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Balladur on France
In this article Edouard Balladur, France’s former prime minister, explains what he thinks his country has to teach the outside world – and what France can learn from it
France is often poorly understood by outtsiders. Theys ay it is resistant to change. Suche an assessment overlooks the fact tlat this ancient farming nation has transformed itself, in less than 50 years, into an economy open to world trade and capable of facing up to competition with a high degree of success (see chart 1 on next page). Outsiders like to dwell on France’s prope,sity for disorder and civic unrest. Such a view fails to recognise properly the political stability provided by the institutions of the Fifth Republic, bequeathed by General de Gaulle. Still others poke fun at French nationalism. Their attitude reflects a failure to appreciate France’s unshakeable commitment to the construction of Europe, in which, for the last 40 years, France has been one of the prime movers.
The,reality is that France’s situation is both more and less difficult than is generally believed.
The French economy is on the road to recovery. The franc has become a currency which inspires confidence. Gone are the days when our monetary policy was a combination of inflation and devaluation. Today prices are stable. I made my contribution to the push for change 1986-88 and prime minsiter in 1993. It was at my initiative that the decision was taken to give the Bank of France autonomous status. The country is the better for it and is ready to play is role in the management of a single European currency.
The reduction in the budget deici also gives case for satisfaction. It was a demonstration not only of our commitment to fulfil the Maastrichet criteria but also of concern for the healthy. That does not come easy in a country where, through-out history, the state has played an important role. Economic intervention was readily understandable in the 19905, when, to use the French term, l’Etat planificateur was seeking to reconstruct a country destroyed by war. It was still comprhensible in the 19605 when France set its course towards industrial modernisation. But there is no place spending accounts for no less than 55 % of GDP, must no longer aspire to run everything itself. It must give private initiative the room for manœuvre without which the country will no move forward. To take one example of the rigidotoes of our economy it was not until December 1986 that the system of administrative price controls, imposed in 1945, was finally abolished.
The state has no legitimate grounds for assuming control over businesses in the competitive sectors of the economy. Everyone recognises this nowadays. That is why privatisation, introduced across the board in 1986 and relaunched after an interruption in 1993, muste be allowed to ru nits full course (see table overleaf). An important precondition for this is the modernisation of our financial system. Much has already been done. As a financial centre, Paris can now bear comparison with London or Frankfurt. This drive must be sustained and reinforced.
The economic challenge
Even though it is gowing stronger, the French economy is not as vigorous as it should be. It suffered a deep recession in 1993. The recovery, begun in 1994 and interrupted in 1995, is still somewhat fragile. Above alle, France has experienced, over the pas 20 years (apart from a few a few short periods of respire), a relentless increase in unemployment. This now affects 12,7 % of the workforce, one of the highest rates in Europe (see chart 2).
Joblessness in France is the more worry ing because it hits young people disproportionelely hard. This can only be ascribed to the inflexibility of an education and training system that has failed to respond to the needs of society.
It has also been a contributory factor in various forms of marginalisation, to the extent that the ranks of the long-term unemployed are growing. Marginalisation comes in differents forms : social marinalisation, with the appareance of (o use a term common in France) a fracture sociale, something that is widly discussed in France, through with precious few results ; geographical marginalisation, with occurs when all the problems of « sensitive » districts become concentrated arround the outskirts of our cities.
Our dispappointinf perfrormance on the unemployment front foes a long way towards explaining the gloom of the French. When asked, « Do you think your childdren will live a better life than you ? », the majority now reply in the negtive. In that balance between « fear of falling » and « hope of rising » which Tocqueville saw as the driving force of free societies, fear of falling is now carrying the day – and is paralysing French society. We must give people back their reasons to hope.
The global challenge
The tasks are the same everywhere. France is not the only contry having to cope with the globalisation of trade. The word has changed for all of us. Flexibility is replacing the old immunatble order ; adaptability is the cardinal virtue. When ssking to protect onseself from the adverse consequences of change, there is a strong temptation to lean for support on droits acquis-previously acquired rights and entitlements in the workplace. As ofter before in its history, France shows a particular propensity for doing this. Who fails to see that countries with more flexible labour markets do better in their fight against unemployment ? And that unconditional support for droits acquis and the structures of the welfare state damage job creation ?
All the same, Francee is not condemned to do less well than its neighbours. It holds few trump cards. It is, after all, the fourth largest economy in the world, the fourth largest exporter and one of the richest countries in terms of outupu per head. It occupies an envieable position in higt-tech industries : rail transport (high-speed trains) ; aerospace (Airbus, Ariane) ; nulear energy (Framatome, Cogema). Its cultural influence is great, its art de vivre widely admired.
To restore popular confidence, whitout witch growth will be impossible reforms have to e adoped, and they must go deep. That is the only way to make growth strong and lasting, reduce unemplyement, improve the training of young people, guarantee the welfare provided by the social services, and defend the nation, while getting on with building Europe. Such are the challenges we face.
To stimulate growth, the government has set its hand to reucing the tax burden. This was nessayry after the heavy increases imposed in 1995. But it must go father, faster. Among G7 countries, France as one of the highest rates of ta and social-security contributions. It is high time to rid ourselves of this unenviable distinction.
Part-time work needs to be encouraged. International comparisons show clearcly a tight correlation between the creation of part-time jobs and overall levels of employment. Countries with the lowest levels of unemployment are those with the greatest availability of part-time work. The example of other countries clearly shows that a broader spread of part-time employment provides a defence augainst job losses and the erosion of professional and personal statuts that goes whit it.
