the left :

The freeze on social allowances, and esp. on pensions, are the two less approved (or more disapproved) decisions, among 5 tested.