Letter from France: ça bouge tous azimuts

In his latest letter (‘it’s moving but all over the place’), Alan Kirman, at GREQAM Marseille, takes a wry look at France under its new President Sarkozy. It seems that serious change lags some way behind the rhetoric.

So much has happened in France this year that it is difficult to know where to start. Luckily what has actually changed is relatively limited in comparison with what has been announced. Nicolas Sarkozy, came to power with the sort of slogan which appeals to the French, ‘ça ne peut pas continuer comme ça!’ What it is that cannot continue and why it should not do so is less clear. It is worth bearing in mind that our new president has been in the previous government and has occupied the posts of Minister of Finance and Minister of the Interior. He has also been leader of the major government party the UMP for a number of years. His insistence on the need for change, presumably means that he has had a change of heart or that he actually had little say in what happened in the previous government.

The President’s high profile
Nobody could argue however that he has not been visible since his electoral victory however. He appears just about everywhere, proposing a new constitutional treaty for Europe, backing down on his election statement that Turkey has no place in Europe, receiving Khadafi with honours to the chagrin of many of the members of his government. He visited the banlieux and dismissed with contempt the rowdies who burned cars and rioted for no reason. He introduced measures to use DNA testing for children whose parents wished to bring them to join them in France. This measure was so diluted by parliament — the consent of the mother and the approval of a judge now being necessary, that it has been made relatively harmless. Nevertheless it is heavily symbolic and will do nothing to reassure the population of immigrant origin of the genuine desire to see them integrated into French society. Even more controversial was the decision to allow the collection of ethnic statistics, something which had previously been taboo in France. This did not make it through the Conseil d’Etat which is charged with verifying the constitutionality of laws. Yet, paradoxically, this measure, with stringent checks could have provided the lever for taking more positive action to help integrate minorities and the Commission for Civil Liberties has argued that this has made its work much more difficult. Most of this has been symbolic gesturing, and this together with the reuniting with his wife before the election, her not voting for him in the second round of the elections and her refusal to dine with the US president on an official visit to North America, and the divorce shortly after, has kept Sarkozy firmly on the front pages. Given all of this was it surprising that the President’s new liaison with a top model was announced at Disneyland?

But where are the reforms?
But what about the reality? The economic situation in France has worsened with the exception of unemployment which has now fallen below 8 per cent. Public debt and the balance of payments have deteriorated and the Minister of Finance has declared solemnly that France is bankrupt. Growth forecasts have been revised downwards which will make the recent tax cuts difficult to finance. However, Sarkozy has announced that he wants 3 per cent growth next year and he clearly thinks that where there is a will there is a way. The INSEE forecasts 1.8 per cent growth for 2008 but the government dismisses this. The French economy has, at least till now, been less affected than others by the subprime mortgage crisis, though two major banks have had to admit writing down substantial amounts of bad paper. There has been no run, or threat of a run, on a bank but this is mainly because domestic lending policy has been conservative. 15 years would have been typical for a house loan until very recently and very few loans were for more than 90 per cent of the property and the loans were almost all at fixed rates. This has not stopped French banks from buying the derivatives based on such loans in the US and elsewhere. No doubt this has led to a greater diversification of risk but it has also led to very imperfect information. As everybody knows, when one bank begins to suspect that another is burdened with such assets it is unwilling to lend to that bank and the system basically freezes unless large amounts of liquidity are pumped into the system. French banks, it was thought, were relatively immune from such suspicions but when it was announced that the Crédit Agricole one of the pillars of the conservative French banking system had made substantial losses on one of its funds, bank shares trembled. The fact that the French economy has only felt the aftershocks of the financial earthquake does not mean that it will not be affected by the global repercussions. The idea that it might be a good thing for Banque de France to make the public aware of what has been going on as did the Bank of England does not seem to have made much progress, memories of the collapse and the bail-out of the Crédit Lyonnais are still too present. In any event, the economic outlook for France is not particularly good.

How are the new president’s reforms going to affect this? To be clear, not much has been reformed up to now. There have been a number of tax concessions which basically make life a little easier for the middle and upper classes, These have been somewhat more extensive than intended, in particular tax relief on home loans, originally intended to apply only to loans taken out after the election, were rapidly extended to apply to all recent loans after popular protest. This seems to be a pattern, start by talking tough and then make sufficient concessions to those affected by the reforms so that the opposition melts away.This was clearly the case in the recent transport strikes where negotiations have led to changes in salaries and working time to offset the additional period needed to get a full pension. Several things were worth noting about this episode. The strikers’ cause was not popular since their privileged pensions were regarded as unfair. Another feature was the role of the unions. France has very low union membership, under 8 per cent, the lowest in the major industrialised countries, but the ‘conventions collectives’ between employers and employees are negotiated by the unions. This means that the unions are not always, in harmony with, nor in control of, those whom they are supposed to represent. As a result, despite agreement at the national level, the workforce involved may refuse to accept the agreeement. This is, in part, what has been happening recently. The fact is that we are far from what the Economist called ‘Sarkozy’s Thatcher Moment’.

