August 24, 2013
A Proud Nation Ponders How to Halt Its Slow Decline
PARIS — For decades, Europeans have agonized over the power and role of Germany — the so-called German question — given its importance to European stability and prosperity.
Today, however, Europe is talking about “the French question”: can the Socialist government of President François Hollande pull France out of its slow decline and prevent it from slipping permanently into Europe’s second tier?
At stake is whether a social democratic system that for decades prided itself on being the model for providing a stable and high standard of living for its citizens can survive the combination of globalization, an aging population and the acute fiscal shocks of recent years.
Those close to Mr. Hollande say that he is largely aware of what must be done to cut government spending and reduce regulations weighing down the economy, and is carefully gauging the political winds. But what appears to be missing is the will; France’s friends, Germany in particular, fear that Mr. Hollande may simply lack the political courage to confront his allies and make the necessary decisions.
Changing any country is difficult. But the challenge in France seems especially hard, in part because of the nation’s amour-propre and self-image as a European leader and global power, and in part because French life is so comfortable for many and the day of reckoning still seems far enough away, especially to the country’s small but powerful unions.
The turning of the business cycle could actually be a further impediment in that sense, because as the European economy slowly mends, the French temptation will be to hope that modest economic growth will again mask, like a tranquilizer, the underlying problems.
The French are justifiably proud of their social model. Health care and pensions are good, many French retire at 60 or younger, five or six weeks of vacation every summer is the norm, and workers with full-time jobs have a 35-hour week and significant protections against layoffs and firings.
But in a more competitive world economy, the question is not whether the French social model is a good one, but whether the French can continue to afford it. Based on current trends, the answer is clearly no, not without significant structural changes — in pensions, in taxes, in social benefits, in work rules and in expectations.
But Mr. Hollande’s Socialist Party and the harder French left have not seemed to grasp the famous insight of the prince’s nephew in Giuseppe Tomasi di Lampedusa’s renowned novel of social upheaval, “The Leopard,” that “everything needs to change, so everything can stay the same.” Sometimes, talking to French politicians and workers, one has the feeling that they all consider themselves communards and revolutionaries, fighters on the left — but at the same time, like the far right, they wish to lock into place the comfort of the known.
In May 1968, students at the University of Paris in Nanterre began what they thought was a revolution. French students in neckties and bobby socks threw cobblestones at the police and demanded that the sclerotic postwar system must change.
Today, at Nanterre, students worried about finding jobs and losing state benefits are demanding that nothing change at all. For Raphaël Glucksmann, who led his own first strike in high school in 1995, members of his generation have nostalgia for their rebellious fathers but no stomach for a fight in hard economic times.
“The young people march now to reject all reforms,” he said. “We see no alternatives. We’re a generation without bearings.”
The Socialists have become a conservative party, desperately trying to preserve the victories of the last century. Many in the party, like the anti-globalization campaigner Arnaud Montebourg, now the minister in charge of industrial renewal — let alone those further to the left — seem to believe that France would be fine if only the rest of the world would just disappear, or at least work a little less hard.
There is nonetheless an underlying understanding that there will be little lasting gain without structural changes to the state-heavy French economy. The warning signs are everywhere: French unemployment and youth unemployment are at record levels; growth is slow compared with Germany, Britain, the United States or Asia; government spending represents nearly 57 percent of gross domestic product, the highest in the euro zone, and is 11 percentage points higher than Germany. The government employs 90 civil servants per 1,000 residents, compared with 50 in Germany.
Hourly wage costs are high and social spending represents 32 percent of G.D.P., highest among the industrialized countries; real wage increases outpace productivity growth; national debt is more than 90 percent of G.D.P.
About 82 percent of the new jobs created last year were temporary contracts, up from 70 percent only five years ago, not the kind of full-time work that opens the door to the French middle class. That keeps nearly an entire generation living precariously, no matter how hard people study or work.
Last year, France was ranked 28th out of the 60 most competitive economies in the world, according to the International Institute for Management Development in Lausanne, Switzerland. The United States was first. Even China, at 21, and Japan, at 24, outranked France. In the World Bank’s ranking of “ease of doing business,” France ranks 34th, compared with 7th for Britain and 20th for Germany.
In Amiens, in the north of France, Goodyear owns two tire factories. The work force at one has grudgingly accepted a change in work schedules, preserving its factory. The workers at the other have refused, and Goodyear is trying (not so easy in France) to shut it down, throwing more people out of work. Claude Dimoff, a former union leader at the more flexible plant, said: “I’m part of a generation that experienced the common program of the left. We had visions for the future, and different values, but all this is forgotten. The left has completely deviated from its promises.”
The country retains plenty of strengths. France is the world’s fifth-largest economy, with strong traditions in management, science and innovation. The gap between rich and poor is narrower in France than in most Western countries, although it is growing.
When the French work, they work hard; labor productivity, perhaps the single most important indicator of an economy’s potential, is still relatively high, if dropping. But with long holidays and the 35-hour week, the French work fewer hours than most competitors, putting an extra strain on corporations and the economy.
Large French companies compete globally; there are more French companies in the Fortune 500 than any other European country. But the bulk of their employees are abroad, and there are few of the midsize companies that are the backbone of Germany. Ninety percent of French companies have 10 or fewer employees and fear expansion because of extra tax burdens and strict labor regulations.
Even in France’s justly famous agricultural sector, the shrinking number of farmers has not been matched by a similar reduction in bureaucrats. Jacques Galaup, a farmer near Gaillac in the southwest, spoke with disdain of the number of hours he had to spend on paperwork — and estimated that there was probably one functionary now for every farmer.
Mr. Galaup showed off his records on the fewer than 30 cows that he raises. The files are thick and all done by hand; computers have barely made it to most levels of government.
In poll after poll, the French insist that they want renovation and modernization, so long as it does not touch them. That is always the political challenge, and Mr. Hollande’s conservative predecessor, Nicolas Sarkozy, is considered to have failed in his promise to make serious structural changes.
While complaining constantly, for example, about the horrors of the 35-hour workweek, Mr. Sarkozy never dumped it, but simply played with the tax consequences of overtime, a change that Mr. Hollande immediately revoked. One of Mr. Sarkozy’s advisers, Alain Minc, who tried to get him interested in Germany’s social market revisions, once admitted that Mr. Sarkozy was simply afraid to confront the unions and the social uproar that real change would provoke.
There is a broad consensus that real social and structural renovation can be carried out only by the left. But that can happen only if Mr. Hollande, who has a legislative majority, is willing to confront his own party in the name of the future, as the former German chancellor Gerhard Schröder did a decade ago with a series of legal modifications that now get much of the credit for Germany’s revival.
Mr. Hollande says he believes in “dialogue with social partners,” which has so far produced relative peace but little substantive change. With centrist union agreement, he has slightly loosened the labor market, making flex time easier and taxing short-term contracts more steeply. And in 2014 he is moving about $27 billion of social costs from corporations to the regressive value-added tax.
But what can seem bold in local terms tends to yield minor results, and these modest efforts have taken place at the height of Mr. Hollande’s power, which is inevitably declining.
In his book “The Resistance: The French Fight Against the Nazis,” Matthew Cobb quotes a man named Boris Vildé, executed by the Nazis. His last words were: “I love France. I love this beautiful country. Yes, I know it can be small-minded, selfish, politically rotten and a victim of its old glory, but with all these faults it remains enormously human and will not sacrifice its stature.”
But by refusing to grapple with its underlying faults, many here say, that is exactly what it is doing.