Letter from France - Voila une année qui commence mal : Here’s a year that’s off to a bad start

16 Jan 2020

Alan Kirman laments the UK’s decision to leave the EU, before examining the French government’s clumsy attempt to reform the state pension system.

The quote above is a slight misrepresentation of what Danton said as he was being taken to the guillotine. He just thought that the week was starting badly but I fear that contrary to the hope that I expressed last year the whole of next year is not looking good. The climate problem is still being pushed to one side despite the promise of the Paris agreement. When the Gilet Jaunes complained last year that ‘the elite is worrying about the end of the world whereas we are concerned about the end of the month’ they did not seem to realise that the two notions are converging much more rapidly than expected.

The French view of Brexit

For anyone with even a vague attachment to the U.K last year was already humiliating enough culminating with a front whole page photo of Boris Johnson in Le Parisien, with the title, ‘The liar who is trying to undermine Europe’, coupled with extremely unflattering analysis in Le Monde and other newspapers wondering out aloud if Britain’s new prime minister doesn’t suffer from some sort of mental illness which prevents him from understanding what is true and what is not. None of this seems to have had much influence on the British voter and the election now gives Johnson a clear mandate to get the UK our of Europe as quickly as possible. It will be interesting to see how quickly this can be done. If the UK wants to have some sort of preferential trade agreement with the EU it will not be done in a couple of months.

Incidentally, I find it hard to share the opinion of the pundits who argue that the left must now move back to the centre to avoid further disasters. The centre is a lonely place right now as the Liberal Democrats results show. We hear the same in France, whereas the fractures are much more between the marginalized and the rest and between those who see a world governed by small elites who have no empathy for anyone else and those elites themselves. My impression is that many people want the sort of collective actions that Corbyn was putting forward just as they find Sanders and Warren’s ideas attractive. Moving back to the centre would just reassure elites that they are the only people who ‘get it’ and is unlikely to provide attractive alternatives to today’s problems. But time will tell.

But back to this side of the channel. France does not seem to be greatly concerned about any damage that Brexit might do to Europe and there is now a sort of consensus that maybe now Europe can get on with closer political integration once the U.K is out of the way and no longer able to slow down or prevent any such move. There may be some truth in this, but it is difficult to know how countries like Hungary and Poland would react. For those who are interested in complex systems and the evolution of their collective behavior Europe after Brexit may be an interesting case to analyse. When Britain leaves and Northern Ireland recognizes its ambiguous position it does not seem implausible that a united Ireland might be the result. Even more interesting, if Scotland manages to become independent it might try to join the European Union. Would we then have a modern version of Hadrian’s wall to protect Europe from what is happening in England. But, once again, Spain, with Catalonia up in arms is highly unlikely to welcome Scotland into the Union. The possible sequence of ‘unintended consequences’ is endless.

I have to confess to a certain sadness at this turn of events and the character of those who led the U.K which may not be so U for long, down this path.  We live in an age where anything, however demonstrably false, can be said if this will help those who said it to get elected. Even a child can understand that if goods coming from outside the European Union have to be checked before they enter the Union, and the UK has left the Union then either goods will have to be checked before they arrive in Northern Ireland (i.e ‘in the Irish Sea’) or there will have to be a physical border between Northern Ireland and the Republic of Ireland. This is clear to anyone who has looked at the famous Johnson-EU agreement. But Johnson explicitly denied this just before the election. Yet, now no doubt an obscure fudge will be voted by the U.K parliament. Furthermore, in the longer run the UK will have to choose its camp, either a close relation with Europe which will mean respecting EU rules or a closer relation with the U.S and other non-European partners. My informal and highly unscientific poll in Paris, (the newspaper stand, my hairdresser, and several taxi drivers, not my usual mode of transport but with the strikes!!) showed a remarkable convergence of opinion. ‘They have been dragging their feet ever since they entered Europe and have always wanted as much as they could get without making any net contribution! So, let them leave and make NO concessions if they come begging at the door’.

