Economics

Francouzská výjimka?

Oct 7, 2015 Kenneth Rogoff

PAŘÍŽ – Francouzská ekonomika se více než kdy dříve ocitá v centru globální debaty o otázce, jak daleko lze posouvat hranice velikosti a kontroly státu v kapitalistické demokracii. Pro lidi na levici představují štědré francouzské dávky a silné odbory recept na inkluzivnější sociální stát. Podle lidí na pravici nabízí přebujelá a vtíravá francouzská vláda pouze cestu k sekulárnímu úpadku. Prozatím se zdá, že pravdu má pravice.

Francouzská ekonomika se kdysi téměř rovnala německé, avšak v posledním desetiletí výrazně zaostala a její HDP na obyvatele je dnes zhruba o 10% nižší. Politicky možná Francie boxuje o váhu výš, ale ekonomicky patří o několik vah níž.

Kdykoliv někdo navrhne proměnit eurozónu v transferovou unii, jak to nedávno učinil francouzský ministr hospodářství Emmanuel Macron, předpokládá se, že Německo ponese všechny ostatní na zádech. Proč by však tuto zodpovědnost mělo mít jen Německo? Francouzská ekonomika dosahuje zhruba tří čtvrtin velikosti ekonomiky německé. Kdyby se Němce podařilo přesvědčit, že Francouzi jsou ochotni a schopni platit svůj spravedlivý díl, mohl by se tím uvolnit prostor pro spoustu nezbytných kompromisů, které se až dosud zdály nemožné.

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Kenneth Rogoff

Writing for PS since 2002
245 Commentaries

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly (Princeton University Press, 2011) and author of The Curse of Cash (Princeton University Press, 2016).

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Krzysztof Worytkiewicz Oct 12, 2015

Orthodox economists like Rogoff are always keen to display objectivity in their writings ("on the left as well as on the right" sounds always good), yet are almost always incapable to avoid these little slips of tongue (or maybe dog whistles?) revealing their blindly dogmatic thinking. "Uber, whose business model has arguably been one of the most transformative and important advances of the decade" while limiting its services "a tragedy for passengers and Uber drivers": really? "Desperately needed" Macron laws and entrepreneurs "suffering from regulations": really? "Few people feel confident about France’s economic future": really? Ok, french people often tend to think of the future in catastrophical terms, but... And so on ad nauseam. If Ivy League produces such intellectual lightweights, its reputation should be rethought.
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jagjeet sinha Oct 12, 2015

Without France, there would be no European Union.
Gallantry and grandeur have characterized France forever.
To create the EU, after defiantly demolishing the Dollar Standard in 1971, was not an easy challenge.
To persist with the Euro, against all odds and constantly challenged, is no mean achievement.
To the credit of France, they have managed to keep the European Union as a dream that can be realised.
In fact for France, it seems it is a dream that must be realised - and 75% of Europe supports them.
Whether it will remain wishful thinking depends on how it will address real challenges it faces.
The PetroEuro - using its ClubMed advantage - failed to fructify, for it was a foolproof guarantee.
The Anglosphere exercises flexibility - One Language makes it inclusive - in bringing to bear its Pacific advantage.
The Eurosphere too must bring to bear flexible geometry - One Language rather than Race n Religion - that it's current predicament does not.
Inclusiveness does not mean Eastern European geography only - perhaps further on the Continent grasping Putin's clutches.
PetroEuro, PutinEuro, or PacificEuro - perhaps the three options that will define the contours of flexibility France will have to craft.
French predicament in fashioning The Eurosphere is not an easy challenge.
Professor Rogoff provides a lucid insight into Fortress France, perhaps a great start for a Flexible France.
The Great Game was never challenged by Feeble France.
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Colombo Colombo Oct 11, 2015

I don't know if K. Rogoff reads "Les Echos", but J. Delpla, a French économist, has actually published an article on 1/10; partly dealing as well with the subject of a French social model little adapted to the integration of the immigrants, which I have criticized (see Colombo's comment on the left of the article: http://www.lesechos.fr/journal20151001/lec1_idees_et_debats/021366707504-pour-une-bonne-economie-de-limmigration-1160988.php ).

However, K. Rogoff doesn't seem to be that hostile to the preservation of the French social model, while recommending structural reforms in the wake of the Macron's law.

