French protests : it’s the politics, stupid!

There are some offers you can’t refuse. An invitation to join the permanent roster of Afoe is one of them. Let me first say, then, that I was initially happy and thrilled and grateful to be part of this wonderful blog. All the more so since it means that I’ll be ineligible for the Afoe Awards next year, and thus spared the humiliation of a third crushing defeat in a row. (For those of you who are scratching their head and wondering “who the hell is this guy?”, check this post)

If is say “initially”, it’s because, as the French guy of the team, I now have the daunting task of trying to explain clearly our current social row over the Contrat première embauche (First job contract) to a mainly non-native readership. As it happens, the BBC has already done a quite decent Q&A on the topic. So go read it to get the basics. And then come back here if you want my long and -I hope- not too muddled thoughts on what it all means.

First, I think there is a basic point of agreement among all serious observers: a repeat of Mai 1968 it isn’t. Sure, there are some superficial similarities, having to do with the fact that students, the Sorbonne and general strikes are thrown into the mix, while various heavy objects are being thrown at CRS. That said, and despite some clever new variation on old slogans (like some students opposed to the closure of the universities shouting that “it is forbidden to forbid students to study”), the goal of today’s students couldn’t be more different from the one of their precursors 38 years ago. In 1968, students were revolting against the idea of their own future being a dull career in plastics. Today, the desperately want the career and are afraid that what they’ll get, instead, is a life of short-term job contracts, instability and unemployment.

As seen through the prism of the international press, the hostile reaction of the youth to the reform of French labor laws is counterproductive at best, idiotic at worst. The narrative goes something like this: a bold, if clumsy, government once again tries to instil a much-needed dose of flexibility in the rigid French labor market; as usual, to borrow the title of a column in the WaPo, “French Take to the Streets to Preserve Their Economic Fantasy”. After a protracted showdown, the government will eventually back off, thereby killing any chance of reverting the slow but inevitable French economic decline. Film at 9.

In fact, things are a wee bit more nuanced. For the full-throated assault on the lazy international consensus Jerome from European Tribune (for instance, here or here) is a must-read but let me quote a bit from noted leftist Eric Chaney of Morgan Stanley :

The popular explanation is that the so-called French ‘social model’ is so deeply entrenched in the genes of people living in France (French or immigrants) that no reform is possible, even when it would make people better off. This is wrong and contemptuous, I think. Everywhere in the world, workers want guarantees for their jobs. When labour protection has become excessive and unaffordable, as it is in France, labour market institutions must be reformed. Many European countries have done their homework, from the UK to Sweden and Denmark, in very different fashions: for instance, jobs are more protected in the UK than in Denmark, but unemployment benefits are much higher in the latter, where the motto is ‘protect workers, not jobs’. In continental countries where reforms took place, they were the results of negotiations, not confrontations.

Chaney goes on to point out that the real French problem when it comes to the job market is not an absence of reform. Rather, it stems from the fact that France has developed an entrenched case of insiders/outsiders disease:

In short, the French labour market is a two-tiered market with, on the one hand, highly protected workers (civil servants and holders of permanent contracts, mostly in large companies) and, on the other, highly flexible jobs (internships, short-term contracts, temporary jobs) for new entrants, immigrants and, more generally, unskilled workers. The reason why college and high-school students are demonstrating, sometimes violently, is obvious: they strongly resent this situation as unfair — why would they accept reforms while nobody is questioning the privileges of the insiders?

What’s more, regardless of whether the CPE is good idea, economically speaking, it is fair to say that Villepin’s governing method has done a great deal to heighten the crisis.

The first thing to keep in mind is that the French parliament is inherently weak: when the government really wants a law to be passed, it always gets its way. This is due in no small part to the fact that the French constitution gives the government various procedural tools to discipline rebel MPs. The most famous and effective of them is the so-called 49.3 (named after the third paragraph of the 49th article of the constitution), which confronts MPs with a stark choice: either let the bill be adopted without a vote or vote to overthrow the government.

Theoretically, that could mean that painful reforms would be easier to implement in France than in other countries. And such procedural tools are of course quite handy when you’re trying to pass a budget without a parliamentary majority. Practically, however, it often creates a perverse set of incentives: why bother trying to build support for your bill if you are 99% sure that the law will be adopted no matter what? The problem, of course, is that snubbing the trade unions and the political parties is a sure-fire way to trigger a direct confrontation between the government and the famed French street.

This is exactly what happened with the CPE. A similar contract was introduced last summer for small businesses (less than 20 employees). At the time, Villepin assured the trade unions that this was really an experiment, and that, of course, they will be consulted before any extension of the scheme. And then, out of the blue, last January, Villepin announced his infamous CPE, which was attached via a last-minute amendement to a bill designed to tackle the problems of the French banlieues.

Predictably, the trade unions -even the moderate, reformist CFDT– were outraged. Less predictably many employers were skeptical and other ministers did let it know to the press that they weren’t exactly warm to the idea. Fearing students protests, Villepin then decided to speed up the parliamentary procedure (using the 49.3 in the process), so that the bill could be adopted while the universities were closed for Spring break. Clearly not the best way to convince people that the law could stand on its merits alone.

Another important thing to take into account is the fact that the current right-wing French government has been more or less unpopular since the second-half of 2003. The regional elections of March 2004 were an humiliation for the ruling coalition. The election for the European parliament in June 2004 saw the ruling party garner a meagre 16,6% of the votes. And, as some of you may remember, the May 2005 referendum on the European constitution wasn’t especially a triumph for the powers that be. Which means that Villepin didn’t have that much political capital to spend to begin with (he was the first PM since at least 25 years to have negative approval/disapproval spread when he came into office).

So there you have all the right ingredients for a major political crisis: an unpopular and pigheaded Prime minister, a rubber-stamp Parliament, pissed-off trade unions and French students who feel that the government has just kicked away the social ladder in front of them.

