Are economic reforms in France going to happen?

September 11, 2007

The activity of the new French president Nicolas Sarkozy since his election last May has been frenetic. It is hard to follow all the speeches held, measures taken,  talks held, positions defended, trips undertaken, working groups set up under his new leadership. The major shrewdness he has been able to demonstrate is his co-optation of top figures from the socialist party who now collaborate with him in some form or another – as head of the French diplomacy (Bernard Kouchner), or of the new “Growth Commission” presided by former advisor to president Mitterrand, the sulfurous character Jacques Attali. Jack Lang, major figure of the socialist party is looking into institutional and constitutional reform.

For those who understand French, I warmly recommend to listen to last Saturday’s edition of the radio programme “La Rumeur du Monde” on France Culture radio. It is moderated by the head of Le Monde newspaper, Jean-Marie Colombani and the very respected economist and scholar Jean-Claude Casanova, a French liberal (who would believe this exists?). Last Saturday they invited Eric Le Boucher, Economics journalist for Le Monde, and author of a book entitled “Economiquement Incorrect”. The second speaker was Daniel Cohen, eminent French economist author of various books appealing for substantial economic reforms in France.

The question asked by Mr Colombani to launch the discussions were: “What are the main trends of Sarkozism”? Is his tenure going to be “social-liberal”, “colbertist”, or “simply French” – combining state interventionism with liberalism?

One major constraint seen by these economists is the current economic downturn. Economic growth forecasts for France, in a context of the US subprime mortgage crisis, have been revised downwards. In its negotiations with the relevant stakeholders, namely trade unions, the government’s negotiating clout risks being significantly reduced if it doesn’t have the financial means to buy off reforms (such as compensating losers for the loss of payroll contributions, etc.). Eric Le Boucher thinks that there are two major risks: reforms can stop altogether, as under Jacques Chirac; or Sarkozy, so far an expert in striking deals and making compromises, will have to become more “thatcherist” and a hardliner to force reforms upon reluctant corporatist interests. Sarkozy cannot ignore for too long major fiscal constraints due to France’s EU committments, despite the recent respite negotiated with the EU Commission on fiscal deficits.

The speakers have not been able to identify a clear doctrine or coherent line in Sarkozy’s reform moves so far. What they agree upon is his impressive capacity to pre-empt and anticipate the pleas and demands of the various interest groups affected. Is this pragmatism? Daniel Cohen doubts it is even that, understating that there is a major incoherence and lots of interest-group politics. An illustrative example discussed was university reform undertaken in July. The initial idea was to introduce a dose of selection to the entry to French universities, especially at Master’s level, to introduce fees and to increase decision-making autonomy of universities, so far highly dependent upon a centralized system monitored from the Ministry of Education in Paris. In order to avoid major clashes, it was all watered down to the reform of the plethoric executive boards, better conditions to provide for private funding and for setting up foundations to finance universities, and more decision-making autonomy. How a real revolution in the French university system can happen without a minimum of selection and entrance fees is an open question. During the discussion the possibility was aired that universities would maybe come up in about two years with more concrete proposals on that front, which would by then be less controversial… But that is hypothetical. [Another illustrative example is this week’s hesitation of the government as to the current policies to slim down the plethoric civil service. Sarkozy cancelled a speech he was planning to hold on this matter coming Wednesday.]

To highlight Sarkozy’s highly eclectic economic policies, here a few examples that were discussed:

In his recent speech with the MEDEF – France’s major employer’s association-, Sarkozy promised more [guess what!:] com-pe-ti-tion in goods and services markets which affect highly regulated professions (pharmacists, taxi drivers, nurses, etc.) in a move to raise living standards by cutting down prices. Such reforms are seen as overdue in France. And their implementation is by far not to be taken for granted.

But the price liberalisation induced by the reforms above will certainly not be applied to energy – with the recent merger of Suez and Gaz de France, Sarkozy made it clear that price controls would remain.

Concluding from these discussions, many question marks remain over implementation of the reforms. Result? Mr Casanova made an ironic remark – France would end up implementing the reforms recommended by the IMF. As it will be headed by Dominique Strauss-Kahn, Sarkozy will end up implementing the policies of… the Socialist party…

“Ironie apart” as the French would say: the sight of the current politics in France is certainly not beautiful. But it does reflect the current opennes – even among the entrenched elites – for change, for new ideas and a path away from classic “Frenchism”. But the spectacle itself is “a la francaise”. Sad that this involves keeping the popular classes happy with tough anti-immigration policies and nationalist rhetoric.

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