He nevertheless ignores a part of the French realities insofar as numerous immigrants are integrated in fact into the labor market, in particular for low qualified activities, maybe paid at the hourly minimum wage.
One should not forget either that there are not only immigrants who are unemployed, what is perfectly measurable, without ethnic classification (see for example Saska's comment, entitled "Eclairage salutaire" below this article: http://www.lepoint.fr/actualites-chroniques/2009-11-20/et-si-l-integration-reussissait/989/0/397245 )
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Steven Hill Oct 11, 2015

"France’s economy is roughly three-quarters the size of Germany’s. Persuading the Germans that the French are willing and able to pay their fair share...." This is incredible to me. Rogoff is supposedly one of the world's top economists, so how could he get something so basic so wrong. OF COURSE, France's economy is roughly 3/4 that of Germany's -- France's population is roughly 3/4 the population of Germany. France and Germany have virtually the same GDP per capita. But because France has a lot less inequality than Germany, the amount of wealth produced by the French economy is arguably better distributed to foster a broader prosperity. Rogoff, like most conventional economists, makes the mistake of once again using basic economic measurements about growth and size of economy to draw false conclusions about the overall quality of life. He ignores factors such as distribution. If you and I have the same wealth, but I spend mine more efficiently, I will have a better quality of life than you. Rogoff gets it wrong once again.
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Jean-Pierre Dumas Oct 11, 2015

It is good to see that a leading US Economist gives a good vision of the French economy, everything is right, but some elements are, in my view, more important than others.
The "binding constraint" of France is its public expenditure ratio (the highest in the world), 57% of GDP. This is not as in UK or US a variable which can go up and down, it goes only up (ratchet effect). Once you give an advantage to an economic group, they will never accept this to be reduced, whatever the situation. Look at Air France pilotes, they have a status, they are overpaid by all standards and bring the company to collapse, they have a status (it means they cannot be fired), they go on,they say no to any reforms which will be against there pity interests. They dont care if AF got broke at the end.
Are you sure that to get the excellent health care provided in France we need to spend so much on health? It is frustrating to see that a lot of savings can be done in this sector without threatening care for the poor or health care for severely ill patients. Why is it necessary to reimburse at almost 100% physiotherapists, why is it il impossible to merge small hospitals nearby? Why is it necessary to reimburse sport accidents? Etc.
France is a country of vested interest reinforced by status and the actual President (as his predecessors) are afraid to remove these "avantages acquis" (vested interests).
The second thing the Keynesians dont understand is that to afford a growing expenditure ratio, you need to raise every year a little bit tax (deficit financing has a limit). When F. Hollande took over as President he raised tax on "the rich", they were already overtaxed, they left the country, result no investment, no growth, more unemployment. Therefore the first thing to do for the French Government is to give to the market (and especially to entrepreneurs (which used to be a French word) the strong signal that the Government is serious about reducing tax and principally the tax wedge which is one of the major cause of unemployment. The socialist Government has not reduced by one euro public expenditure, it has reduced the growth rate, this is not the same thing.
Therefore there is a French economic decline (vis à vis Germany and UK), yes "France punches far below its weight economically" and it will be punching also below its weight politically, both are interlinked and Marx was right (on this point) when he wrote that the economy determines the politic, not the other way around.
To consider the existence of eurozone as a transfer union is, in my view, wishful thinking. First it has to be shown that US is a perfect transfer union between states, states with surplus transfer to states in deficit. Second before putting the horse before the cart why not respect the Maastricht rule, to have a public debt ratio below 60 (or 70%) of GDP. A monetary union cannot function if all member states have a debt ratio above 100% of GDP. Deficit cannot be monetized by the ECB as it could be the case in country with their own CB.
French official idea consist to think that they can impose other European countries to adopt their social model, with their tax system, since the French model is not sustainable, it will be difficult to convince more pragmatic countries to follow.
The only think to do for France is to face reality, reduce the number of civil servants, reduce health expenditure maintaining public service for people very sick and the poor, ask other to start to pay for small diseases, control and reduce the expansion of local government spending which is basically used to hire more civil servants.
People with a right to work (civil servants) dont accept reforms to make more flexible the economy (reduction of taxes based on the salary, reduction of the minimum wage, authorization to work for all foreigners, authorization to work on sunday, authorization to work for people who want, nothing else). The 35 hours a week is a Malthusian law.
As you rightly say the French social model is so expensive that it cannot be applied to new comers. Either France take seriously reforms or accept the consequence of a long and unavoidable decline.
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David Neunuebel Oct 11, 2015