One of the things you hear quite often in certain French circles is the idea that the only way out of our current economic mess is a good purge, Thatcher-style. Sure, they say, Thatcher’s methods were brutal. But didn’t the painful structural reforms of the 1980s pay off quite nicely for Britain in the long run? I mention that thesis because I’m struck by how much, ideological differences aside, Villepin resembles Thatcher: supremely intelligent, immensely self-confident, wearing his patriotism on his sleeve, cocksure, self-righteous, contemptuous of the lack of “balls” of ordinary politicians.

Which means, I suppose, that Villepin’s not for turning. Even if this CPE turns out to be his Poll tax.

56 thoughts on “French protests : it’s the politics, stupid!

  1. From an admittedly alien perspective, De Villepin appears to be on the side of the angels this time. On the motivation for the CPE reform, try the OECD Economic Survey of France 2005, published in June last year:
    Improving labour market performance:
    http://www.oecd.org/document/56/0,2340,en_2649_201185_34992056_1_1_1_1,00.html

    Or this OECD Policy Brief in PDF format without the (helpful) graphs in the above link:
    http://www.oecd.org/dataoecd/57/55/35006471.pdf

    This Policy Brief is really worth reading IMO although the following passages are perhaps worth special attention:

    “Employment protection legislation (EPL) makes dismissing workers on standard employment contracts relatively difficult and expensive in France. For many firms, most of the time, this is probably a minor inconvenience. But it causes significant extra costs for firms in difficulty or facing fluctuating market conditions and over time it has contributed to an unwillingness to hire, especially in uncertain times. . . ”

    “The government should work to change the counterproductive approach of placing the major part of the burden of protecting workers against economic fluctuation on employers, by relaxing EPL on the standard contract. Having a number of different types of contract, each designed to allow some flexibility but heavily circumscribed in their application, makes for costly complexity. The current situation is paradoxical: despite substantial assistance to the unemployed and strong apparent employment protection, employees feel great uncertainty over their future. A number of recent independent reports, as well as reform experience from some other countries, suggest that it is possible to reform EPL without jeopardising adequate job security. One way to increase both flexibility and security of employment, while reducing the current complexity, would be to absorb the different contracts into a single standard contract with the degree of protection varying with length of service, while reinforcing measures to help the unemployed find new jobs. . .

    “The relatively generous level of social benefits means, as mentioned earlier, that material incentives to take jobs at low pay can be quite small for an unemployed person. Therefore, to improve labour supply, eligibility conditions for unemployment benefits should be tightened up for those who do not actively seek work or refuse jobs offered to them too often.”

    I suspect much of that analysis will get dismissed as the predictable anglo-saxon stuff which can be safely ignored. Curiously, the OECD offices are based in Paris so the OECD perspective can’t be entirely out of touch and may be they have something when they can point to France’s persisting high rate of unemployment and its especially high rate of youth unemployment.

    For comparisons, the latest comparative official unemployment stats for EU countries as released on 1 March 2006:
    http://europa.eu.int/rapid/pressReleasesAction.do?reference=STAT/06/25&format=HTML&aged=0&language=EN&guiLanguage=en

    For historic data on OECD standardised unemployment rates:
    http://www.oecd.org/dataoecd/41/13/18595359.pdf

  2. I have heard that it is very difficult to get credit of any sort in France if one is working without a permanent labor contract. Even renting an apartment is usually impossible.
    Is this correct?

  3. Oliver,

    How and why would firing De Villepin change the fundamentals in the job market?

  4. Good post, Emmanuel, and a fair summary of the situation.

    The only point that I would like to flag is that the economic situation of France is not so dire that it is in such a need for drastic reforms. It has created more jobs than the UK economy over the past 10 years – and a bigger fraction of these jobs were in the private sector.

    The two issues that need to be addressed are:

    – that insider/outsider distinction, which you rightly flag, and which this CPE law only reinforces;

    – that permanent description of France as being in a situation of economic crisis, which depresses morale and creates a vicious circle of pessimism and fear.

  5. Bob,

    it would make room for a competent PM. This guy already screwed up with the dissolution he suggested and know he’s doing it again.

    As for the labor market, it is right that it needs more flexibility. But Mr. de Villepin doesn’t have the balls he thinks. If he had, he’d introduced this change for everybody. Limiting a vulnerable minority’s rights won’t help. If you need to make cuts in social security, you cut once, deeply and quickly. Salami tactics won’t work.

    This error has brought many governments down. The last example was Mr. Schröder.

  6. Hi Oliver,

    Germany’s electorate may have run out of patience or illusions over Mr. Schröder at the last election but at least the extensive reforms that Schröder’s government introduced in the tax and benefits systems seem to be working, may be not as fast as he and many hoped, but they are working.

  7. Hit tip to John Quiggin at Crooked Timber:

    “Lucent Technologies, the phone equipment maker that became a symbol of last decade’s boom-and-bust cycle in telecommunications, is in negotiations to be acquired by Alcatel of France for about $12.6 billion, people close to the discussions said last night. . .

    “To Alcatel, Lucent’s most valuable asset would be its C.D.M.A. wireless technology used by Verizon Wireless and Sprint Nextel, two of the largest cellphone companies in the United States. Though only about a third of mobile phone subscribers worldwide rely on this technology, Verizon and Sprint have spent heavily to upgrade their networks to provide more next-generation data services.”
    http://www.nytimes.com/2006/03/24/business/24deal.html?_r=1&oref=slogin

    I would have thought that the very kind of takeover bind for commercial assets in the US that the US Congress would regard as a serious threat to national security.

