French lessons for Mrs T
Edward Mortimer
Paris It is now nearly three years since President Giscard d'Estaing entrusted the government of France to a professor of economics who proclaimed his determination to get away from stop-go policies, do away with unnecessary controls and regulations, allow market forces to play their proper role, and keep the money supply on a tight rein. Raymond Barre did net actually use the Slogan 'roll back the state', but it corresponds to an important element in his thinking. 'The state must not take the place of firms', he says. It is not its job, for instance, to fix prices, or to apportion shares of the market between companies. Its job is to make rules ensuring that firms compete with each other on fair terms, but not to regulate their economic choices. Not surprisingly, Barre's experiment in a country where the state, even though usually under non-socialist political leaderShip, has traditionally intervened extensively in the running of the economy excited considerable interest among Mrs Thatchers advisers. Here were liberal Policies being applied in an apparently ullsYmpathetic social climate but by a democratic government, without resorting to coercion. Barre's France was almost for the right what Allende's Chile had been for the left.
Are the results equally discouraging? Many people in France are not far from thinking so, and they include Barre's predecessor Jacques Chirac. Chirac enjoys a right-wing image, thanks to his highly combative, authoritarian style and temperament, and his fierce hostility to Giscard's 'ream of enticing the Socialists into the 8overning coalition. But in economic policy, at least for the time being, he is a man of the soft centre. Pointing to the rising unemP1°Yroent figures and the unrest provoked M Lorraine by the run-down of the steel 'fldustry, he echoes the Communist and Socialist accusations that Barre and Giscard are leading France to disaster, and calls stridently for measures of reflation. What is certainly striking, to a social _democrat who crosses the Channel with Mrs Thatchers denunciations ringing in his ears, iS that after nearly three years of the Barre Medicine, and though supposedly a much stronger economy, France has almost exactly the same unemployment figures and inflation rate as Britain after five Years of 'socialist' strangulation-cumMollycoddling. To this Barre's first answer is that the Callaghan-Healey medicine, even if labelled 'socialist', actually contained several of the Barre ingredients and was also adminis tered in stronger doses than Dr Barre himself would care to prescribe. 'Unlike Mr Callaghan, I did not impose a reduction in purchasing power in two successive years, because I believed that in France we could solve our problems without that.' This is said with admiration, not contempt. French conservatives are generally much impressed with the Labour government's achievement in bringing down inflation from nearly 30 per cent to single figures, and are halfsurprised that the electorate did not show more gratitude for it. But they recognise that the drastic methods used were hardly likely to be popular.
Barre's advisers believe that when he took over the government from Chirac, France was dangerously close to the acute stagflation which in 1975-6 forced Britain into the hands of the IMF. Many French firms, they say, had absorbed the rise in oil prices without laying off workers, while letting real wages rise at five per cent per annum, only at the price of going heavily into debt. This was made possible by an over-liberal monetary policy a sort of 'Chirac boom' and the results externally were a growing balance of payments deficit and a slipping franc.
Within two years, they point out, Barre's policies had turned the balance of payments round without resorting to deflation. GNP increased in volume by 2.7 per cent in 1977 and 3.2 per cent in 1978, and they project growth of 3.5 per cent in 1979. Unemploy ment has also risen, Barre admits, but he points out that the number of school leavers coming on to the job market has also risen by 250,000 each year (reflecting a rising birth rate in the Fifties); and he argues that not all the 1.3 million demandeurs d'emploi are 'real unemployed'. Barre and his team are particularly proud of having resisted pressure to reflate before last year's elections, in spite of widespread forecasts of a left-wing victory. It is fair to add, however, that it was only after winning the elections that the government embarked on its most controversial move in the domestic economy: the lifting of price controls. This was done in two stages. The first affected goods (including bread, whose price had been controlled ever since 1792), the second services. According to conventional wisdom, it should have led to galloping inflation. It did not, but nor did it lead to any noticeable pick-up in industrial investment. (Wages, incidentally, remain controlled -not by statute but by 'constant admonitions' backed up by 'a small number of measures of constraint'. Here Barre, who denies he is a laissez-faire man, is not ashamed to rely on the French dirigiste tradition and on the weakness of a politically divided trade union movement.) The same is true of another reform which appeals strongly to British Conservatives: the Loi Monory, named after the finance minister, which gives tax relief on savings invested in industrial shares. This did have the effect of sending a lot of money into the stock exchange, but few firms used the new capital available for investment in new plant. Most of the money simply changed hands between investors as prices of existing shares rose by 60 per cent. Those firms that did take it up used it mainly to get themselves out of debt. The financial health of French firms is generally better now than it was three years ago, but few of them see any incentive to invest, and especially not to invest in labour-intensive processes. The cost of employment in France is very high, • thanks to extensive social security the main burden of which is borne by the employer (including redundancy schemes which start at 90 per cent of full salary and decline to 60 per cent over three years).
Social security is the next hot potato which the government is expected to handle, once the European elections (which Chirac is trying to turn into a vote of no confidence in Giscard's policies) are out of the way. But the main reason for lack of business confidence has little to do with government policies. It is the international prospect that rising oil prices will choke off any incipient recovery of world demand. The prospect is particularly bleak for France because of her lack of domestic energy sources. That is why she is still grimly dashing for nuclear power, Harrisburg or no Harrisburg, and why she still envies Britain, unions or no unions.
Previous page
