Home > Uncategorized > Could a leftist bring growth back to France?

Could a leftist bring growth back to France?

from Mark Weisbrot

If the first round of the French presidential election on Sunday is now too close to call, that’s partly because of Jean-Luc Mélenchon’s last-minute surge in the polls. The media describe him as a populist from the far Left, and as he has risen, attacks on him have intensified.

One common criticism is that his economic proposal to jump-start growth in France while reducing mass unemployment and inequality is pie in the sky.

Is it, though?

Mr. Mélenchon would certainly face significant political hurdles if elected, including the need to build political support for his program in Parliament. But the French economy, despite serious problems, could sustain, as well as benefit from, his proposals.

He wants to reduce unemployment from 10 percent, its current level, to about 6 percent over the next five years, partly by increasing government spending by some 275 billion euros, or about 2.3 percent of GDP. The money would go to major public spending in renewable energy and environmental projects, housing and antipoverty programs, as well as toward lowering the retirement age and increasing wages in the public sector.

Mr. Mélenchon’s critics say that France is already living beyond its means. The French enjoy a level of economic security and living standards that most Americans can only dream about: universal health care, free childcare and public-university education, a 35-hour workweek, higher life expectancy, and lower per capita energy consumption and greenhouse gas emissions. The new government, say people who oppose Mr. Mélenchon’s views, will have to focus on reducing the public debt.

But the numbers do not bear them out.

The most important measure of a country’s public debt is the interest burden it must pay annually. The interest France currently pays on its debt amounts to 1.7 percent of GDP, which is modest by both historical standards and most international comparisons today. The United States, by comparison, had interest burdens on its debt ranging from about 2.4 percent to about 3.1 percent of GDP throughout the 1990s, and during that time it enjoyed the longest economic expansion in its history.

France doesn’t have to worry about inflation either. Inflation has been at 1.1 percent over the past year, which is well below target, and the government can borrow at a real (inflation-adjusted) interest rate of about zero.

France’s main economic problem today is the same as that of the eurozone: virtually no growth in GDP per capita since the world financial crisis of 2008. And the main culprits of that are the misguided policies of the economic orthodoxy in Europe.

In the view of many economists at the International Monetary Fund and, say, Emmanuel Macron, a former economy minister of France and now a presidential candidate, the fundamental cause of unemployment in France is a rigid labor market — not, as Mr. Mélenchon and others argue, inadequate demand in the economy. So, their proposed fix is to lower labor costs by reducing the bargaining power of unions, making it easier for employers to dismiss workers, and raising eligibility requirements for social or unemployment benefits.

Reforms of this kind have been passed over the last few years, including the so-called “loi Macron,” which relaxed rules for letting employees go. More have been recommended by the IMF and European Union authorities.

But — to take just one example — cuts to France’s pension system in 2010 were as unnecessary as they were unpopular. The year before, projections by the European Commission showed that spending on public pensions in France would increase by just 1 percent of GDP over the next 60 years. Given that France’s GDP was projected to more than double over that period, that increase would have been eminently affordable.

So why not put some money into public investment that will provide positive real returns while creating new jobs?

Yes, high unemployment has been a fixture of the French economy for several decades now. But a major fiscal stimulus could spur overall demand in the economy, and that would encourage employers to hire workers.

The French can also afford their cherished welfare state because labor productivity in France is high — just above that in Germany. A better output per hour of labor allows for decent wages and, with sufficient taxes on both labor and capital income, for social expenditures that provide some measure of economic security.

There are, however, constraints from the European Union. France has no problem with its current account balance at the moment, but were it to try to jump-start its economy while growth in the eurozone remained sluggish, it could eventually run an unsustainable deficit. Under the Maastricht Treaty, France is supposed to keep its budget deficit under 3 percent of GDP. That requirement, along with France’s commitment to the European Union program for deficit reduction, would appear to preclude spending increases such as the ones that Mr. Mélenchon proposes.

But Europe cannot endure another decade of mass unemployment, which denies a future to so many young people and fuels the xenophobic far right. This is the reason Mr. Mélenchon has called for renegotiating European Union treaties. Some argue that position is too radical. Yet it is those who champion strict adherence to the European authorities’ failed economic policies who stoke anti-European sentiment and endanger the future of European integration. France has enough clout within the eurozone to help steer it in a better direction.