  8. Btw about Alcatel, for recent news about its corporate performance:

    “The French telecommunications company posted a Q4 net loss of euro 1,498 million compared with a net income of euro 426 million in the same quarter a year earlier. Group sales for Q4 were euro 6,766 million, down 20 percent over pro-forma sales of euro 8,505 million from Q4 2000. . . ”
    http://www.theregister.co.uk/2002/01/31/alcatel_posts_record_loss/

    It all rather reminds me of the hilarious unfolding saga of Debit Lyonnais in the mid 1990s:

    “Founded in 1863 in Lyon by Henri Germain, Crédit Lyonnais was nationalised in 1945.

    “During the 1990s, the bank was the subject of numerous financial scandals, contributing to a huge debt of around 150 billion French francs (nearly 23 billion Euros). This was caused by directors exaggerating investments and by problems with the bank’s subsidiary companies. The bank’s motto of the time was ‘Le pouvoir de dire oui’, or ‘the ability to say yes’, and saying ‘yes’ was indeed something which the bank did rather too often.

    “Crédit Lyonnais notably owned the MGM movie studio for a few years, during which time Giancarlo Parretti was the chief of the studio.

    “Much of Crédit Lyonnais’ Paris headquarters was destroyed in a major fire on May 5, 1996. The fire began in the main trading room of the bank and was one of the worst fires to damage a Paris building in 25 years. The fire burned for over 12 hours and two-thirds of the building was destroyed, along with crucial bank archives and computer data. . . ”
    http://en.wikipedia.org/wiki/Cr%C3%A9dit_Lyonnais

    As Edouard Balladur used to say: “What is the market? – It is the law of the jungle. And what is civilisation? It is the struggle against nature.”
    http://yoz.com/wired/1.01/features/culture_war.html

    Don’t blame me – I just dig the stuff out from the archives.

  9. Bob, your spamming is getting annoying, although I suppose having the same trolls as Crooked Timber is an honour, dammit.

    2002 isn’t very “recent”, and perhaps you could point us to a major telecoms manufacturer that didn’t lose a ton of money in the tech crash of that year? Lucent certainly did, Marconi went bankrupt, Qualcomm, Moto, Ericsson all tanked to varying degrees – the only one that did non-catastrophically was Nokia.

    (Warning – I cover this stuff for a living)

  10. Alex,

    So a “troll” is someone you disagree with?

    That’s all it means to you?

    Now to my mind a “troll” is someone
    who seeks conflict for the sake of conflict.
    Someone who tries to get others angry by
    making controversial statements, and yet
    has little or no interest in exploring the
    details of the subject in question. That
    is they lack substantive interest in the
    subject they supposedly care so much about.

    Obviously this is a subjective definition,
    but I do run into people that fall into it.
    I’ve noticed that such in addition to the
    above are prone to name calling and will
    make many (short) posts that repeat the same message over and over again.

    Bob, in my eyes, would seem to be the very opposite of a troll.

  11. Emmanuel, great to see you on AFOE.

    I think Bob has raised an interesting point, namely the comparison of the political acceptability of these reforms with Schroeder’s. Schroeder faced down (weakening) union power, but did not alienate a whole section of the population in the process.

    Previous major reforms in France
    http://www.wcfia.harvard.edu/conferences/tiberghien/papers_pdf/TiberghienChapter4-France.pdf
    led by Delors as Finance Minster in the 80’s and the later “reformes honteuses” in the 90’s were deeply resented but were seen as at least part of a coherent national strategy; can the same be said for de Villepin’s efforts?

    I think it is the sheer divisiveness of this French government’s latest measures that differentiates them from the past. This issue of divisiveness is also one reason why (unlike most people, it seems) I think the German ‘grand coalition’ is a pretty good outcome for the German economy.

    In Britain we used to think that the Tories were best at implementing defence cuts while Labour had more latitude on social issues; perhaps the same is true on the continent?

  12. Thanks, Mark. Smearing me as a troll and a spammer is really just a way of avoiding the issues at stake – not to mention a sure sign of intellectual bankruptcy. It’s what I expect.

  13. Poor you. Verily a Christ among commenters. Perhaps you’d like to explain what Credit Lyonnaise accounting scandals have to do with the CPE?

  14. The Credit Lyonnais scandal, which blossomed in the mid 1990s, is a clear sign of how the ENARQUES (*) run France and mix business with government. It has long been thus – the historic provenance goes back at least as far as Colbert in the reign of Louis XIV.

    IMO existing stakeholders in Lucent might find that of interest regardless of whether you share the perspective or not. The source for the news on Credit Lyonnais I posted – and I had a choice of several – is entirely independent.

    Another indication of the flavour is this following – but not directly connected – news story. About six years I ago, in another European forum, I recalled a news report from one of the Sunday heavies in Britain in the early 1990s. The report of that time was that a major state-owned airline in Europe had taken to bugging the seats in its business class passenger seats to eavesdrop on and capture snippets of business conversations. The recordings were passed on to the state security service which would digest the recordings and pass down any valuable commercial intelligence gleaned to national companies to exploit. The important point is that I didn’t name the airline in my post but the following post – from an American ex-pat who had long lived in Germany – did so and correctly. Evidently, others around Europe were already familiar with the commercial security risk.

    (*) Graduates of L’Ecole Nationale d’Administration – such as Giscard d’Estaing, Jacques Delors, Chirac, Balladur, De Villepin, etc etc.