However, it is worth looking at two ‘reforms’ to see what form they take and how they reveal the underlying problem with the French economy. The first illustrates the idea that the way to solve basic problems is to add additional legislation. The idea of a new law, the Loi Chatel, amongst other things was to increase the competition in the retail sector thereby driving the price of basic goods down and justifying Sarkozy’s claim to be the Purchasing Power President. There is an earlier law in France obliging manufacturers to sell to retailers and wholesalers at the same price. This is independent of the size or nature of the firms involved. So, Carrefour and Casino pay the same prices for branded goods as the small retail grocers. There is also a subsequent law which allowed manufacturers to grant rebates, ex post, as payments for more shelf space etc. This was completed by defining a maximum discount that can be made on goods i.e. how much of the rebates could be passed on to the consumer. This was supposed to prevent selling at a loss. What is odd is the result of this succession of rules. Now, the major source of revenue for supermarket chains is that provided by the rebates on branded articles. What is more, branded items have increased in price at an annual rate of 4 per cent, well above the rate of inflation. Somehow, the result of all this legislation is that supermarkets have aligned their prices on those of branded products and the consumer has seen none of the benefits from the rebates. Again, it has to be said that only the major supermarket chains receive the rebates unlike the so-called ‘Hard Discount’ chains.

The alternative was to allow the retailers and the manufacturers to negotiate the price of goods freely and this is what LeClerc, one of the leading chains, proposed. Instead the government chose the new additional complication. This was to protect the manufacturer against the pressure of the big retailers. It seems somehow difficult to believe that Nestlé has to be protected against Carrefour. Nor does the argument that this will protect small stores hold much water. I go to the local vegetable shop because the produce is fresh and I can find out what is going on in our village, not because of price. This is true for most of their customers. In the same law that added this extra layer there were to have been measures to oblige banks to provide an annual statement as to their charges. Economists of any persuasion would be in favour of more consumer information but this provision disappeared. Furthermore there was to have been a law to allow mobile phone customers more freedom to switch providers. This was replaced by a more complex provision saying that if you have a contract with one provider for two years you can get out after eighteen months but you must pay one quarter of the other monthly payments. France has difficulties detaching itself from its over-administered and over-legislated past.

A second example illustrates the other barrier to real reform, inertia. Valérie Pecresse, minister for the universities, has passed a law which will make universities more autonomous. But what universities need in France is a complete overhaul. It seems evident that universities should differentiate themselves and try to attract students to whom their courses are attractive. The students should also be allowed to select those universities which are best for them and then there should be a matching process. Thus, universities would, choose amongst those who apply. Since the French university system is public there is no real market but this in no way prevents the sort of system I have outlined from developing. Many countries have such systems and the only argument against them is that they penalise students who cannot afford to study far from home. Yet a system of scholarships/loans could take care of this. Berkeley gives financial aid to 60 per cent of its students. Students need financing since they select and are selected by institutions which may be far from home. In the French system the word ‘selection’ is taboo. Yet, almost nobody objects to the existence of the Grandes Ecoles which are highly selective and expensive for the public purse. The Grandes Ecoles which get the best students would like to be integrated into the university system if the universities were openly differentiated. As it is we have moved in 50 years from a system where 9 per cent of 18 year olds obtained the bac to one where the aim is 80 per cent. How are universities to deal with this?

They do so by failing over one third of the students in the first year and of all students entering, only 20 per cent get a degree and of the rest many transfer into technical establishments. This is the worst sort of selection; it is expensive and discouraging for the students and universities have tried to answer it with quick and low level first degrees which fit students for the local job market. But this is being done by all 85 universities and they have some difficulty producing high level research at the same time as giving low level professional training. None of the tasks is unworthy but it is unreasonable to ask all universities to do all of them and to tell the students that their degree will have the same value wherever it comes from. The fiction serves neither the universities nor the students. It is also unfair to the public which has little idea of what happens at universities and considers them to be hotbeds of potential revolt and not much else. Careful parents send their children to the ‘classes préparatoires’ for the Grandes Ecoles or to an Institut Universitaire de Technologie. The latter were originally intended to provide the lower level of professional training I mentioned but, since their students find jobs, they have now become selective.

Did we get a reform that moved in the right direction? No, what we got was a ‘mesurette’ which gives power to university presidents to nominate deans and the members of the appointments committee for each job. If this dictator were benevolent this might be an improvement on the current system, but if a local baron takes over the result could be disastrous. Again, certain words and reforms are taboo. Although the students are no worse than anywhere else they will continue to labour under the burden of an inefficient system which is not adapted to the current situation.

The main student union rapidly agreed to a slightly modified version of the law but many universities have been partially closed as a result of mass protests. Yet none of the students interviewed has any idea as to what the law actually contains. They feel that this is a first step to the privatisation of universities, though where that idea comes from is a mystery. On research and teaching, an organisation called ‘Sauvons la Recherche’ has been demanding more funds. But this is just putting more fuel into a vehicle with an engine that barely works. What is needed is a real reform such as that put forward by Bernard Belloc, an economist from Toulouse, years ago. Now, he is Sarkozy’s adviser on higher education, he has had to trim his sails and the result is the mesurette in question.

But all is not lost, there is one radical reform which comes into effect on January 1st, when smoking will be banned from all cafés and restaurants! Gone are the images of Sartre and others sipping their café with a ‘magot’ hanging on their lips. The French way of life will never be the same again. So Sarkozy is doing something to change the system? Not at all; this reform was passed over a year before he was elected. The only surprising thing is that he did not give in to the pressure from the tobacconists and modify it!

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