France’s own problems

But to return to France’s domestic affairs The long saga of the Gilets Jaunes had more or less faded from view, although Paris did not go for long without the sounds of police sirens and busloads of CRS racing through the streets creating the impression that everybody should be constantly panicked by an outbreak of violence. However, the government has achieved the remarkable feat of uniting almost everybody against its latest proposal for the reform of the pension system and we are now faced with one of the biggest mouvements sociaux in recent years.  A general strike was called for December 5th and the response was remarkable. According to the police some 800,000 people demonstrated in French cities, (it is difficult to know who was doing the counting since the police were also on strike) and according to the CGT a leading trade union the figure was 1.5 million.  An indication of the extent of the movement is that 90 per cent of TGV, (high speed trains) were cancelled and all but two metro lines in Paris were closed. We have had two more big demonstrations since and the strikers voted to continue. The length of the strike could be considerable. At the time of writing no end, or even potential end, is in sight.

Missed opportunities

How did the government manage to unite students, school teachers, university teachers, nurses, doctors, lawyers and what we used to call ‘the working class’? The answer lies in their approach both in designing the reforms, and worse In communicating their putative benefits. The current government seems to be particularly autistic. Their basic approach is to propose some measure or reform with some token consultation and essentially no negotiation. If the measure meets with opposition the government argues that the public has not understood the impeccable logic that lay behind the proposal and proceeds to reexplain the same thing. The population, from the point of view of the government, is thus divided into two camps, the ‘Luddites’ who are trapped in the past and do not understand the necessity of the proposals and those, (few in number by now) who see some merit in them. To take the case of the pension reform which triggered the current protests, a poll taken just before the general strike on December 5th showed that 70% supported the movement and disapproved of the proposed ‘reforms’.

This reveals the basic difficulty with the way in which the government operates. Despite including a number of former socialists the economic approach is unashamedly ‘neoliberal’. This means that they want, at all costs to transform the economy into the sort of free market model that most economists are familiar with from elementary textbooks. None of the recent criticisms and developments in and around the discipline have shaken Macron and his advisers’ beliefs in this approach. One has the feeling that it is they who are stuck in an anachronistic frame of mind and cannot believe that it is anything other than ignorance and stupidity that is behind the negative reaction to their proposals. A reasonable approach to the problem would be one in which all the parties concerned are involved and consulted and that subsequent negotiations should determine the nature of the legislation to be passed. To be fair to the author of the pension report M. Delevoye, he did manage originally to come up with a proposition that, what is now probably the biggest French union, did not oppose . But once again the government managed to show its somewhat cavalier attitude by failing to check on some 13 other posts which M. Delevoye held, and still holds, since taking up his functions, some of which are paid some unpaid and some linked with the insurance industry. This is the sort of thing that immediately provokes a negative reaction, because it conveys the government’s belief that M. Delevoye’s technical competence outweighs any violation of the rules governing his appointment.

Thus, there was an opening for a discussion as to a better pension scheme but, by not checking the basics and insisting on the problem of financial equilibrium, as Antoine Bozio says in a recent article,  a golden opportunity was wasted.

What is more there are, as Thomas Piketty has pointed out, several possible universal pension schemes worth considering but the government persists in putting forward its own version and then asking for comments rather than developing its scheme in collaboration with the parties involved.

It is worth noting in passing that what Piketty raises is a philosophical question as to what is the goal of a pension scheme? Recall what the decree of the 4th of October 1945 establishing the current social security system said,

Social security is the guarantee given to everyone in all circumstances, that he will have the necessary means for his livelihood and that of his family in decent conditions. This is  justified by the elementary concern for social justice, and the consequent desire to rid our fellow citizens of the uncertainty as to what the next day will bring.

This is an inherently collective view involving a strong notion of solidarity. Yet, the scheme proposed by the government now is, as might be expected, inherently individualistic. The message of the current proposal is that under the universal pension scheme, everybody will get the same in their pension for every euro earned in the past. The system will be one with points which are awarded on the basis of earnings over an individual’s career. These ‘points’ are then converted into euros at the same rate for everybody. All but one of the 42 pension schemes in existence (the exception is for the pension scheme for the forces de l’ordre (police etc) practically the only allies the government has left although even they have gone on strike) will be merged into this universal scheme. This, it is claimed, is precisely the sort of equitable scheme that is needed. Furthermore, neither the age for taking up a pension nor the level of pension payments will be touched. This actually means that right now the nominal pension to which a person has a right cannot be reduced but does not guarantee its evolution.