    The amazing Credit Lyonnais affair is hardly an encouraging testimonial as to the commercial skills of the Enarques but then:

    “Supporters of President Jacques Chirac in the French parliament are calling for the abolition of one of the country’s most sacred institutions – the elite Ecole Nationale d’Administration, or ENA. Founded by General Charles de Gaulle in 1945 to provide a generation of technocrats to rebuild the country after World War II, ENA processes a super-select of no more than 100 young men and women every year. . . . ”
    http://news.bbc.co.uk/1/hi/education/2426405.stm

    Close followers of the news from France may also recall that Trichet, the current head of the European Central Bank, before taking up the appointment, was obliged to stand trial for his personal role in the privatization of Credit Lyonnais:

    “Jean Claude Trichet, the man chosen to lead the European Central Bank (ECB), has been acquitted of helping to falsify accounts at a French bank. . . ”
    http://news.bbc.co.uk/1/hi/business/3000170.stm

  15. John Montague: Many are wondering if Dominique de Villepin believes in its own politic, or in any politic at all. Delors & his ministries did, indeed : they just did what they thought right, and whoever liked it or not, no-one would accuse Delors of double-thinking. But “Liberal-whateverism”, or however you call CNE or CPE, is juste one of the various faces of this majority’s econonomic politic.

    For example, in those very same days we’re talking about this, another “reform” named PACTE (or YASSPJ : Yet Another State-Sponsored Public Job) is beginning.

    Maybe the problem is not the reforms, but the insincere reforms. Micromanagement had become the French political class most common disease.

    btw: forgive the little Frenchie with so little English.

  16. This official UK Foreign Office warning, as of 14.43 hours on Saturday 25 March, is currently flagged on the BBC website:

    “Britons have been warned not travel to many parts of France, amid fears of further violent protests against new employment laws.

    “The UK Foreign Office urged travellers find out where demonstrations were planned, and to stay away from them.”
    http://news.bbc.co.uk/1/hi/world/europe/4844924.stm

  17. Bob : there is a solid case to be made for single job contract and for a mix of easier dismissals / higher level of unemployment insurance and better employment services. Although one should add that this is simply not the case that a more flexible job market means a lower rate of (aggregate) unemployment.

    But adding a new special job contract is a curious way to get to a single contract (all the more so since Villepin’s method is a good way to kill any further reforms for a long time). Besides, the youth job market is already flexible enough.

    Peter : I guess it all depends on what housing market you’re talking about, but this idea contains more than a grain a truth in the case of, say, Paris : too many students and young workers chasing too few affordable houses means that a landlord usually gets to choose the applicant with the highest financial garanties, i.e. a permanent job contract.

    A big debate has been wether landloards and banks will regard a CPE as as good as as gold (i.e. a permanent job contract). The governement has said they will (and asked bankers to say so) but many people are -rightly, in my view, suspicious.

    Claus : I suppose you meant CP 🙂
    No, it will go on. Maybe not as regularly as before, but go on it will.

    Jerôme : IMHO, the 10-year employment comparison with Britain is a bit misleading. Britain was already running close to full-employment back in the midlle 1990s, with a high employment ratio. France had much more room for improvement. And I think that the need for reforms in the labor market is pretty obvious : the structural component of unemployment in France is worryingly high.

    You’re right about the larger point, though. French economic record of late isn’t great, but not as awful as most members of the punditocracy believe it is (especially if their idea of economic thinking is : government = bad ; tax cuts = always good ; welfare state = a drag on growth, etc.). Which reminds me of one of my favorite article of all times :
    http://web.archive.org/web/20011201003446/http://www.fortune.com/indexw.jhtml?channel=artcol.jhtml&doc_id=205401

  18. It´s not Schröder´s labour market reforms that are producing effects in Germany now. It´s the fact that the Schröder government was emulating Bush´s deficit-spending policies and violating the Maastricht rules.
    A recent book highlighted the fact that there are 400 000 so-called “Praktikanten” in Germany. These are mostly unpaid young people who are supposed to get acquainted with the business world by way of taking a short-term job. Increasingly, though, large companies like Bosch and BMW are offering completely unpaid “senior trainee” jobs for unsupervised work in areas like software development to academics (indeed, one such recent offer was aimed at human resources personnel to supervise the hiring and firing of such unpaid “Praktikanten”: the capitalist ideal of paying zero wages is brutal reality for a number of people that is large enough for almost everyone below the age of 35 to know at least one person in such a situation and thus being influenced by their experience in forming their expectations for the future.

    Introducing more flexibility into worker protection laws that aren´t worth the paper they are printed on would basically just redistribute jobs from the old to the young. This is a zero-sum game and thus only worth playing to political actors with rather limited ambitions.

    BTW, in accordance with economic logic – but totally at odds with Edward´s economic mysticism – there is an empirically observable significant shift in spending habits in Germany. The young are getting more parsimonious, while the old are spending more than they used to. Ultimately this means that savings rates in Germany will take a big hit during any credit growth-led economic expansion, because the earnings power of young people has eroded far too much over the last 20 years for them to finance future consumption spending from past savings to the degree that their parents used to do – indeed, in a large number of cases from doing so at all. Well, zero-downpayment mortgage financing and refinancing models are hitting the German market right now to take care of that segment of the population. The latest innovation I noticed is “Hartz IV-protected” housing financing for people with a negative credit rating – something that´s truly revolutionary in Germany. Obviously the market itself is already busily caricaturing the latest wave of nonsense emanating from the commentariat. Why not introduce vouchers – let´s call them “certificates of expected gainful employment in the demography-challenged future” – as media of exchange? Thus economists like Edward could happily remain in their self-chosen state of ignorance – “I don´t know what neoliberalism is” – without actually endangering the economic functioning of society. They just shouldn´t start quoting Minsky and talking about Ponzi schemes then, though – which is probably not a deal the chattering observer class would enter into, as forgetting its own advice from the past appears to be a precondition for preserving its ability to form an opinion on the present and future (a privilege policy practitioners are not endowed with to the same degree).

  19. Introducing more flexibility into worker protection laws that aren´t worth the paper they are printed on would basically just redistribute jobs from the old to the young. This is a zero-sum game and thus only worth playing to political actors with rather limited ambitions.

    All other things being equal the jobs going to the young is preferable for at least two reasons.

