Wednesday, 6 June 2012

Fraternité trumps liberté and égalité as French elections loom…

I have just returned from holidaying near the French hamlet of Gallician.  At Sunday's legislative elections, the town will be a battleground between the extreme wings of French politics: in the red (left) corner the Front de Gauche; and in the blue (right) Front National.

What strikes me, despite the lack of representation by the centrist parties, is that while social policies divide the country, economic policies reflect only shades of grey. 

Former President Sarkozy’s ‘reforms’ only tiptoed towards competitiveness and his raising of the retirement age will be undone by the socialists when President Francois Hollande’s victory is consolidated by a majority in the legislative elections (first round this Sunday).  Sarkozy also pandered to the public hunger for protectionism when he made state loans to carmakers in return for restrictions on délocalisation (shifting production overseas).

Hopes that post-Sarkozy the public might rally behind a less divisive Union for a Popular Movement (UMP) leader have floundered.  Infighting between party secretary Jean-François Copé and Prime Minister François Fillon has prevented the formation of a coherent agenda.  The legislative elections therefore look like an open goal for the socialists with pockets of opportunity for the extreme fringes – as in Gallician.

What dynamic new agenda are the socialists bringing? A cross-party conference on the country’s demographic time bomb. This policy-to-have-a-policy merely provides cover to re-propose the UMP’s lukewarm reforms - but with the cover of political unity.

Hollande is also trumpeting a scheme to lower the cost of employment.  Whilst promising in conception, the absurd complexity (companies can employ 18 year-olds free of social security obligations if assigned to an over 55 year-old who will, themselves, see their social security contributions halved) undoes the marginal competitiveness benefits the policy brings.

A retired campsite owner in Gallician (whose voice has been disguised to hide his English accent) expressed France’s failure to embrace the free-market aspirations of the eurozone: “France has a different attitude towards work from other countries.  I meet holidaymakers from Perpignan who are furious at the Spanish for undercutting French wages.  Fruit in this area is picked by Poles.  These workers do so under the treaty of Rome for less than the minimum wage by being employed by a Polish company.  There is never any suggestion that employment policy is too restrictive, always that it is too open.”

These points highlight two forms of deficiency which the eurozone has. Labour is permitted to move freely but is unlikely to do so because the employers’ burden of hiring differs between states (in terms of minimum wages, social security costs and the ease of dismissal).  The cultural attitude towards work in these regions differs too, meaning that until a country reaches dire straits (like Spain’s) it is unlikely to submit to reform. Until it does, companies will be dissuaded from moving production to areas of surplus labour.

There is little prospect of near-term improvement in France.  The World Economic Forum’s Global Competitiveness Report characterises the difficulties:

A culturally combative relationship between employers and employees (France ranked 133rd out of 144 countries for labour-employee relations) has resulted in legislation which makes it hard to cut employment costs (128th for labour market rigidity, 136th for hiring and firing practises).

We might lament that the trouble with the French is that they have no word for Laissez Faire.

Guy Foster
Head of Portfolio Strategy

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