Intersting but I would like a little more meat
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Ricardo Lemos Oct 11, 2015

The single structural reform that would markedly improve the French economy would be to get rid of the single currency. Everything else is just the old wealth redistribution to the 1% under the guise of efficiency improvements.
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jonathan Story Oct 11, 2015

More than that. It assumes that the French public will accept the reforms, which in the article remain unspecified. French political culture has barely changed at all since 1983, when Mitterrand decided after much misgiving to align the French franc on the DM At the time, I told students at INSEAD in Fontainebleau that now that the franc was aligned on the DM a parallel alignment would have to develop in terms of policy and performance. For that to happen, I said, the country's political culture wopuld have to change. It hasn't. It won't. The likelihood of this articles headline being realised is near to zero.
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Stepan Benyovszky Oct 11, 2015

This article seems strangely vague and inaccurate given professor Rogoff's stature.

It should at the very least be mentioned how much have German companies benefitted from the current Euro debt-bailout mechanic. If you think it's nowhere near the 10% per capita GDP, think how many German banks would need saving from its own government if debtors from Greece to Spain just folded. How many German corporation would not get paid for goods sold and services rendered down in the south.

The core problem with capitalism in Europe is not the transparent control that the French government has over its economy - its the non-transparent, non-democratic control that the EU bureaucracy exercises over all of its economies.
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Linda Jamin Oct 9, 2015

As a French citizen (which I assume you are not?) I would like to respond to your view of the "French Exception". Please excuse the amateurish nature of these comments. I had to use ordinary, everyday vocabulary, sorry. I've been trying to learn how to "spin" and not making much progress. I'm re-reading Orwell's 1984 as the next step. )
I realize that you are only stating your opinion here, but you are, after all, a "specialist".
I'm not a specialist but I would like to make comments as a simple citizen who is, unfortunately, subject to the consequences of other people's "opinions" which become policy.
THE FOLLOWING PHRASES CAUGHT MY ATTENTION:
“Once nearly the economic equal of Germany...” (Flip it: once nearly the economic equal of France, thanks to the US after WW2 and debt forgiveness... France did it the hard way.)

“Persuading the Germans that the French are willing and able to pay their fair share could make room for a lot of necessary compromises that until now have seemed impossible.” : (Read: The French don't seem willing or able to turn over the buying power of their exploding population to German corporations even more than they already have. )

“...few people (define “people”?) feel confident about France’s economic future “ (Right-wing hawks and their minions have been working hard to convince everybody including us of that by stating it over and over. They feel confident that they can get their claws on all the best assets once everybody is convinced.)

“President François Hollande has given Macron wide berth to try to implement desperately needed structural reforms of labor and product markets.” (God help us! And he's so far managed to put more fuel on the fire and create an uprising in the agricultural sector which equals that in the manufacturing sector. AND made sure that the FN will be on the presidential ticket next time in the second round. Bravo!)

“...(French) citizens get one dollar of value for each dollar spent on government, which might be an overstatement.”
(Have you done your homework? We get a lot more for the € than Americans do for their $.)

“Yet virtually every study of global inequality suggests that gains from allowing greater labor mobility dwarf gains from redistributing income among natives”. (Really? Cite your sources? This is, to be polite, an “untruth”.)

“A healthy French economy would do wonders to help lift the eurozone out of its malaise/ “ ( For SURE! Read: A French economy completely privatized and run by international corporations for private profit would surely lift the .01% in the Eurozone out of their “malaise” and put them on an equal footing with the gang in London and New York.)
- Alex Leo Oct 10, 2015
  
  I think you read the words but missed the article.
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j. von Hettlingen Oct 8, 2015

