by Jerome a Paris
Thu Jun 30th, 2005 at 06:29:45 AM EST
The current malaise in France and Germany has a number of causes, including deep dissatisfaction with our current leaders, especially in France where our president is seen as totally incompetent, impotent and rudderless, as befits a fin de règne. But a few clearly unsatisfactory headline numbers (unemployment and growth) have made it possible for the English speaking world, which increasingly sets the tone for all business and economic news coverage, to crow about the superiority of their "flexible" and "dynamic" model as opposed to the "rigid", "stagnant" and "declining" continental economies.
Perceptions matter. That permanent barrage of criticism about our countries and systems defines what everybody thinks about the economy, and increases the feeling of malaise and drift, which in turn decreases our own confidence in the ocuntry. With confidence and moral plummeting, it is harder to invest and plan for the future.
It is important to say hard and loud that most of these perceptions are, quite simply, false.
I intend to use the tribune as an opportunity to trumpet another version of economic "reality", to encourage a change in perception. I hope that you will help me in this endeavor by being as critical as possible, so that only the best arguments seep through...
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First of all, I'll start by bringing up again an argument which was kindly provided by afew in an earleir diary started by Colman (What's really wrong with the eurozone labor market?), and which is the translation of an article in the lefty, but well respected, French economics magazine Alternatives Economiques (full disclosure - they have published an article by me 2 years ago):
Hardly a day goes by without its elogy of the British employment model. Indeed, the British jobless rate of 4.6% (2nd quarter 2004) is enough to make the French dream. Ten years ago, in 1994, the two countries showed similar, poor performance: 12% for France, 9.7% for the UK. So France should be red-faced today.
Not so sure. Over the same ten years, the number of jobs in the UK increased by 11%. In France, by... 14%. That's because of a rise in the number of government employees, reply the free-marketers. Well, no, because the UK is clear ahead of France in this race: since 1997, 45% of newly-created jobs (861,000 out of a total of 1.92 million), are public-sector, while in France, the number of new non-private-sector jobs (including public sector plus ONGs, trade unions, religious bodies) increased by 300,000 during the same period. Doctors, teachers, policemen, nurses... These are the jobs that have been created on the other side of the Channel. Not surprising, since public services were particularly badly treated by the ultra-free-market governments of the '80s and '90s.
If job creation in France has been superior, how come the unemployment level remains stuck so high, while it keeps going down in Britain? Quite simply because of the increase in the active (working-age) population. The number of job-seekers rose by 12% in France over ten years, as against 6% in the UK. So France needs to create two jobs to Britain's one to bring the unemployment statistics down.
But to confess that a rise in active population might have an effect on unemployment goes against the fundamental free-market assertion: all candidates on the job market will find a job... unless prevented by government interference (minimum wage, constraints on firing, high unemployment benefits).
Denis Clerc, Alternatives Economiques, n° 235, April 2005
And interestingly enough, the Financial Times publishes something similar today:
Public spending explains Britain’s jobs growth
Recent data from the Organisation for Economic Co-operation and Development illustrate the difference between the UK approach and the European social model. The UK has the lowest benefits for the first year of unemployment of any OECD country. Employment protection is lower in the UK than anywhere else in the rest of the EU-15. (...)
Alongside this flexible labour market, the UK’s level of product market regulation is the lowest of any EU country – lower even than the US. If the deregulators are right, Britain should have a vibrant private sector, with uninhibited private business enthusiastically recruiting additional workers.
The reality in recent years has been rather different. (...) France and Germany, despite higher unemployment rates, have done much better than the UK in maintaining employment in manufacturing. Between June 1997 and the end of 2004, France and Germany each lost between 5 and 6 per cent of their manufacturing jobs. These figures compare with a reduction of nearly 22 per cent in the UK.
While the troubles of manufacturing are well known, it is not widely appreciated how much weaker overall private sector employment has become in recent years. In the three years to 2000, private sector employment went up by about 900,000; in the four years after 2000, the increase was only 300,000. What is even more striking is that this slowdown took place while the government was creating more work for private companies through a substantial increase in public spending. Since 2000, the government has commissioned construction companies to build new hospitals and schools, spent more on drugs and school books and employed more catering, cleaning and other private service contractors.
(...) calculations suggest that, between 2000 and 2003, some 550,000 extra private sector jobs were created as a direct result of public spending. (...) the public expenditure programme of Gordon Brown, the chancellor, has been responsible for all the growth in private sector employment between 2000 and 2003. (...) together [with the increase in public sector jobs] it is clear that Mr Brown’s public expenditure programme has been directly responsible for all the growth in UK employment since 2000.
The experience of the last four or five years certainly does not support the idea that the UK’s recent jobs growth has been the creation of a deregulated and vibrant private sector. A good old-fashioned Keynesian expansion seems much closer to the mark. Perhaps this is the lesson Europe should learn from the British experience.
John Edmonds is a research fellow at King’s College, London and former general secretary of the GMB trade union. Andrew Glyn is fellow in economics at Corpus Christi College, Oxford
So, France has created more jobs, and more private sector jobs than the UK, despite not benefitting from the same debt-fuelled housing bubble nor of the oil price windfall (I'll write separately about that one later).
It's time to adjust our perceptions, and to stop worrying about how irremediably fucked up our system is. It has problems, real ones, I certainly won't deny it - but let's focus on solving these problems and not on bringing piecemeal some totally different rules that don't even seem to work so well.
Let's trust ourselves a little bit more.