France's Broken Social Model

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France's President Nicolas Sarkozy is doing what he can to reform France's economy, with mixed results so far. Seeking to weaken resistance by special-interest groups and militant labor unions, the self-proclaimed reformer is attempting to break through a reform logjam by introducing numerous economic reforms at once, so as to catch his opposition off-guard.

Sarkozy's "all-at-once" tactics may yet work, and the French President is to be commended for emphasizing, in a country where intellectuals often blame outside forces for the economic and cultural predicament of their nation, that France's economy needs fundamental economic reforms.

Yet there are signs that Sarkozy--and his even more reformist party, the UMP--are unwilling to point out the elephant in the room. In fact, not even in his candid political manifesto Testimony does Sarkozy dare point to the core root of France's troubles. The main problem facing France is its misguided "social model" and the nebulous concept of "solidarity" that continues to undergird it. No economic reforms will be effective in healing France's social divide until this misguided model is reformed.

That France's famed social model is economically inefficient and morally flawed--as opposed to being economically inefficient but morally virtuous--is an argument brought home with eloquence and vigor by Timothy Smith in his book France in Crisis (Cambridge University Press, 2006). Originally published in 2004, the book has not received the attention it deserves.

To say that France's social model is far from perfect is an understatement: in spite of the state absorbing more than 50% of GDP, France has suffered, since the 1980s, from rising child poverty rates, persistently high unemployment, a chronic sense of economic malaise, and the continual enrichment of the system's "insiders" at the expense of the system's "outsiders." More importantly, France's social model fails to deliver precisely what it proclaims to: economic justice, inter-generational fairness, economic opportunity and social protection, particularly to young workers entering the labor market, minorities, immigrants, middle-aged women and other vulnerable groups.

For those who wonders how France's large welfare state could afford to fail so many--and confer so many privileges on the over-privileged few--Smith's book is a must read.

Smith, a Professor of Comparative Public Policy at Queens University, Canada, is an admirer of Social-Democratic welfare states such as Sweden or the Netherlands. No right-winger, Smith admires these countries for their labor market flexibility, progressive taxation structures and active income re-distribution policies. France, Smith points out, lacks all three: France's labor market is remarkably inflexible, something that benefits white, male, middle-class white-collar workers at the expense of women, minorities, immigrants, young workers, and the unemployed. France's taxation structure can easily be described as regressive: it contains large tax breaks for independently employed professionals and wealthy families with numerous children, while poor and lower middle-class families must pay one of the highest Value Added Tax rates in the world. And just as important, France lacks effective income re-distribution policies, with its pension programs re-distributing tens of billions of Euros in reverse, from economically struggling workers to upper-middle-class French retirees, the wealthiest age group in French society today.

The "insiders" in the French system are people who benefit from France's well-known perks, including lifetime job security; 6 weeks or more paid vacation; a generous medical system that is a complex public-private hybrid; and a steady, dependable source of income.

France's special-interest groups, encompassing not only privileged public sector worker but also upper-white-collar workers (cadres) have carved out positions of extraordinary economic privilege for themselves, with the support of left-of-center and right-of-center governments, while saddling the non-privileged public (the so-called "outsiders") with the bill and, often, a lifetime of economic exclusion.

In contrast to the state-induced opulence that the privileged plurality of French workers enjoy, for more than 1/3 of France's labor market, France resembles a bit of a Kafkaesque nightmare. Millions of young French people have the utmost difficulty in finding jobs: some unskilled jobs attract dozens of resum├ęs from disillusioned university graduates. It is not uncommon for young French people to live at their parental home--by necessity--until their late twenties or early thirties, drifting in and out of unpaid internships, hoping to land a permanent position with lifetime job security, or, better yet, a government job.

Industrial workers, meanwhile, have seen their pay stagnate for years, as governments mandate reduced working hours without reducing pay--something that has benefited white-collar workers by providing them with more vacation days but not blue-collar workers, whose employers suffer, and not the economy as a whole. Minorities and immigrants, meanwhile, remain essentially "locked out" of the labor market, as the French government has pushed the minimum wage so high that companies resort to squeezing out every last bit of productivity from a small number of workers, choosing to automate their workplaces through technology rather than hire additional workers.

Many commentators have criticized the French welfare state from a right-of-center perspective. Smith's book is so powerful--and valuable--because Smith methodically and carefully examines whether the French welfare state administers the "solidarity" it purports to deliver or if instead, it undermines social solidarity. Smith tests the French welfare state on its own terms, and the results are intriguing.

On the basis of numerous peer-reviewed studies, careful analysis and a wealth of empirical data, Smith's conclusion is clear: France's welfare state is neither socially just nor "solidaire," but rather, a well-oiled gravy train that delivers benefits to vocal, well-organized special interest groups who cloak their narrow economic self-interests under the banner of "solidarity" and "the social model." Interest groups resist all attempts to slightly trim their bountiful privileges, even as slight sacrifices on their part could help France's outsiders a great deal.

Skillfully deflecting the blame for decades of failed social policies that economically benefit them, Smith observes that these interest-groups have for years blamed globalization, the EU, free trade, Anglo-American capitalism and myriad foreign factors for the economic predicament of France--anyone, of course, except those who caused France's predicament: they themselves.

Smith is not the first academic to favor a Social-Democratic welfare state (as opposed to France's more corporatist, conservative welfare state), nor will he be the last: Smith is, however, the man who makes the most convincing case to date that if social justice and "solidarity" are what the French people want, the current French social system is probably the most perverse and economically ineffective vehicle to attain these ideals.

Though Smith's book would best be distributed and read in France itself, should Americans choose to immerse themselves in Smith's eloquently written page-turner, however, they will encounter a treasure-chest of information about how quickly good intentions of policymakers went awry. For this reason alone, the book is well worth reading. It is not only an elegant polemic but also a vivid public policy warning to those who view France's social system model as a good one to follow.

In conclusion...

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