Kenneth Rogoff seems to be a francophile and sees a chance for a "French exception" despite sluggish growth. He highlights the economic woes - rising unemployment, weak growth, a disaffected business community, low productivity and high taxes - that continue to plague France, pointing out that it was once an "equal of Germany". Yet over the past ten years it "has fallen well behind" its neighbour. Rogoff says "France may punch above its weight politically, but it punches far below its weight economically."
During a press conference in January 2014 François Hollande disclosed his policy plans, which sent the message that France would be "the new sick man of Europe", overtaking Germany, which held this title a decade ago. Since then Berlin managed to bring down unemployment by almost half. In the last five years economy has grown at a rate of 8 percent , despite the global financial crisis and the eurozone meltdown. Rogoff says Economy Minister, Emmanuel Macron harbours a false belief, if he thinks "Germany will carry everyone else on its shoulders," just because it is Europe's economic powerhouse. This would no doubt turn the eurozone into a "transfer union," an idea that Berlin rejects.
Hollande's solution was to cut public spending and red tape. The use of state resources were to be made more efficient. The social costs that businesses face would be cut, making it more business friendly. In return, firms were expected to expand their workforces, guarantee to offer decent wages and provide better training. But the problems that France faces is that it is becoming less competitive within the eurozone and the wider global economy. Business costs are high and productivity is low. France's industrial base has been able to stay afloat thanks to massive government aid. Trade deficit grows in the absence of mechanisms that make exports cheaper.
Although "few people feel confident about France’s economic future," there is no stomach for a German-style package of reforms. Yet Rogoff claims that "France is not quite as French as it pretends to be," arguing the 35-hour workweek may just be a myth. Away from "big, state-led projects" France is now "focusing on nurturing small, high-potential technology companies."
What worries Rogoff is that ethnic groups are being discriminated and not integrated into the society and workforce. He sees "strong popular support for Marine Le Pen’s anti-immigration National Front party, together with French recalcitrance about accepting migrants escaping the war in Syria" as myopic policies. He hopes that France will implement structural reforms, because as eurozone's second largest economy, a "healthy French economy would do wonders to help lift the eurozone out of its malaise."
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Per Kurowski Oct 8, 2015

When calculating the capital requirements for banks, the risk weigh of the French government is zero percent, while the risk weight of a French SME or entrepreneur is 100 percent… and no one objects. Does this not tell you a lot about the statist mentality that has taken over the whole world… USA included?

http://subprimeregulations.blogspot.com/2015/09/my-bank-regulator-went-to-basel-and-all.html
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Peter Schneider Oct 8, 2015

It does not remain to be seen how much political support such market-oriented policies can sustain in France. In fact, it could be seen when the Lois Macrons (extremely modest proposals) had to be decreed failing to secure a parliamentary majority. This showed that there is absolutely no support for any structural reforms in France. Therefore, only one possible structural structural reform remains on the table: an immediate devaluation against Germany by at least 20%, possibly more. You wonder when the French elites will finally acknowledge that it is impossible for France to coexist in the same currency with Germany. At the latest when Mme Le Pen will be elected president, I think, so possibly in 2022. Until then the French decline will continue.
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Walter Gingery Oct 8, 2015

The French are a paradox: the most volatile people in Europe ( I'm thinking of the recent incident where demonstrators tore the clothes off the backs of a couple of AirFrance executives.), they demand at the same time that the government protect them from every form of change (e.g., UperPop).
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Jose araujo Oct 8, 2015

What is interesting to see and Rogoff kinds of admits is that, France like many other countries have experienced a slow down of economy once government diminished its role in the economy.

I think the empirical evidences are showing that the so called structural reforms are anything but structural and produce lower growth and stagnation, what's curious is that this should make economists think a bit deeper about the economic models they propose, but instead is being used has a Trojan Horse for labor and social security reforms.

So the question now is, what need to happen to show this gentlemen that reality don't quite work like the models they have built?
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Peter Lintner Oct 8, 2015

"...French recalcitrance about accepting migrants escaping the war in Syria, indicates the problems with applying the French model in diverse societies. "

What about the american recalcitrance to accept migrants escaping the war in Syria? Does this also indicates that the american model cannot be applied to diverse societies? Or does it indicates the american hypocrisy? Forcing Europe to take milions of potentional troublemakers and terrorists while refusing to take any. One wonders what was the real reason behind starting the iraq war. Destabilizing Middle East and Europe at the same time, it seems.
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Stephane carcillo Oct 8, 2015