    1. The young might still have more children if they have jobs, the old cannot.
    2. The young are more likely to resort to crime if they are jobless

  20. From an economist’s perspective, what seems strange about the megaphone dialogues between the protestors and the government is that (as best I can tell from afar) the protestors keep ignoring the fundamentals. From the perspective of an alien spectator, France’s job market appears definitely sick and has been so for a long time. For years, the average (standardised) unemployment rate has stuck in the range of 8% to nearly 10% and the youth unemployment rate for the under 25s has regularly been over 20%. What remedies do the protestors propose to correct the malfunctioning markets, always assuming, of course, that France continues with a market economy and within the EU?

    The quotes and link I posted near the start of the thread to the OECD’s Economic Survey of France published last June were to show how the OECD had assessed the situation and the conclusions it had come to. And I also posted standardised unemployment rates for OECD countries so readers could judge for themselves the extent of France’s unemployment predicament not just now but for several past years.

    Someone in the thread makes the point that recently more jobs have been created by the private sector in France than in Britain. That doesn’t surprise me – since the British government has massively increased government spending on health and education in the last few years and I believe that France in the mid 1990s had a larger percentage of total employment in the public sector than Britain. Moreover, I can confirm that by end 1995 – that’s before New Labour was elected into government in May 1997 – Britain had a lower standardised unemployment rate than France, Germany or Italy, as well as a higher rate of working age people in jobs (I’ve checked the figures).

    Basically, those were benefits that flowed not just from having more flexible job markets but also from Britain being forced out of the European Exchange Rate Mechanism (ERM) in September 1992 – thank you, George Soros! France was constrained by the monetary and fiscal disciplines needed to stay within the ERM and be eligible to join the Euro at its launch in January 1999.

    What De Villepin (and the OECD) are saying is that businesses in France are very cautious about taking on more employees because existing employment protection legislation makes it so difficult and costly to reduce payrolls as and when business is less buoyant than expected (or hoped for). That is the reason for De Villepin’s proposals to make it easier and less costly for businesses to hire and fire young people. The expectation is that businesses will then be willing to take on more because it will be less risky to do so.

  21. Thatcher didn’t mind a massive unemployment rate (3,6 millions in 1986) which has been the french’s plague for decades. Not sure the comparison is relevant.

  22. That is the reason for De Villepin’s proposals to make it easier and less costly for businesses to hire and fire young people. The expectation is that businesses will then be willing to take on more because it will be less risky to do so.

    That’s the problem. There must be equal rights for all.

  23. Pat – Talk about re-writing history!

    The Thatcher government in 1979 was confronted with the problem of squeezing inflation out of the economy when inflation in Britain had reached 25% in the 1970s.

    Admittedly, the government may not have been very good at doing that with its attempt at an innovative, “monetarist” policy but then inflation at 25% was an unprecedented experience post-ww2. Also, in the early 1980s, Britain became a net oil export – due to North Sea oil – so the Pound appreciated on the foreign exchange markets thereby rendering swathes of exporting industries in Britain uncompetitive.

    The instructive political insights are that the Conservatives attracted more votes in the 1987 general election than in 1979, when Mrs T had been first elected as prime minister, and even more votes in the 1992 general election after John Major had become PM in her place.

    Monetarism was officially junked in the autumn of 1985. Norman Lamont, as Chancellor in the Major government, introduced inflation targeting after Britain’s exit from the ERM in September 1992 to serve as the foundation of monetary policy for stabilization and the exchange was left to float again. That recipe has proved to be very fruitful.

  24. Bob B: What de Villepin is saying is nothing else than what OECD writes. But what de Villepin does is just the oppositive of what OECD suggests, since CPE was badly implemented and there are new and specific juridical risks using its specificities over the existing Labor Law than sticking to it. But unfortunately, using it creates a competitive advantage, since CPE gives a free lunch on taxes.

    So, businesses should be even more cautious because new legislation makes it risky and therefore costly to stick to predictable payrolls, and therefore, building a decent commercial policy.

  25. What are France’s mainstream academic economists saying about the OECD assessment of France’s economic problems and Villepin’s proposed reforms – or are the academic economists keeping quiet for fear of what students might do in protest?

    Street politics are not the most productive way of discussing complex issues about job market failures. One theme in the reporting here is that the persisting high unemployment rates in France are due to excessive employment protection laws. Such laws have certainly protected the employment rights of those in jobs but the laws make it exceedingly difficult for those without jobs – especially the under 25s – to find secure employment. In other words, the issue is presented as a glaring example of what in the economics literature is called the insider-outsider problem.

    From media commentary in Britain we have – correctly or otherwise – been gaining impressions that the street protests are mainly by (middle class) students or by young criminals intent on exploiting the situation to riot and loot.

    But the press on Sunday here seems to have shifted its attention away from France to raking over issues in home politics, especially loans to the governing Labour Party in exchange for honours such as peerages and knighthoods and also to the problems with parts of our National Health Service which, after receiving record amounts of taxpayers’ money from the government, is now firing thousands of medical and other staff.

    The firing of medical staff is happening in cases where managing healthcare trusts have been building up deficits running into millions of Pounds despite the extra finance because of mismanagement. What is stoking critical commentary on healthcare issues is repeated official claims, coming from the Department of Health, that the firing of healthcare staff will not affect the care of patients. How come? If firing nurses and doctors won’t affect the care of patients then how come they were employed in the first case?

    For readers unfamiliar with the features of our National Health Service, it employs more than one million staff altogether (true) and is the largest single employer in the whole of Europe – excepting, possibly, Russia. There is no other system of health care in Europe remotely like it. France is not unique in having unresolved issues about government policies.

  26. I suppose that French mainstream academic economists, if such exist –I do wonder, France not being well-known for its mainstrean economists, dont really express themselves on all this., either in French or in English.