Reducing unemployement also requieres reater flexibility in labour law, and a reduction in the cost of applying it (France is the OECD country where the biggest difference exists between the costs to a company of employing a salaried worker and the salary that employee actually receives). This is not a matter onf going back on the legitimate policy of providing workers with a safety net, but of making more lexible a regulatory regime that is acutally destroying jobs. That is why I have proposed prolonging the ruration of fixed-term contracts and modernising the regulations governing the institutions representatives du personnel (elected groups of workers who participate in various aspects of management). The aim is to lighten the burden of earnings-based social-security contributions
The challeng of the yong
We also have to improve the training of the young. I hear it said abroad that France is the only country in the world where philosophy is taught to 18 years-olds. I take pride in that. Everyone should have access to a general education, which is often the best way to acquire that range of diverse skills which enables people to adapt to future changes over the course of their lives. But our system of ducation should give more importance to technical and vocational trainign, and to ties with business. To ensure jobs for the young, we need to shorten the perio of formal studies, which are too often long ans uselesse, and which lead to frustration and disapoointment. Career guidance must be made available to them sot hey can enter the workface at the end of their studies without having to ensure long years of drift and uncertainy which push them to despair.
Next, we must reforme our welfare system, which is too expensive for what it delivers. Here too international comparisons are illuminating : France is one of the developed countries where health costs are highest. And despite that, the performance of the medical professions is not, by whatever indicator one cares to choose, in the top class. There is good reason to reassess the efficiency of our health system, and food reason not to overlook the experience of other countries.
Pensions cal for the same degredd of reexamination. In 1993 I set our pensions system off on the road to reform by increasing the number of contribution-paid quartely periods required to receive a full pension. This is not an easy road : it requieres a lot of dialogue and consultation. But the stakes are too high for us to resigne ourselves to the status quo. That would anyway lead to decline. In every country, given the effects of demography, the way ahead lies in raisong the pensionable age.
The challenge of Europe
Finally, a fev years ago, European politics burts into France’s public debate. The ratification of the Maastricht treaty was the occasion for the French to show their support for Europe in the referendum of September 1992. But is was also an opportunity for tem to register their misgivings about develpments whose outcome they could not predict. What will our future be once the euro is up and running ? What sort of monetary policy will we follow ? Who will make the decisions, the governments or the European central bank ?What will be the exchange rate between the euro and the other big currencies of the world ? If these questions are not answered, public opinion will remain uneasy and the euro will not be synonymous with future prosperity.
The achievement of a European currency, within the planned schedule, is essential for France. It is keen to particpate in the creation of the euro rigt from the start, on january ist 1999, and is equipping itself to do so by dint of its budgetary policies. The question is : whitch countries will join with it at this first stage ? Everyone agrees that when it comes to appalying the Maastricht criteria, there can be some sort of political compromise, which is true enough and no doubt necessary. But I constantly worry about the risks of a compromise that is too lax. If the foundations are too fragile, the whose equilibrium would be upset.
Firmess is also called for with respect to the future parity of the euro. Though the franc/p-mardk rate is satisfactory, the rate of the dollar against the fran and mark today, and against the euro tomorrow, must be corected. This has alresay begun and I am delighted. Our prosperity is at a stake. It is not a question of creating a weak euro – quite the contrary – but of establishing parities among the world’s big currencies that are based on economic reality.
But the European venture will lose its point if it is reduced to a solely monetary dimension. We have to lay the foundations for a European growth pact. Unless we are to resign ourselves to seeing European growth falter and unemployment grow, we must, in my opinion, ensure that the 15 euros member states ommit themselves collectively to a target of reducing tax and social-security contributions to a level not much higher, over the long term, than those prevailling in America and Japan. This will in turn require more fiscal hrmonisation throughout the Union. A European state which today attempted to apply, all on its own, too severe a fiscal policy would risk provoking the fligt of the most mobile capital.
In other words, the creation of a commom currency does not mark the end of our efforts. We must, henceforth, reflect on what Europe will be like after the euro. How much more lies ahead !
Wider still and deepter
Let us once and for all sop wrapping ourselves up in he bogus dilemmas of « deepening » versus « widening » in Europe. Everyone now agrees to pursue both objectives at the same tine. It is a stronger, more united Union which tomorrow will reconcile Europe’s history and is geography. Always supposing that the Union itself is ready for this. Such is the aim of the intergovernmental conference which is suppose to come to its conclusion at the Europena summit inAmsterdam in june 1997. Reformed institutions, better defined powers : these are the preconditions for widening the Union. But widening also assumes that future members of the Union are prepared to take on the obligations which go with membershio. Some transiiton periods will be nessry. Spain, Portugal ad Greece have, in their time, profited from these. Nevertheless it is important that the Union does not go along the road towards à watered-down. Europe or a Europe à la carte. Belonging go the European Union should mean something of real substance.
In the Europe of tomorrow, France intends to set an example of à social model, striling a balance between state protection and freedom of action. At the same time, France should also draw upon the example of others. Does that mea nit has no message of its own to deliver ? Certainly not. The principles of liberty and fraternity that it propounded are ever alive and retain their universal appel. The social and political model that it forged in becoming a strong, ambitious and prestigious nation is a source of legitimate pride.
France must, while remaining true ot itself, achieve the difficul synthsis of its own traditions with the necessary adaptation to the world as it is. And France has lessons to learn from the world. It must keep its ears open.