The basic idea of this scheme is reasonably in line with what has been proposed by four economists including Antoine Bozio and Philippe Aghion who have advised Macron on policy. However, just as the protests were getting going the economists in question published an article in Le Monde saying that the basic concept of the scheme had been masked by financial considerations so that for the average citizen the message was lost.

 

But it’s the financing that dominates

The proposal put forward by the expert appointed by the government M. Delevoye talked about balancing the books of the pension scheme and how this might be done and set a target for the proportion of GNP that would be involved.

As anybody reading this knows, faced with an aging population, there are three basic ways of ensuring some sort of  financial stability of pay-as-you-go pension systems , should that be the objective;: increase the contribution rates, lower pension benefits, or increase the number of years worked. Note that there are two criteria for pension reform, improving the financial state of the system and improving the welfare of those who participate in it.  In France as in many countries, in the latest reforms the main lever chosen by the legislator to restore financial balance is the latter one, that is, through the increase in the average age of retirement. As its name indicates, this average is not, however, a parameter that can be directly set by legislation. This has to be done by giving incentives to people to continue work after a certain age (l’age pivot) and penalties for those who retire earlier. Recent reforms of the French pension system have implemented a wide range of measures destined to achieve this.

Why then the opposition? Firstly, because the French are deeply suspicious of any measure which will oblige them to work longer, and secondly the points system, which, as Bozio, points  out could be adapted to achieve some sort of equity now appears to be a weapon to achieve the financial equilibrium of the system. To see this, it is clear that a crucial question will be, who determines the value of a point and what will be the governing principles of that choice. The answer to the first part of this question is that it will be the central government and, given the current level of trust in the population that is not a recipe for getting popular approval. The different pension schemes had the merit that there were intermediaries where each profession had its voice, those voices do not seem to be heard by the government. Indexation on incomes rather than on inflation may be a more attractive choice now but this will not always be the case. If the authorities are faced with a deterioration in the finances of the situation things may be modified but we are not told how. The government hoped to quell anxiety by announcing that the reform would only concern those born after 1975, but how precisely this will be achieved as their elders get to retirement is not clear.

How will civil servants such as teachers who could have expected their pension to be equivalent to 75 per cent of their income feel about being aligned with those in the private sector whose pension is around 50 per cent. No problem, is the answer we will increase salaries in the public sector. The nurses, teachers and their colleagues who have been demonstrating lately are evidently not waiting with baited breath.

On the 22nd of January 2018 Macron asserted that ‘we have to put an end to this perpetual crisis where each pension reform is somehow a last minute modification of the system necessitated by considerations of the state of public finances  but which systematically undermines public confidence without changing the rules of the game’. As Bozio observes, ‘obviously the president hasn’t convinced his prime minister’.

Lastly, forgetting the financial problem for a moment, I agree with Thomas Piketty when he argues that a reform of the pension system was a formidable opportunity to use the changes to reduce the inequality of the system. Why should someone living near the poverty threshold receive the same proportion of his income (calculated on the basis of his whole working life) at retirement as somebody who had a relatively comfortable life? There is, of course an upper limit on pensions paid, but not to make things too redistributive people with higher incomes will only be tased at 2.8 % on their income above that which no longer gives rise to an increase in their pension. We pay taxes for many things from which we will not personally benefit since this is based on some notion of solidarity but the proposed measure pushes things back to individual  self-interest and not to concern for general welfare and, as I said at the outset this is the hallmark of the current government’s concerns.

I somehow, naively thought that while the 20th century had been that of competition the 21st would, of necessity, have become that of cooperation. But, as a student said to me recently, I see that you are working with the OECD, the Organisation for Economic Competition and Development, …’out of the mouths of babes and sucklings’!