Unmitigated Gauls
Fifteen years ago, just
after François Mitterrand became president of France, I attended my first
conference in Paris. I can't remember a thing about the conference itself,
although my impressions of the food and wine--this was my first adult visit to
the city--remain vivid. The only thing I do remember is a conversation over
dinner ( canard aux olives ) with an adviser to the new government, who
explained its plan to stimulate the economy with public spending while raising
wages and maintaining a strong franc.
To the
Americans present this program sounded a bit, well, inconsistent. Wouldn't it,
we asked him, be a recipe for a balance of payments crisis (which duly
materialized a few months later)? "That's the trouble with you Anglo-Saxon
economists--you're too wrapped up in your theories. You need to adopt a
historical point of view." Some of us did, in fact, know a little history.
Wasn't the plan eerily reminiscent of the failed program of Leon Blum's 1936
government? "Oh no, what we are doing is completely unprecedented."
The French have no monopoly on intellectual pretensions or
on muddled thinking. They may not even be more likely than other people to
combine the two. There is, however, something special about the way the French
political class discusses economics. In no other advanced country is the elite
so willing to let fine phrases overrule hard thinking, to reject the lessons of
experience in favor of delusions of grandeur.
To an
Anglo-Saxon economist, France's current problems do not seem particularly
mysterious. Jobs in France are like apartments in New York City: Those who
provide them are subject to detailed regulation by a government that is very
solicitous of their occupants. A French employer must pay his workers well and
provide generous benefits, and it is almost as hard to fire those workers as it
is to evict a New York tenant. New York's pro-tenant policies have produced
very good deals for some people, but they have also made it very hard for
newcomers to find a place to live. France's policies have produced nice work if
you can get it. But many people, especially the young, can't get it. And, given
the generosity of unemployment benefits, many don't even try.
True, some problems are easy to diagnose but
hard to deal with. If George Pataki can't end rent control, why should we
expect Jacques Chirac to be able to cure Eurosclerosis? But what is mysterious
about France is that as far as one can tell, absolutely nobody of consequence
accepts the obvious diagnosis. On the contrary, there seems to be an emerging
consensus that what France needs is--guess what?--more regulation. Socialist
leader Lionel Jospin's idea of a pro-employment policy is to require employers
to pay workers the same money for fewer hours--an idea that was popular with
voters, the recent election results would suggest. Even conservative Phillipe
Seguin, regarded as an iconoclast by French standards because he has questioned
the sacred goal of European monetary union, thinks that one way to add jobs is
to ban self-service pumps at gas stations.
Beyond
more of the same, what does the French elite see as the answer to the nation's
problems? For more than a decade its members have sought salvation in the idea
of Europe--that is, a unified European economy (under French leadership, of
course), with common regulations and a common currency. In such a continental
market, they imagine, France can once again prosper.
Now a unified European market is a pretty good idea. There
is even a reasonable case for unifying Europe's currencies--although there is
also a good case for doing no such thing. (There is a whole industry of
people--Eurologists?--who make a living by debating that issue.) But to
acknowledge the potential virtues of European economic integration risks
missing the essential fatuousness of the whole project. France's problem is
unemployment (currently almost 13 percent). Nothing else is even remotely as
important. And whatever a unified market and a common currency may or may not
achieve, they will do almost nothing to create jobs.
Think of
it this way: Imagine that several cities, all suffering housing shortages
because of rent control, agree to make it easier for landlords in one city to
own buildings in another. This is not a bad idea. It might even slightly
increase the supply of apartments. But it is not going to get at the heart of
the problem. Yet all the grand schemes for European integration amount to no
more than that.
Indeed, in practice the dream of European unity
has actually made things worse. If you are going to have a common currency,
everything we know suggests you should follow what Berkeley's Barry Eichengreen
calls the Nike strategy. But instead of just doing it, European nations agreed
to a seven-year transition period during which they would be required to meet a
complex set of criteria--mainly to reduce their budget deficits while keeping
their currencies strong.
There is
nothing wrong with balancing your budget. In fact, European nations need to do
some serious fiscal housecleaning. And as the happy experience of America under
Bill Clinton has shown, it is quite possible to reduce the deficit and increase
employment at the same time. All you need to do is cut interest rates, so that
private spending takes up the slack. But you can't cut interest rates if you
are obliged to keep your currency strong. So the Maastricht Treaty (the
blueprint for European currency union) ensured that the budget-cutting it
required would be all pain and no gain. Nobody can make a precise estimate, but
a guess is that without Maastricht, France might have an unemployment rate of
10 percent or 11 percent. Not great, but a couple of points better than
now.
While some French politicians have been willing to say nice
things about budget deficits, nobody seems willing to challenge the dogma that
European integration is the answer. Even Seguin the iconoclast declares that
"the fight against unemployment is inseparable from the realization of the
grand European design."
But let us
not blame French politicians. Their inanities only reflect the broader tone of
economic debate in a nation prepared to blame its problems on everything but
the obvious causes. France, say its best-selling authors and most popular
talking heads, is the victim of globalization--although adroit use of red tape
has held imports from low-wage countries to a level far below that in the
United States (or Britain, where the unemployment rate is now only half that of
France). France, they say, is the victim of savage, unrestrained
capitalism--although it has the largest government and the smallest private
sector of any large advanced country. France, they say, is the victim of
currency speculators, whose ravages President Chirac once likened to those of
AIDS.
The refusal of the French elite to face up to
what looks like reality to the rest of us may doom the very European dreams
that have sustained the nation's illusions. After this last election it is
clear that the French will not be willing to submit to serious fiscal
discipline. Will the Germans still be willing to give up their beloved deutsche
mark in favor of a currency partly managed by France? It is equally clear that
France will not give up its taste for regulation--indeed, it will surely try to
impose that taste on its more market-oriented neighbors, especially Britain.
That will give those neighbors--yes, even Tony Blair--plenty of reason to
hesitate before forming a closer European Union.
But if it turns out that
Chirac's political debacle is the beginning of a much larger disaster--the
collapse of the whole vision of European glory that has obsessed France for so
long--we can be sure of one thing: The French will blame it all on someone
else.