    But since most french academic economists are appointed by the state, they generaly don’t talk about the current government’s politics –especially since “Code de la Fonction Publique” (state workers Law) prohibits it, unless elected, which is yet another matter.

  27. Emmanuel — welcome aboard. Glad to have you with us, and a great first post.

    Doug M.

  28. Apologies for irritating Anglocentric spam, but there’s a couple of funny quotes in this review of Robert & Isabelle Tombs new book That Sweet Enemy.
    Among them …Queen Victoria noted that the French were so “fickle, corrupt, and ignorant, so conceited and foolish that it is hopeless to think of their being sensibly governed… I fear they are as incurable as a nation though so charming as individuals.”

    Not saying I necessarily agree, needless to say.
    (Hopefully the FT won’t firewall the review the moment I post.)

  29. Perlin – Thank you for those important insights into the constraints upon France’s mainstream academic economists to remark on government policies in France.

    There is certainly a mainstream among economists besides Jospin, who – I was amazed to learn – had been an academic economist as well as the leader of a group of Trotskyist activists before becoming Socialist prime minister. But I can easily list past and present candidates from among academic economists who readily qualify for distinction and wide international recognition but it has to be admitted that a good proportion have gone to work abroad – rather as Descartes the philosopher once felt obliged to, albeit for other reasons. Plus ca change . . From what you say, in the present context it would perhaps be invidious for me to list any of those I personally admire and respect. What I had not appreciated until now is the power of the gag imposed by the Code de la Fonction Publique.

    Academics are not so constrained in Britain – or to all appearances in America or most other English-speaking countries either. Academics of one kind or another often pop up in BBC current affairs programmes to make more or less critical comments about the government in power and its policies and no one considers that unusual. There would be public uproar at any hint the government of the day was trying to lean on academics.

  30. Well, in my humble opinion, you’ll hardly find these days any French academic, including those working abroad, willing to comment on the current French governement policies. But I also do believe that it wouldn’t be so hard to find one if any of the numerous academic French economists thought what the gov was doing was worth being academically-endorsed.

  31. Bob and Perlin : sorry, but the idea that French economists are afraid to speak their mind about the job market or current government policies is just bunk.

    Numerous French economists have advocated the creation of a single job contract in recent years. See for instance a report by Jean Tirolle and Olivier Blanchard for the Conseil d’Analyse Economique or the report (commissionned by Nicolas Sarkozy when he was Finance minister) on the labour market by Pierre Cahuc and Francis Kramarz.
    http://www.cae.gouv.fr/rapports/44.htm
    http://www.lesechos.fr/info/rew_france/200049417.htm

    Regarding the CPE, it is absurd to claim that economists have been absent of the public debate.
    See for instance, an op-ed by Thomas Piketty in today’s Liberation, another one by Philippe Martin, an interview with Pierre Cahuc, a econometric paper on the likely impact of the CPE/CNE by Pierre Cahuc and Stephane Carcillo, a blog on employment issues by French economists….
    http://www.liberation.fr/page.php?Article=370056
    http://www.enpc.fr/ceras/martin/CNE-CPE.pdf
    http://www.humanite.presse.fr/journal/2006-03-18/2006-03-18-826497
    http://surlemploi.free.fr/serendipity/index.php?/archives/67-Letude-de-Cahuc-et-Carcillo-sur-le-CNE-et-le-CPE.html
    http://surlemploi.free.fr/serendipity/

    Should I add that the Code de la fonction publique explicitely guarantees the freedom of expression of civil servants (all the more so for university professors)?

  32. Once again, Thatcher didn’t mind a stubbornly high unemployment rate.
    She was more of a pragmatic and turned her back to monetarism in 1983 with the liberalisation of credit.

  33. Emmanuel – Many thanks, you have reassured me about the gagging of academics in France, an issue I have no means of judging except by what I find in international media – and in critical commentary in blogs, naturally.

    Allow me to post here links to a selection of important assessments of Europe’s unemployment predicament but with little further commentary for the present because I have not had the time to digest the papers.

    First, this looks an interesting and challenging overview that should prove easily accessible by readers without prior background in economics:

    “Europe’s high unemployment is often blamed on structural rigidities alone. That is a mistake.”
    http://www.internetional.se/economistnonsense.htm

    The following are especially relevant academic papers by Olivier Blanchard, an internationally renown and highly regarded French economist who teaches at the MIT:

    “Explaining European unemployment”
    http://econ-www.mit.edu/faculty/download_pdf.php?id=932

    “A macroeconomic survey of Europe – November 2005”
    http://econ-www.mit.edu/faculty/download_pdf.php?id=1258

    – with Justin Wolfers (2000)
    “The Role of Shocks and Institutions in the Rise of European Unemployment: the Aggregate Evidence” (2000)
    http://web.econ.unito.it/bagliano/macro_iel/bw_ej00.pdf

    From commentary in Walter Munchau’s (usually excellent) column on European economic issues in Monday’s Financial Times (hidden behind a subscription barrier, unfortunately), Blanchard’s paper on: Explaining European unemployment, includes parts directly relevant to Villepin’s proposed reforms.

    The objection related by Munchau is that Villepin’s CPE removes all employment protection for young people for two years, at which point the employee is either fired or becomes entitled to the full range of employment rights in French law, rights which are arguably costly for employers to respect and which probably lead to undue caution on the part of employers in taking on new employees.

    Blanchard advocates a more graduated approach in place of the abrupt step change so employees acquire increasing employment rights the longer they work for an employer.

    Munchau also remarks that “serious reforms” of France’s labour market would have to address other issues such as the 35-hour week and the minimum wage (SMIC) which may have been set too high “as it represents about 60% of the median production worker’s wage.”

