French political opinion harbours the infantile belief that when the state pays Paul, it does not have to take the money from Peter. The illusion that the state has money of its own that it can simply "unblock" explains some of France's political economy.
This strange discrepancy has many symptoms. Some of them spring to the foreground on the occasion of the current presidential election campaign. Despite their divergences the lead candidates have one common theme, namely that the indebtedness of the country at 64 per cent of the national product, is intolerable and must absolutely be reduced. Though above the 60 per cent solemnly agreed to at Maastricht, this percentage is not catastrophic. It is its sharp upward trend that should worry families who have children. Despite its natural advantages, the French economy now looks wedded to slow growth—last year's 2 per cent compares poorly with the European average of 2.9 and the OECD average of over 4—and it would take great future fiscal rigour to stop indebtedness as a proportion of national product from continuing to rise. Yet while all agree that this trend must be reversed, each candidate is merrily putting forward new spending proposals that would further worsen the deficit by 1.5 to 3 per cent of GDP. By way of deficit reduction, they predictably undertake to eliminate "waste", while the lead candidate of the Left enigmatically plans "European solutions" for defence expenditure.
None of this bothers the electorate. The opinion polls testify that it responds favourably both to the vows of fiscal rectitude and the profusion of fresh spending proposals.
Of the two front runners, the candidate of the Left swears that she will not raise the share of taxes in GDP above the present 44 per cent level. She will offset rebates to the poor by taxing "capital" (an entity that casts no votes). The candidate of the Right would actually try to reduce the share of taxes from 44 to 40 per cent over two five-year terms. Both claim that they can pay for their programmes by stimulating economic growth. The Right expects to achieve this by inciting everyone to work harder—which would make good sense if the economy were first reformed and the "social" burden weighing it down were at least partly lifted. Proposing that, alas, would be electoral suicide. Instead, fresh spending is the way to go.
The Left explains that by guaranteeing employment to the young, increasing the minimum wage to 1500 euros ($1,960) a month and raising the lowest pensions, they will increase consumption and more consumption will bring more growth. Do not we all know that growth can best be stimulated by piling on deadweight costs?
These absurdities, one must say are not specifically French, but are part and parcel of any political system that lives by "one man one vote" and has empowered itself to carry out almost any decision the majority will vote for. We call this democracy, and regard it as a good thing. Its capacity for harm is mitigated by the push and pull of rival groups, capital and labour, rich campaign contributors and poor healthcare patients cancelling each other out.
However, the French reality is both more tragic and more comic than common-and-garden democracy It is this tragicomic peculiarity that provides the ground for the present article
For 14 years under Mitterrand and 12 under Chirac, all governments leaned left in constructing, completing and embellishing with bells and whistles the proud "French social model", reputedly the envy of other nations. It had two mainsprings. One was an almost laughably elaborate labour law, a code of over 2,600 pages which came close to giving the worker a right to his job. By making it very difficult to fire, it has spread a fear of hiring.
The other, and probably more destructive, mainspring of the "model" was a comprehensive system of insurance against sickness, old age and unemployment, financed mainly by paying workers only about 55 per cent of their earnings in cash and (by legal fiat and with union complicity) withholding the remaining 45 per cent, calling it "employers' and employees' contributions" to social insurance. This was a paternalistic reversal to the old and discredited system of paying wages in kind instead of cash, not with a real intention of defrauding anybody, but to impose "social" values by forcing employees to accept insurance in lieu of cash. As a result, labour the worker would have done for 80 or 90 cost the employer 100, with predictable effects on the demand for labour. French unemployment in 2006 was still close to 10 per cent. This is the tragic side of the French tragicomedy.
The comic side is the length to which the rights of the unemployed have been pushed. For instance, genuine or self-styled actors, actresses and other show-business personnel are entitled to year-long unemployment pay if they can prove just a few days of paid employment—a proof that can be procured for a little love or money. It should surely cause no surprise that over the 13 years of the scheme, the show business population drawing benefits from it grew from 41,000 to 104,000 and its cost rose fivefold.
Unemployment pay presupposes previous employment that has been lost. However, people who have never had a job had also to be looked after, and the "social model" was accordingly widened. Jobless over-25s gained an entitlement to "insertion pay". Starting with 400,000, their number reached 1,100,000 in 2006, costing 5.9 billion euros—not a vast sum, but symptomatic of how a good intention can succeed a little too well.
Other countries whose "social model" was also mainly financed by compulsory payroll deductions, notably Sweden and Germany, have woken up to where it all led, and have pushed through politically difficult reforms to good effect. In France, this was not done, in part because M. Chirac declared the "social model" sacrosanct, "Anglo-Saxon" liberalism as bad as communism and always dreaded confronting the unions. A deeper reason, though, was the "retarded child" mentality of French collective opinion.
There is a subconscious belief in France that the state does not pay Paul by taking the money from Peter. It just gives it to Paul, and Peter is not made worse off. This is so because the money sits in an imaginary reservoir and the state can "unblock" it (debloquer is the French word used to describe this happy event). Consequently, when a group gets a costly favour, when "generosity" prevails toward the needy and when 35,000 young people are hired to oversee schoolchildren and dissuade them from running riot, some gain and nobody loses. The money needed has been "unblocked" and that, surely, is what public money was for. There is always enough left in the reservoir, waiting to be debloqué.
This amazing failure to understand the realities of public finance—indeed, to understand reality—explains why in France the move of one pressure group to grab resources or "rights" is hardly ever countered by the resistance of other pressure groups that would have to bear the cost. Polls say that endlessly recurring rail strikes are approved by the majority of commuters who suffer great inconvenience from them. When tobacconists claim, and get, compensation for falling cigarette sales, everyone thinks that this is the least the state can do, and when imports make food too cheap, it is thought only fair to French farmers for the state to make it dear again. In the process, France, potentially so rich, is becoming a poor country "trying to travel first class on a second-class ticket" and feeling bewildered that the attempt does not quite work.