Wednesday, 28 February 2007

Presidentielle 2007 - French vs UK Social Models

“On a more serious note I know their social model doesn't bring as much economic growth as ours and leads to even more bureaucracy than ours, but the Anglo-Saxon model does seem to be at the expense of unhappy social divisiveness. I am not sure the extra material wealth is worth it.

I am very interested in politics, although I have never joined a political party. My interest gets more intense around election times and I must apologize in advance if you think that some of my remarks are excessive. I should stress that my negativity in what follows, towards the French socialists, does not extend to New Labour who are more realistic. (Although I did once say that I would leave the UK if Gordon Brown ever came to power, but in the end I anticipated that event by a couple of years). Here New Labour would be considered right wingers who pursue “liberal” economic policies. (“Liberal” is a real dirty word here, it’s time to invent a new one).

The problem with the comparison of the French and Anglo Saxon social models is that it is implied that they are alternatives. I believe that to be false, because the French system does not deliver greater overall contentedness and less social divisiveness.

In France the overall unemployment rate is in excess of 8% but in the banlieu, amongst the youth of immigrant families, it is more than double this. The riots of last year were, I think, due to a feeling of hopelessness amongst the youth who cannot see a future for themselves. In general there is a national feeling of malaise, a lack of confidence in the future and a real lack of opportunities for the young and the seniors (that means anyone over fifty). We have been through similar periods in the UK.

The French are also aware that their disposable income is falling year on year. Companies are using the fear of unemployment to keep wage increases lower than inflation, whilst at the same time the Social Charges have increased, and so people have less money to spend. (Because of the Jospin 35hr maximum working week you are not allowed to work longer and get paid for it if you are salaried).

There is considerable agreement on what is wrong with France, and what’s more they all say they want change but, of course, they don’t agree on what and how. They also seem to realize that another swing of the pendulum from right to left will not deliver what they want, hence the current interest in the centre candidate Francois Bayrou (UDF).

I find it strange that the French are all aware that their overall taxation rates are among the highest in Europe but they are not clamouring for them to be reduced, just saying they are too high and then quietly working on the black.

As an example of the total tax take I will quote Christiane’s niece, who is a 40 year old single mother, qualified as a speech therapist. She told me that as a member of the "professions liberales" the total deductions from every invoice she puts in are 77%. She is not a high earner, because the rates she can charge are limited by the state. As an artisan my deductions would have been about 15% lower, (unless I employed someone, when I would then also have to pay a 15% tax on my professional assets each year). Yes that’s right; they have different social charges for different professions, and different pension rates and also different employment laws! Mad!

The left is very strong in France. There are actively supported communist and extreme left candidates whose ideas get significant air time and weigh quite heavily on the Socialist Party (PS). The left in France believe fervently in Social Justice and the redistribution of wealth but have very few suggestions to help in the process of creating wealth to then redistribute. In fact the creation of wealth comes very low on their list of priorities. In their philosophy profits should be given first to the workers and then what’s left to the shareholders. Although they cite mondialisation as a reason for all their problems, they don’t really accept that we all live in a world market economy where investment capital will flow towards the best conditions for making a profit. In fact they hardly mention investment at all, except in terms of training and research. Their instinct is to protect what they have, subsidise individuals and reject change.

I will give an example. Everyone in France is afraid of “delocalization”, in other words, closing French factories and relocating to Asia or Eastern Europe. So Segolene’s policy is to adjust the corporate tax system to penalize companies which re-locate. But the PS does not stop to think whether this will affect the decisions of foreign companies concerning where to invest new capital. I believe that this policy would lead to a progressive decline in the competitivity of French companies as a result of under-investment. In 21st century Europe it is not possible to live behind a wall of protectionism and exchange controls, and thus try to prevent businesses from making rational investment decisions. Bizarrely this policy is promoted by both the extreme right and the extreme left.