France did not ban Uber, but only only type of services called "Uber Pop".
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Nicolas Courtiet Oct 8, 2015

Your paper is very interesting and a good view but one thing is wrong. Uber is not banned by the French law, only uber x. But effectively Uber was at first an idea to provide a solution in front of the problem to find a taxi in Paris and they try to keep their exclusivity but they failed to obtaining a prohibition of Uber
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Vanishing Leprechaun Oct 7, 2015

Sorry, Mr Rogoff. Just for curio, can you evaluate (in percentage) the macroeconomic impact of the taxi business in an "advanced" country? More or lees, I mean. No precision needed.
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Vanishing Leprechaun Oct 7, 2015

Yes, Mr Rogoff, French economy is in a worse situation in comparison of the Germany one. Right in nevertheless wrong, because the reasons of this gap are far from being what you (and the rightists) believe (or, sometimes, pretend to believe). If you know some economist, better if aware of the Euro-area economy, ask him.
Germany – a country for historical reasons (the Ruhr basin) prone to export – starting from 2000 has accumulated an huge current account surplus tanks to the Euro currency, which gave to the Country the gift of an under-evaluated currency whit respect to the its export potential, and to the previous German currency. The same didn't - quite the opposite - happened for France and about every Euro-area Country, with few exceptions. Think to Greece, Italy, Spain and so on.
This CA surplus was bigger than the one of China. But unlike China, it was made mainly (around 70%) in EU, and of this around 70% in Euro-area. You can ask some further detail to a German economist, Heiner Flassbeck (http://www.flassbeck-economics.de/; sorry, in French: http://goo.gl/mXWUfh), former Germany deputy finance minister of the Schroeder Govern).
These macroeconomics imbalances inside the Euro-area are well know amid economist and pundits, and are at the roots of the UE Long Depression, long-lasting from 2008. There are about no one not being aware of that, even amid the UE Oligarchy, and this is the foundation of the “Six-Pack” the European Commission sat-up a few years ago.
You can, Mr Rogoff, go to Eurostat web site and check these data and considerations. You can download data files, but – of course – be careful when using electronic spreadsheets: it is very easy to make mistakes – you know.
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Michael Public Oct 7, 2015

GDP is not a measure of quality of life. I would rather live in France and be poorer than live in England and be richer.
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Arsene Holmes Oct 7, 2015

Leben wie Gott in Frankreich. ( To live like God in France).

France is one of, if not the most blessed country on the planet.

It is the largest country in western Europe. It has everything : Ocean, Seas ( warm and cold), mountains, fertile plains, food, wine, cheeses, beautiful ( if a bit of a pain in the neck) women, volcanoes, forests, over 2,000 years History, Paris, beautiful and diverse architecture, fashion, luxury goods etc... etc...

Like everything in nature there needs to be a balance, an equilibrium. So to come back to God, something had to give and the choice came to be the French ( I am French so I can say it).

The root of the French people's problem is jealousy and envy. Which is why France is said to be the only communist country which works.

It is actually a very serious point as it really perverts everything and why we had an extremely bloody Revolution ( remember La Terreur and the genocide of the Chouans).

Anyway, most of today's problems in France are all self-inflicted ( taxes, unions, etc..) . If the French weren't so stupid, got their act together and made the necessary reforms, it would be again by far one of the best country in the world by a mile.

But 70 years of leftist policies and brainwashing ( as the result of envy) are going to be very hard to change.

One can always dream
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Matthew McCarthy Oct 7, 2015

"It could also provide an example to coutries everywhere of how inclusive capitalism can work." It is a nice sentiment, but I'm not sure you have supported it when you describe middling results with an exceptional natural environment.
- Matthew McCarthy Oct 7, 2015
  
  The second point I would make is that France's economy is ~75% of Germany, but its "fair share"needs to be based on its relative population in some sense - which is ~80%. To do otherwise in some sense is a reward for inefficiency - generating a conflict in incentives.
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jean-louis salvignol Oct 7, 2015

K. Rogoff refers to "strong trade unions", which is pure fiction.
The level of unionization in France is <8%, against 17% on average for OECD. There is just Estonia and Turkey slightly behind France.
https://lc.cx/Z9cR
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https://prosyn.org/9knrciMcs

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