See article on original site

  1. April 21, 2017 at 2:52 am

    As long as the state has to ‘borrow’ to fund public expenditures while the banking sector can create new purchasing power as ‘credit’, the economy remains a game of musical chairs, where prosperity is guaranteed for bond holders of the banks but is possible for only few nation-state ‘winners’. Until the paradigm of how the purchasing power is created within the economy is overturned, until monetary sovereignty is returned back to the public, economic reforms can amount to little more than mere cosmetic improvements.

  2. April 21, 2017 at 4:43 am

    Economies grew rapidly when resources were within easy reach. That alone proves attempting to re-establish a former condition without understanding one’s present condition is impossible.

    The free lunch is over. Now Earth has become friction instead of artesian wealth seized by colonial armies and government permits.

    Is there a socioeconomic national system able to prosper at less than a one planet consumption rate?

    If not, humanity will go extinct but for isolated billionaires fencing out armadillo size scorpions and rhino size armadillos. That’s global warming. Two or three meter tall carnivorous chickens and ten to twelve meter alligators to snap them up.

  3. robert locke
    April 21, 2017 at 8:24 am

    This is serious stuff. France sustained high level growth during the thirty “glorious” years, 1945-75) when its worn-out infrastructure was being renewed by enlightened bureaucrats. The talk here is of public debt, what about private debt levels in France? Does Keen’s insight about private debt and financial crisis apply?

    • Hepion
      April 21, 2017 at 8:34 pm

      Private debts are not a problem as long as they are backed by assets that hold their value. But asset-price bubbles are damaging.

  4. April 22, 2017 at 11:27 am

    This way of doing things is nuts. But it (with only a few variations) has been in place for over 600 years. The Catholic Church couldn’t stop or change it. Monarchs couldn’t stop or change it. In fact, some of the most powerful monarchs in history, Edward I of England, Phillip I of Spain, and Elizabeth I of England couldn’t stop or change it. This in spite of the fact that philosophical and religious traditions for over 1000 years rejected debt and usury as unfair, unequal, and contrary to Christian love. Money lending is condemned in literature, scripture, and in most forms of government. But lending and usury not only threatened moral standards, they also threatened entire societies through financial crises, debt riots, and control of money. Money lending survived because it offered a quick source of money for monarchs, governments and eventually the new business class. But money lending and lenders remained outsiders who had no place within a culture and society. Money lending also was for thousands of years an illegitimate activity. And its practitioners considered criminals. Thus, ignoring repayment of money borrowed was quite common. And another reason the practice survived. This began to change when the Venetian traders bought themselves legitimacy in the 13th and 14th centuries. But it wasn’t until the 19th century that money lenders became members of the legitimate business class. They were no longer criminals. And that’s when troubles involving money lending, debt, and political power began to threaten the entire world. We’ve not solved any of these problems to this day. They only seem to grow worse and more destructive.

  5. patrick newman
    April 22, 2017 at 2:00 pm

    The Macron solution has ‘worked’ in the UK where unemployment is at less than 5%. However all it has done has forced the less qualified workers into low paid low quality ‘Mac’ jobs and have enabled ‘Mac’ businesses to have arise, large increases in involuntary part time working, more zero hours contracts, a flourishing ‘gig’ economy, rarely a month goes by when there is not an announcement by a large corporation to end its defined benefits pension scheme. The French worker can take Fridays off and still produce as much as their British counterpart in a week. At least the French worker still has strong trade unions and is prepared to oppose the race to the bottom seen in the UK and the USA.

  6. April 23, 2017 at 9:47 am

    Mélenchon gets it. Even Macron at some level of consciousness must get it. Economic disputes are not about economics. They are about control over people’s lives and the way societies are organized. The solutions for increasing “growth” offered by Macron and similar economists shift that control to the wealthy and right-wing politicians. The solutions offered by Mélenchon and those who support him shift that control to workers and left-centrist politicians. This is a simple political fight. Why do academics insist on making such fights into referendums on right and wrong? Or arguments about theories? If Macron believed it was wrong to treat workers as he suggests, he would not recommend it. He believes it’s right. In fact, it’s both necessary and right, in his view. The opposite goes for Mélenchon. So now they fight. Elections are just fights without the blood (most of the time).

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