by Jerome a Paris
Mon Apr 16th, 2007 at 03:56:42 AM EST
Sigh... It never ends. Besides the Economist, the FT also had its piece this week-end about how the French economic model is unsustainable.
While not calling for a Sarkozy vote, it goes on to explain why the French have a "theological" belief, belied by facts, that markets do not work well.
Shall we bring facts to the table, then? Because that piece has a number of egregious mistakes or cherry-picked numbers.
(This time, I'm not doing a line-by-line exercise...)
Why France may find its social model exacts too high a price
Far from believing in themselves, France's voters appear in fretful and angry mood, worried about their children's future and anxious about their place in the world. The country's much-vaunted social model, combining generous welfare provisions and stringent labour market protection, is in question as never before. Suburban ghettos have exploded in race riots, economic growth has fallen well below other industrialised nations and successive governments have failed to get a grip on its runaway public finances. In a withering critique of France's economy, Morgan Stanley, the US investment bank, recently declared the country to be the "New Sick Man of Europe".
Getting the point across by mindless repetition. When did we flag the study about the "sick man of Europe"?
But let's get into the meat of it.
Over the past quarter of a century, France has tumbled from eighth to 19th in national rankings of gross domestic product per head. In 1991 French GDP per capita amounted to 83 per cent of the US level. Today it is 71 per cent. The French voters' instinctive belief that they are slipping behind many other nations is objectively true.
This is factually correct, as seen on this graph posted on the FT not long ago:
It is also cherry-picking, as 1991 was the bottom of the US recession and the top of the German reunification boom in Europe, while today is the top of the US housing bubble. If you take 1988 to 2000 (as close to top of the cycle to top of the cycle for both economies as is possible), you get a "drop" from 76% to 74%.
And, more importantly, you need to take that other graph from the FT into account:
I did a rough calculation of what the ration of French GDP to US GDP looks like if you take out the top 0.1% in each country, and you have this:
So the big difference between France and the US (or the UK) is that its rich people did not get as extravagantly rich. Big deal (for the FT and the elites that read it, I guess it is).
Not only do French people enter the workforce later than in most other countries, they then work fewer hours and retire earlier.
And this is bad, how, again?
France has also squandered the talents of millions: unemployment has remained above 8 per cent for the past 25 years. Youth unemployment is particularly high at 22 per cent.
Only 41 per cent of the adult population works, one of the lowest labour participation rates in the world.
Quoting again Laurent Guerby:
In the fourth quarter of 2004, the normalised unemployment rate for men aged 25 to 54 was, according to the OECD, 4.6% in the USA and 7.4% en France. At the same time, for the same group, the employment ratio was 86.3% in the USA and 86.7% in France.
We thus have an unemployment number which is 60% higher in France than in the USA even though more people work in the selected group, which is rather counter-intuitive if we expect the unemployment rate to reflect the situation of the labor market.
One should thus avoid hasty interpretations of unemployment numbers. In fact, the definition of unemployment is built on the - fragile - distinction between the unemployment of an potentially active worker his/her non-employment. Despite the best efforts to normalise this distinction, it remains heavily subjective and thus easily influenceable by various policies which have otherwise no real effect on the labor market.
I suppose it all depends how you define "adult". Is it the goal that everybody above 15 should work?
And as to the youth unemployment rate, the editors of the article make the same usual mistake that everybody makes: the unemployment rate of the youth is not the percentage of young people that are unemployed, it's the percentage of thr active workforce which is unemployed, not quite the same thing, as explained by the statistics editor of the FT:
You'd expect everybody in a newspaper like the FT to know such a basic difference. Jeez.
Yet it is not just its rigid labour market that has hampered the French economy. The creeping expansionism of the French state has also been sucking the lifeblood out of the private sector. France is the only eurozone country that has not reduced the financial weight of the state over the past 10 years. At 54 per cent of GDP, government spending is among the highest in the world.
Again, a flat out error, as demonstrated, again, by a FT graph:
The ONLY country to have increased its government spending in the past years is ... the UK. Next are the US and France. Not coincidentally, perhaps, these are the big developed economies with the best growth rates over the period...
But France's absolute level is higher! True, but as the FT pointed (two years ago), that has no bearing whatsoever on economic performance:
And as to "sucking out the life of the private sector, I'll deviate form my plan to use only FT graphs and will sneak in an OECD table (about the growth of private sector jobs in various countries, 1996-2002):
I'm sure John Thornhill can find "Royaume-Uni" and "Etats-Unis" (hint: look to the left of France)
And hell, this one (about relative job creation in the public and private sector in the UK) can be thrown in as well:
I'll spare you the usual criticism of the 35-hour week and the rigid labor market, except as an excuse to drop yet another nugget about the French not working enough:
Yeah, they don't work enough under rightwing governments (hint: there was a leftwing government from June 1997 to May 2002. Amazing how that fits with the work creation period)
But hey, some economists have an explanation as to why the French are hostile to capitalism:
in an arresting new book [Le grand méchant marché. Augustin Landier and David Thesmar. Flammarion. 182 pages. 15], two French economists take issue with this standard refrain, arguing that the country's anti-capitalist instincts and resistance to change are the result of historical accident and economic self-interest.
On many issues, he suggests, ideological prejudice has trumped empirical evidence; many commonly held beliefs are demonstrably untrue. "Economics is a soft science but it is still a science," he says. "Economics is not theology."
< pregnant pause >
Thesmar says that - statistically speaking - French people are wrong to believe that the capitalists are gaining an ever-increasing share of the pie at the expense of workers.
Hmmm... What did the IMF just say in their most recent report, as noted in the Financial Times?
Free trade hits income of workers, says IMF (FT, 5 April 2007)
For the first time in a significant policy document, the IMF says "labour globalisation has negatively affected the share of income going to labour in the advanced economies".
But back to our brilliant economists:
De Gaulle nationalised the banks, mines and electricity and gas companies and established a state planning agency to channel investment. Initially run by Jean Monnet, a Cognac salesman who was later to become principal architect of the European Economic Community, this planning agency pumped money into reconstruction, drawing on the expertise of business leaders, trade unionists and civil servants.
This state interventionism was remarkably successful, spurring the rapid postwar economic revival known as Les Trente Glorieuses.
the experience of state interventionism has convinced voters that this is how an economy best works, even if modern experience highlights its limitations.
Yeah, strange, isn't it? It worked, people believe that it worked, but now they have to believe those that tell them that it doesn't?
Many of the brightest French students are drawn into public service.
And, agian, that's bad, how? Isn't that precisely what made the State competent and allowed it to be "remarkably successful"? Isn't the issue today that the State is being delegitimized by the permanent discourse about 'taxes bad, government bad, markets good', and that the brightest students no longer go in sufficient numbers to work for the State?
"In a perfectly Cartesian manner, the French have aligned their political aspirations with their economic interests: little preoccupied with growth or the performance of the economy, they are more obsessed by security and the maintenance of the status quo," the authors write. "And those who bet on the growth of the country (the shareholders) are deprived of political support." They add: "We should not deceive ourselves: we are less a village of Gauls resisting globalisation for ideological reasons than a society of creditors that defends its individual interests."
So, if I get this right - we are rich, enjoying ourselves, and refusing the ratrace for ever more (the one that profits only to the top 0.1% of the population in the countries where the model is practiced). And that's bad, how, again? (I mean, for people other than that 0.1%?)
Could there be a link between that attitude and the quality of life that draws so many foreigners to spend time in France?