  34. I thought that every “fonctionnaire” was ruled dy the very same Code de la Fonction Publique, and that the very “obligation de reserve” mentionned for this judge was any fonctionnaire’s. But maybe I whould consider the moderated words of French mainstream academic as a endorsment of the CPE ?

    I found on Bernard Salanie’s website a strange quote yesterday : http://bsalanie.blogs.com/economie_sans_tabou/2006/03/les_grands_syst.html

  35. For those really into European diagnostics, other heavyweight papers on unemployment, globalization and European social models by Andre Sapir, a Belgian economist:

    The Sapir Report: An agenda for a growing Europe (July 2003)
    http://www.euractiv.com/ndbtext/innovation/sapirreport.pdf

    Andre Sapir: Globalization and the Reform of European Social Models – Background document for the presentation at ECOFIN Informal Meeting in Manchester, 9 September 2005

    http://www.bruegel.org/Repositories/Documents/publications/working_papers/EN_SapirPaper080905.pdf
    Summary and commentary here: http://www.euractiv.com/Article?tcmuri=tcm:29-146338-16&type=PolicyNews

  36. Bob:

    “Blanchard advocates a more graduated approach in place of the abrupt step change so employees acquire increasing employment rights the longer they work for an employer.”

    I think the key point here is “employment rights.” Which rights are we talking about? The right not to get fired after two years? The right to demand that your employer points you to another job if she decides to fire you?

    The obvious lesson from the debate about the new French labor contract(s) (in fact le CNE was passed without much objection) is that France needs a more simple and universal job contract. And then … what rights are reasonable to demand?

    Jerôme:

    “The two issues that need to be addressed are:

    – that insider/outsider distinction, which you rightly flag, and which this CPE law only reinforces;”

    I have a very hard time seeing how le CPE exacerbates the insider/outsider situation. What is the logic behind this argument? Is it because it only impacts people under 26 years old? To the extent that le CPE for example is an answer to a very high youth unemployment why would not this new contract help/incite employers to take on more young people?

    “that permanent description of France as being in a situation of economic crisis, which depresses morale and creates a vicious circle of pessimism and fear.”

    This may perhaps be true but by not recognizing the economic problems and thereby the need for reform you end up creating an even more vicious circle.

    Emmanuel;

    French economic record of late isn’t great, but not as awful as most members of the punditocracy believe it is (especially if their idea of economic thinking is : government = bad ; tax cuts = always good ; welfare state = a drag on growth, etc.)

    Here you are right I think Emmanuel. We need to be careful about not falling victim to this. However, in this context some interrelated questions and issues just keep on popping up. One of them is exactly what we are talking about here … a shaky economic performance in the past years vis-a-vis a structural unemployment rate of 10%. My point in a nutshell is that le CPE and le CNE are pragmatic and sound approaches to a very real issue concerning France and her society. These contracts should not be the end but reforms need to begine somewhere, right?

  37. Bob : yep, Munchau’s column is, as usual, very good. My only quibble is about his assessment of the 35-hour workweek. Now, I know this experiment is viewed abroad as the epitome of economic heresy. In fact, it made much more sense and was more effective than many people are willing to acknowledge (usually because they forget that the shorter workweek was just a part of a broader economic package).

    See for instance this clear analysis by Jean Pisani-Ferry (in English)
    http://www.pisani-ferry.net/base/papiers/re-03-cesifo-emploi.pdf

    Perlin : “I thought that every “fonctionnaire” was ruled dy the very same Code de la Fonction Publique, and that the very “obligation de reserve” mentionned for this judge was any fonctionnaire’s.”

    If only… French public law would then be much easier to learn.
    In fact, there is one set of rules for civil servants (fonctionnaires per se) and special statutes for the military and judges (not fonctionnaires stricto sensu). All of them have an “obligation de réserve” but how it is enforced varies to a great extent depending on your particuliar job and hierarchical position as as civil servant : the freedom of expression (including the freedom to criticize governement policies) of a university professor is quasi-absolute; that of a préfet is severely constrained.

    Claus : “Which rights are we talking about? The right not to get fired after two years?”

    But of course you can get fired after two years. The real questions concerns the threshold : in French law, you can fire a permanent employee (CDI) only 1. For “a genuine and serious cause” concerning an employee’s performance or attitude (licenciement pour cause personnelle) 2. If the business is faced with current or potential economic difficulties – ie its economic survival or its ability to be profitable would be jeopardized if it is not allowed to proceed to a mass-layoff (licenciement économique).

    “My point in a nutshell is that le CPE and le CNE are pragmatic and sound approaches to a very real issue concerning France and her society.”

    Very real issue : yes.
    Pragmatic and soud approaches : absolutely not.
    (did you read Munchau’s column?)

  38. Emmanuel – I think the OECD rather aptly summarises the wider European take on introduction by the Jospin government of the maximum 35-hour working week to reduce employment:

    “The enactment into law of the 35-hour week in 2000 was the outcome of a long process that gave rise to vigorous debates, notably between employer organisations, trade unions and the government. No other OECD country has opted to follow France down the road of legislating shorter working time as a weapon to increase employment and cut unemployment.”
    http://www.oecdobserver.org/news/fullstory.php/aid/1385/The_35-hour_week.html

    Arguably, the reason the 35-hour week law proved less damaging to France’s economy than had been widely expected by outsider observers was because Martine Aubry – Jacques Delors’ daughter and the minister put in charge of the project in the Jospin government – used it as a clever political device for introducing greater flexibility into France’s labour market to benefit small businesses:

    “In September 2001, the French government announced that the conditions for implementing the transition to the statutory 35-hour working week are to be made more flexible for companies with fewer than 20 employees. These firms will, for two years from the introduction of the 35-hour week in January 2002, be able to use more overtime without having to grant time off in lieu.”
    http://www.eiro.eurofound.eu.int/2001/10/feature/fr0110108f.html

    As I recall from news reports at the time, that temporary escape route and what followed was the cause of many industrial disputes in firms about overtime pay when smaller businesses expected employees to work overtime at peak periods and then to take time off in lieu at off-peak times.

