Macron’s Scandi-Solution for France

If Emmanuel Macron is to see off the populist challenge for good, he will have to turn around France’s moribund, statist economy. He has a plan, says Philippe Aghion of the College de France, that looks to Scandinavia for inspiration.

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Transcript

The presidential campaign revealed the French people to be increasingly frustrated and angry. If Macron fails to address their grievances, the populist challenge will only grow.

Macron’s plan is nothing if not bold. He wants to revive France’s moribund economy by transforming its growth model. But his is not the free-market agenda; he looks to Scandinavia for solutions.

What Macron likes about the Scandinavian model is that it combines a high degree of labor-market flexibility and encouragement of innovation with high levels of social protection. It is this universal safety net that has enabled Scandinavia to adapt to the pressures of globalization, and to leave developed countries like France behind on most measures of economic performance.

France has a famously rigid labor market. People fear losing their jobs, because they receive neither proper training nor adequate compensation if they do. So, one of Macron’s first steps will be to extend social protection to previously excluded groups such as the self-employed and to rebuild professional training.

Macron’s plan to boost the labor market’s efficiency doesn’t stop there. He will push for collective bargaining to take place directly at the firm, not the national, level. Other key elements include education reforms to ensure social mobility and equality of opportunity, and a more flexible pension system, as people change jobs and sectors frequently.

Macron’s plans to encourage innovation depend on tax reform. He wants to exempt financial assets from the annual wealth tax, lower the corporate income tax from 33% to 25%, and tax individual capital income at a flat 30% rate thereby converging to the Swedish system.

This program should help reduce unemployment and promote higher and more inclusive growth, thereby addressing the increasing anger and frustration within the French population. But first Macron will have to get it through French parliament.