Another example is the PS’ idea to re-launch growth in the economy by using an increase in the minimum wage (SMIC) to 1,500 euros/month as against 1,254 currently, a 20% increase. This is after it has already risen 18% in the last 5 years, much faster than salaries. They don’t stop to ask where the money will come from in businesses using low paid workers, or concern themselves about whether it would lead to some businesses becoming unprofitable and closing, or others deciding not to even start up. (Somehow it will promote growth in the economy which sounds a bit like printing money to me). An economist has called it “le Smicardisation de l’emploi”!

I can’t decide whether these highly intelligent people, who are better educated than me, really can’t foresee the next logical consequence of their flawed policies, or whether they are perpetrating a conspiracy to fool naïve electors?

The right (Sarkozy UMP) also believes in Social Justice (they are above all French) but their analysis of what is wrong (low investment, low competitivity, low levels of innovation) inclines them towards helping businesses to create wealth and this makes people suspicious because they don’t generally believe that the wealth will come to them but that it will go to the (foreign) shareholders.

In general I am not particularly impressed by Sarkozy, who is struggling to overcome his Rambo act last year when, as interior minister, he started talking zero tolerance on delinquents and cracking down on immigration. He also has the disadvantage of still being part of the existing UMP government which has made the usual mistakes and not delivered very much of consequence.

In my opinion, neither Nicholas Sarkozy nor Segolene Royal, thus far in the campaign, has demonstrated any of the necessary grasp of foreign policy, which is a French President’s direct responsibility. I expect you heard about Royal’s gaffes over Quebec and Corsica, but these are long forgotten now. Who was it who said a week is a long time in politics?

I will be bold and make some predictions. If the right win the Presidency and the Assembly, then after some months they will run into trouble with the unions who, supported by the left, will challenge a key policy, probably to do with limiting union power. France will descend into the streets, and grind to a halt, until the government withdraws to lick its wounds. (French governments always back down against popular opinion; remember the attempt to introduce a new form of employment contract, the CPE). The Prime Minister will be changed and no further serious reform will be attempted. During the rest of their five year term, France will continue to decline relative to its European neighbours.

I have not spoken much about Bayrou, who presents the French with an alternative because he proposes a broad Left-Right coalition, citing Germany as a successful example. He has a problem because his UDF party is traditionally right of centre, but he does have the appeal of avoiding another swing of the pendulum and his coalition approach is his only serious way of distinguishing himself from the other parties. Personally I dislike coalitions, unless they are forced by circumstances they are unlikely to hold together for very long and usually lead to weak governments. To propose it as a policy objective seems to me to be politically naïve. If he wins the Presidency, (which at the moment looks unlikely) then a wishy-washy set of policies will be introduced, which tinker with the margins of the problems, whilst more radical propositions will be discarded, because they will not receive a majority of votes. In this way he will avoid the revolution in the streets but, although it could be amusing to watch the Left - Right juggling act, it would not seriously change anything, and again France will continue to decline relative to its European neighbours.

If the left win they will introduce their very protectionist, business unfriendly, policies without complaint from anybody who matters politically, and quietly foreign investment will dry up and French companies will transfer their assets overseas. At the end of five years unemployment will be higher and disposable incomes lower. Taxes will also be higher, discouraging initiative even further. If they are unlucky there will be a downturn in the world economy which will make things worse. In this scenario the crisis will come from further rioting in the banlieu and to deal with that they will try to create unreal jobs with borrowed money. (Sounds familiar doesn’t it)? It is possible that after this a realization might emerge that change in the other direction is imperative. In a Machiavellian sort of way this could be the best way of achieving the necessary change in France.

So you can see that France like the UK is divided politically and I believe that it will struggle to live up to its political ambitions either right or left. The resulting lower growth will bring more social division and lack of opportunity, and the brightest young people and entrepreneurs will leave France.

The polls are currently showing Royal and Sarkozy level on 28/29% and Bayrou at 17%, with Sarkozy winning narrowly on the second round. Whichever way they vote, France is going to go through worse times in the next five years than it is currently and maybe it’s a good thing that we have a UK based income and don’t live in a city!


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