    As the OECD commentary notes, other OECD/EU countries with chronic unemployment problems did not regard the 35-hour week solution as an effective way of creating net new jobs to cut unemployment. Trade unions in Britain have often tried to run campaigns against the (inordinately) long hours British employees work for various reasons but with little to no effect. We really seem to prefer the combination of low productivity and long hours.

  39. “Arguably, the reason the 35-hour week law proved less damaging to France’s economy than had been widely expected by outsider observers was because Martine Aubry – Jacques Delors’ daughter and the minister put in charge of the project in the Jospin government – used it as a clever political device for introducing greater flexibility into France’s labour market to benefit small businesses:”

    A few academics non-economists consider that, according to Eurostat polls, since 6.7% French employees found their current job less than 30 days before, and since this is one of the highest rates in the current EU, the French job market doesn’t really lack flexibility. However, if you also consider that since the average worker is employed by the same employer since 12 years, how can anyone deny that flexibility in France is localized in a really small part of the population. This can help to explain why the French Left wing lost any credit long before 2002 in the educated liberal part of the population (since Aubry’s approach revealed in fact being definitively conservative).

  40. “But of course you can get fired after two years. The real questions concerns the threshold : …”

    Exactly, which is also what I tried to point to albeit I admit my statement was over-exagerated and … well, wrong ;)!

    However, what is indeed the threshold here and is this not also the source of the much noted insider/outsider argument? The higher the threshold the more exacerbated the insider/outsider effect or is this analysis too simple?

    “Very real issue : yes.
    Pragmatic and soud approaches : absolutely not.
    (did you read Munchau’s column?)”

    What is then the alternatives? Reforming the French labor contract system so that it in fact becomes more universal; i.e. to the extent that the threshold for the regulation of the labor force needs to be lowered this needs to be spread out more fairly?

    Basically, Emmanuel, I agree with much of your post especially the general message that it is more complicated than what non-French like myself tend to argue. Incidentally, this is also excellently conveyed by Jerôme in his “de-construction” posts I think. However, doesn’t the simplified international consensus have a point after all?

  41. Perlin – I have already posted up links to much of the best going economics commentary and analysis on Europe’s (or France’s) chronic unemployment problem – from the OECD, Olivier Blanchard and Andre Sapir.

    It is undeniable that France has had and does have a problem with persistent, chronic unemployment, especially with France’s high unemployment among the under 25s, compared with many other EU countries. If the problem is not attributable to institutional factors in France’s labour and product markets, whether statutory or otherwise – such as an unusually high statutory minimum wage (SMIC) or trade union protection of jobs for those who already have jobs at the expense of those who have no jobs – then we need to look for an alternative diagnosis and remedies.

    As part of the Eurozone, France no longer has national autonomy over monetary policy – the European Central Bank now sets interest rates to curb the average inflation rate across the whole Eurozone. Running fiscal deficits in excess of the maximum permitted by the Eurozone’s Stability and Growth Pact of 1997 certainly suggests that French governments have believed that demand deficiency is at least part of the problem. However, France’s posted inflation rate is currently 1.9%, close to the target of a maximum rate of 2% adopted by the ECB, which suggests there is little scope for fiscal measures to boost demand, regardless of further breaches of the Stability and Growth Pact, without the risk of also boosting inflation.

    Many comments have been made recently about Chirac’s emerging policy to insulate national champion companies from cross-border merger and acquisition bids:
    http://business.timesonline.co.uk/article/0,,16849-2065647,00.html

    However, when yoghourt making comes to be regarded as a national strategic industry that must be protected against subversion by companies based in other EU countries, alien observers are inclined to be sceptical. We have been there before. Remember that delicious satire of 1846 by Frederic Bastiat: The petition to the National Assembly by the candlemakers?
    http://silentpc.org/university/Candlemaker.pdf

    If Maxine Aubry has sold out to the forces of reaction there does not seem to be much room for any hope although Edouard Balladur, a loyal Gaullist, did say in an interview with the Financial Times: “What is the market? It is the law of the jungle. And what is civilisation? It is the struggle against nature.”
    http://yoz.com/wired/1.01/features/culture_war.html

    Perhaps the late Georges Marchais had the definitive answer after all – he was Secretary General of France’s Communist Party. Pressed for comments on the crumbling Soviet empire c.1990, he replied: “I tell you, they didn’t arrest enough. They didn’t imprison enough. If they had been tougher and more vigilant, they wouldn’t have got into the situation they are in now.” [Jonathan Fenby: France on the Brink (1999)]

    But as Britain has the current record for having more in prison per head of population than any other European country except Portugal, I do not think Tony Blair’s government wishes to see a challenge to this national achievement.

  42. About the debated “devoir de reserve”, I recently noticed a few words from the French head of (state) education saying :

    http://www.lefigaro.fr/france/20060331.FIG000000256_robien_je_demande_la_reouverture_des_lycees.html

    “Nous avons effectivement identifié quelques cas d’enseignants ayant mis dans le carnet scolaire des enfants un message leur demandant d’aller manifester. C’est un déni d’esprit républicain. Ils sont en passe d’être sanctionnés pour non-respect du devoir de réserve des fonctionnaires. “

  43. “The young might still have more children if they have jobs, the old cannot.”
    That would suggest a connection between employment (among the young) and fertility – which, however, doesn´t really seem to exist.

    A study by the Robert-Bosch-Foundation, however, has just given statistical support for Peer Steinbrueck´s (the German Finance Minister´s) proposal to channel the funds currently spent on transfer payments to families with children into financing adequate daycare facilities.

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