Saturday, April 14, 2007

France's presidential election

For the past quarter-century the French seem to have accepted a sort of unwritten, profoundly conservative pact with their politicians. It goes something like this: we agree to elect you, the political class—all trained at the same post-graduate college, the Ecole Nationale d'Administration—and we will tolerate high unemployment as the price of the protection you guarantee for the rest of us. In return, you agree not to undermine that protection, and to preserve the system as it is. Recently, however, this deal has been strained to its limits. The French no longer trust their politicians to shelter them, and are furious about it. They rejected the EU constitution in a referendum in 2005, partly in protest against an enlarged Europe that threatened to suck jobs out of France and which their politicians could do nothing about. When rioters set light to the banlieues in 2005, the French were reminded that high unemployment has a searing social cost: the failure to integrate ethnic minorities.

So as the French prepare to go to the polls to elect a new president, they have every reason to feel perky. The top 40 companies on the Paris bourse have been pulling in record profits. The TGV, France's homegrown high-speed railway train, has just reached the dazzling world-beating speed of 575 kph (357 mph) on the new line from Paris to Strasbourg. And after 12 ‘interesting’ years under 74-year-old Jacques Chirac, voters are about to hand power to a fresh, dynamic younger generation. However, as the French head to the voting booths for their two-round poll, on April 22nd and May 6th, they do so in a collective funk. They are fed up and fearful. Fearful that their jobs will disappear abroad, that their children will not find work, that the banlieues will explode again, that their welfare system will collapse. They are also tired of politicians who seem neither inclined nor capable of doing anything about it. Not all of this declinism is justified. Elements of the methodically planned, generously financed French system still serve the country well. For example, France's public hospitals are first-rate. Free nursery schooling has helped to boost birth rates to among the highest in Europe. With such success also underlines a system that has undermined risk-taking, and braked economic growth. The past five years, has seen GDP growth in France below the OECD average. No greater concernation for French pride is to see Germany's economy take off, again, while France's has stalled: in the fourth quarter of 2006, on a year-on-year basis, GDP grew more slowly in France than in any other European Union country except Portugal.

There are many reasons for this underperformance, in particular, the fragile industrial middle. But the single biggest problem is that not enough people work, and when they do, they do not spend enough time on the job. France's 35-hour work week is one of the shortest in the world; the employment rate for the over-55s one of the lowest; and unemployment has not dipped below 8% for 25 years. Over-protected jobs prompt employers to recruit temporary staff, thereby entrenching the very insecurity that protected job contracts are meant to prevent, cutting off employment growth of minority communitites that have lead to the recent rioting.
Into all this steps three very different, very electiable canditates. The upstart Socialist outsider Ségolène Royal, a mother of four, whose partner, François Hollande, happens to be the party boss, and it does not hurt that she also seems to embody modernity. She talked unlike any leader on the French left, admiring Tony Blair's employment record and using taboo phrases like “labour flexibility”. She has proven internet-savvy, and promised a new “participatory democracy”. At last, it seemed, here was a leader who could modernise the French Socialists. Then there is Mr Bayrou. A former education minister repackaged as a provincial farmer from the south-west, Mr Bayrou promises to “bridge the left-right divide”. His programme is a mix of fiscal prudence and old-style interventionism. He is admirably bold about curbing public debt, and promising to spend only what the state can afford. He hopes to encourage job creation, by allowing each company to hire two workers free of payroll charges. He wants to lower France's wealth tax by broadening its base.Although his surge in the polls has levelled off lately, he remains a contender, drawing those disillusioned both with the palaeo-Socialists and Mr Sarkozy on the right. Finally, there is Nicolas Sarkozy.

His economic program defies classification. On industrial policy, he is an unapologetic interventionist. He is proud of having rescued Alstom, an engineering firm, from bankruptcy with taxpayers' money when finance minister, in 2004. He says it was “a mistake” to have sold Arcelor, a steelmaker taken over by Mittal last year. Three elements of Mr Sarkozy's program, however, are of more liberal inspiration. First, he understands the need to remove obstacles to job creation. He plans to liberalise the 35-hour week by exonerating all overtime from payroll charges and income tax. Second, he believes in minimising taxation. He wants to lower the overall personal tax rate from 60% to 50%; and he promises, optimistically, to cut the overall tax burden by four percentage points over ten years, and public debt to 60% of GDP by 2012. Sarkozy is also ready to confront France's bastions of conservatism. He promises to give universities more autonomy, letting them compete to recruit staff and students. He says he would break the big five unions' statutory stranglehold on representation in companies. He intends to introduce a law that will guarantee “minimum service” on public transport during strikes. And he wants to reform the special pension regimes for railway drivers and other state employees that enable them to retire early on full pension.

These are the reasons that Sarkozy is the only candidate who seems both to have understood the urgency of reform and to have the abrasiveness to stand a chance of carrying it out. A political outsider, who fought his way to the top of the Gaullist party through hard work and cunning, he remains fearless in the face of opposition. For all of Europe, France’s presidential election is important. Central and Eastern European countries new to the European Union and those still benefiting from the labor flexibility that such ‘western’ european countries have provided their citizens who wins the first round is important, but who wins the second is vital not only to the next 50 years of this European Union, but France’s relationship to the world.

No comments: