13 September 2017

Macron’s plan to make France less European – and more prosperous


The tables have turned. It used to be that Britain provided the blueprint for radical market-based reform, whilst France was Europe’s tax and regulatory basket case. In the early 1980s, the UK was pioneering free-market reforms that would later be copied the world over. Meanwhile, the Republic under champagne socialist François Mitterrand nationalised industries in a financially catastrophic and therefore short-lived attempt at reinforced dirigisme.

Today, while the UK eschews the big questions of Brexit in favour of feeble disquisitions on the pay rise that public-sector workers “deserve”, it is the French government that is tackling the big barriers to growth and dynamism that have stifled their economy since 1975. This is when the “30 glorious years” of postwar recovery are judged to have come to an end, followed by four decades of la crise. Someone might want to tell the French that, if a crisis lasts for 40 years, it cannot fairly be called a crisis. Rather, it is the normal state of affairs.

Regardless, the shining new President of the Republic, Emmanuel Macron, has vowed to attack this status quo. He aims to deconstruct the onerous French labour market law, the infamous Code du travail. This is a 1,600-page, 10,000-article gargantuan piece of legislation which is blamed for clobbering employment in France over the past 25 years. Indeed, the rate of joblessness has rarely dropped below 8 per cent during this period, even as France’s main trading partners boomed and the global economy flourished.

It is not simply the Code’s sheer length which drives employers berserk, creating uncertainty as to their compliance with the letter – hundreds of thousands of letters – of the law. Many of the measures that it contains are plainly harmful to the flexibility required for a modern economy to flourish. The 35-hour work week, concocted in the late 1990s on the fanciful notion that working fewer hours would increase employment with no impact on pay – you laugh, but George Osborne argued analogously for his Living Wage – is part of the Code, as is one of Europe’s highest minimum wages.

Milton Friedman famously said that radical reforms are not developed to be adopted in normal times, but rather to be available when, in times of crisis, all conventional measures have failed and politicians are scrambling for an alternative. It seems that this is the prevailing mood in France, where domestic output since 1990 has grown at an average of 1.6 per cent, compared to the EU’s and the UK’s 2 per cent. This may seem like a trivial gap, but compounded over 25 years it leads to a considerably smaller economy than it could have been.

This is the backdrop to Macron’s election. Something of an outsider and unattached to either de Gaulle’s paternalist centre-right or the boulevard Left of Mitterrand, Macron has fresh ideas about the potential of technology and a more American than European confidence in the future. All that glitters is not gold, however, and the age-old controlling instincts of French politicians have been on show in some of Macron’s first initiatives, such as the – largely irrelevant but symbolically powerful – recent ban on fossil fuel explorations on French territory.

Nevertheless, Macron may be able to deliver considerable reforms when it comes to the labour market. His cabinet intends to move a larger share of collective bargaining to the firm level, remove the requirement of union representation for small- and medium-sized businesses, limit severance pay – right now it averages €24,000 per dismissal – to give employers greater certainty about the costs of hiring, and merge the various worker representation committees to reduce the internal bureaucracy of firms. It will most assuredly not turn France into Singapore overnight, yet it is a badly needed updating of regulation to bring the country closer to the legal framework of an advanced, 21st-century economy.

While in the UK we are backtracking on the liberal regime that delivered one of the most active and dynamic labour markets in the industrial world – with record employment and a comparably small rise in joblessness during the last recession – our neighbours across the Channel are catching up to us. Spain reformed its dysfunctional hiring and firing regulations in 2012, and robust employment growth followed. Now, it is long-ossified France that is taking up the baton.

It would be an irony indeed if, after voting to leave the EU, the UK became more European – with all the bad and no good connotations – whilst Europe goes Anglo-Saxon.

Diego Zuluaga is Financial Services Research Fellow at the IEA