Second in an occasional series on European politics.
In 1997, the year in which the United States was in the midst of a spectacular capitalist-economic boom, France was under the leadership of Prime Minister Lionel Jospin of the Socialist Party. "Center-right" President Jacques Chirac, formally Jospin's superior, was licking his wounds after a bitter electoral rout. Many free-market observers looked at Jospin's background and shuddered in fear of what they thought was to come.
In his youth, Jospin had been an avid Trotskyite and even a member of the Lambert Group in the Internationalist Communist Organization (OCI), an organization which desired, in communist fashion, to bring about the dictatorship of the proletariat and social justice. As late as 1979, at the French Socialist Party Congress, Jospin drew a clear line when he stated unequivocally that "the goal of the PS [Parti Socialiste] is not to modernize or moderate capitalism but [to] replace it with socialism."
The few actions of Chirac that have led to greater economic freedom seem like isolated kernels in a socialist field.
Yet Jospin, the socialist, pursued privatizations of state-owned enterprises with extraordinary vigor: during his five-year tenure, from 1997 to 2002, he privatized more than any of his "conservative" predecessors, and almost more than all of his predecessors combined. France Telecom, Air France, Crédit Lyonnais, Aerospatial-Matra, Banque Hervet--just some of the names of the more than 900 companies that saw shares floated on the stock market. With roughly 31 billion Euros ($40 billion) in privatization revenues, Jospin left his "conservative" predecessors, Prime Ministers Chirac (€13 billion in privatizations), Balladur (€17 billion) and Juppé (€9.4 billion) in the dust.
At perhaps no point was the irony more poignant than in 1999, when Jospin put his Communist Minister of Transportation, Jean-Claude Gayssot, in charge of ensuring a clean and proper near-majority privatization of Air France. Even as the French state continued to retain a slim majority of the shares until several years later, the symbolism was extraordinary.
In June 1997, two years before Air France's IPO, Gayssot, the Communist, had still said: "I will not be the minister of privatization, deregulation and ultra-[classical] liberalism." Leader of the French Communist Party Robert Hue was also clear when he said, in 1997, "One can find, by going beyond the status quo, arrangements which can permit Air France, without being privatized, to be extremely competitive." The rhetoric aside, Air France's IPO took place on February 22, 1999.
Many free-marketers have vigorously condemned Jospin's 35-hour workweek, enforced under the loi Aubry, the Aubry law. Yet this ostensibly socialist law made it not optional but mandatory that all employers with more than 20 employees re-negotiate long-standing labor agreements with workers. These re-negotiations often led to much higher flexibility and higher profits. As Gunnar Trumbull notes, "workers have generally been willing to accept a more flexible allocation of their work time, along with some wage restraint. Samsonite workers, for example, have agreed to work 42 hours per week in the summer, when the demand for baggage is high, in exchange for a shorter 32 hours-per-week schedule in the winter. This so-called annualisation can reduce the amount of overtime a company must pay, while also reducing layoffs in the off season."
Was it a coincidence that this type of labor flexibility, as well as the requirement that all labor agreements of large firms be re-negotiated, found its way into a law that seemed so socialist? Not with Jospin at the wheel, anymore than it was a "coincidence" that Jospin privatized more than any of his predecessors while vigorously condemning capitalism.
Jospin denounced American capitalism as "jungle capitalism" ("capitalisme sauvage") and went even further: like the ideologues of old, he publicly judged capitalism to be an inherently "unstable" system. Speaking in Tokyo in December 1999, months before his government would announce a round of sweeping corporate and income tax cuts, Jospin lashed out at hedge funds and spoke against Adam Smith's invisible hand of the market, saying "hedge funds and other speculative funds have practically no regulatory obligations [.] [T]heir situation is completely unjustifiable in economic terms. Social rights, labor union rights, the rights of those who work are fundamental rights [.] We are placed in front of a choice. We can let economic laws that are supposedly natural guide the evolution of our societies, and, in so doing, abdicate our political responsibilities. [Or,] to the contrary, we can seek to control the forces that are at work in the globalization of the economy."
In 2000, to the surprise of many American observers who had been misled by Jospin's rhetoric, his government implemented noticeable cuts in the value added tax (sales tax), the income tax, and even the corporate tax.
From 1997 to 2002, Jospin privatized more than any of his 'conservative' predecessors, and almost more than all of his predecessors combined.
Yet Jospin's rhetoric did not change. In 2001, in a political ploy to shore up support from left-wing voters, Jospin said he would push for a tax on international financial transactions, starting with those between France and its European Union colleagues. Even Jospin's own Socialist Finance Minister dismissed the idea. The minister in question was a political rival of Jospin, but regardless almost no one took the proposal seriously, not even Jospin himself, who, as a rational, pragmatic Prime Minister realized it was a hopeless bid.
One could even ask whether Jospin is more market-friendly than the French right. For instance, what happened to the plan of "conservative" Chirac to cut income taxes by 1/3? In setting forth the plan, Chirac portrayed himself as a reformer. But in the end, after a few minor shifts, his ambitious plan was more or less shelved. A slight lowering of the income tax under Chirac has been offset by increases in local taxes and payroll taxes (charges sociales).
By contrast, a 2005 plan by Chirac to create a new tax on airplane tickets (up to $48 per ticket, every time you board a plane) to finance government aid to third world countries fared better: it became law and adds yet another tax burden to French citizens.
What about other reforms? A February 2006 effort to relax rigid French labor laws was abandoned after young Frenchmen protested in order to keep rigid state entitlements. The proposed changes in labor laws could have reduced unemployment among angry immigrant youths in social housing projects, yet the current government had no stomach to face a fight with unions. Unless it gets a stomach soon, however, unions will continue to further a deep and systemic economic rot in that once economically dynamic and hopeful nation.
Chirac's rhetoric zig-zags between vigorous speeches in favor of economic freedom and statements harshly critical of capitalism and globalization. The few actions of Chirac that have led to greater economic freedom seem like isolated kernels in a socialist field. Capitalist measures have been tepid, and the government has been weak in its response to labor unions.
France is unusual in the sense that politicians from across the political spectrum are often critical of capitalism, globalization and corporations, and fond of state prestige projects. Yet despite the fact that Jospin's rhetoric was far more socialist than Chirac's, and despite the 35-hour workweek instituted under Jospin's watch, any free-market observer should be impressed by Jospin's significant reforms, and disappointed by Chirac's relative inaction and adherence to failed socialism. Who, in France, implements more free-market reforms: the left or the right? We should be surprised that it is a fair question.
Jurgen Reinhoudt is a research assistant at the American Enterprise Institute.
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