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French Lessons
In the early 1980's, as the Reagan supply-siders attempted to reduce the deficit by cutting taxes and simultaneously increasing military and social spending, one skeptic asked, "Before we do this, couldn't we try it out on a smaller country?"
Though different economic ideas are being tested this time, an experiment is being conducted on a smaller country, and the results will be useful to us.
While most of the world is entranced with productivity, financial markets, fiscal discipline, and global competition, one corner of the world is taking a different path. If you're nostalgic for the left wing of the Democratic party, take heart. Also, take a vacation to France.
French Socialists did not merely defeat the Conservatives, they crushed them, ground them to sausage. In the 577-member assembly, Conservatives collapsed from 477 seats to 258, while Socialists took control in a surge from 100 to 319 seats. Dream on, Dick Gebhardt.
Economic policy was not the most important election issue; it was the only issue. 12.8% unemployment was too much pain to bear, and the Conservative prescription for more budget austerity was intolerable.
Lionel Jospin is the new, Socialist prime minister, and he has a plan: create 700,000 new jobs, half of them government ones; reduce the work week from 39 to 35 hours with no loss in pay, and accomplish the feat with no increase in the budget deficit or taxes. Voila!
While Jospin's unemployment solution is a bit on the levitation side of left, it does make sense to abandon the extreme budget austerity. The purpose of the pain has been preparation for the "euro", the new, single European currency. Germany has been the main supporter of the euro, was the designer of its stringent standards, and shows every sign of intending to be its enforcer. That the Germans have a new plan to dominate Europe is not a surprise, but for France to help the Germans to do it is rather odd.
Euro-foolishness is a relatively minor matter compared to the French welfare state. The largest share of French unemployment is caused by the following spiral: welfare benefits are high, which make payroll taxes high, which makes it expensive for employers to hire workers, which increases unemployment, which increases welfare costs, which increases payroll taxes, whichÉ you get the idea. 40% of French workers already work for the government.
Most of Europe is troubled by some version of that spiral. Tony Blair last week coined a term to describe the terminally unemployed: the "workless class". In Britain, the one million adults in a population of 56 million who have never had a job of any kind; in France, about the same.
Traditional finance notwithstanding, the French welfare state has its benefits: a couple of months paid vacation, maternity leave, child care, medical care, retirement at 55 -- all precious essentials to the French way of life, well worth any punishment inflicted on France by the financial markets. Determining the extent of that punishment is, of course the point of the experiment: a plunging franc, inflation, and high interest rates could leave France with a worse unemployment situation than it started with.
Or maybe not: France just might get away with it. If she does, the Democrats should not assume the results of the experiment can be exported and adopted here, for French success may be due to uniquely French independence and élan.
Other French innovations we might adopt with more confidence. In the same week as Jospin's new economic plan, the spokesman for the French army, Major Bruno Mignot, observed, "It is absolutely astounding to think that adultery can lead to dismissal from the army."
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