Tuesday, July 12, 2005

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Are times changing in France?

Christian Noyer, governor of the Bank of France, recently gave an interview to the Financial Times in which he said some very un-French things:

The Scandinavian economic model, combining market flexibility with a high degree of social protection, “is full of lessons for countries such as France, Germany and Italy”, Christian Noyer, governor of the Bank of France, has argued.

The willingness of France's central bank governor to admit in an interview with the Financial Times that other countries might have found a better answer to the forces of globalisation highlights how the political debate in Paris has shifted since the country rejected the European Union constitution in May.

Asked about last month’s appeal by Tony Blair, UK prime minister, for Europe to rethink its social model, Mr Noyer said: “I tend to agree with that.”

Sweden, Finland and Denmark have seen some of the fastest growth and lowest inflation rates among the main continental European economies. Sweden, which plunged into financial crises in the early 1990s, has re-invented its famed social model in the past decade.

“One of the key elements in the way these countries work is that they have mixed a greater level of flexibility in labour and product markets – a bit like the UK economy – with a high degree of social protection, which is traditional in continental Europe,” he said.

Social protection, he added, did not mean “a job for life even if your company is sinking. Protection means you have a social safety net to help you during a transitional period, and a whole system of education, training and retraining that obliges people to find a new job”.

Read more of the interview here -- in which he gives faint praise to new French PM Dominique de Villepin while dismissing Villepin's suggestion for closer political consultations with the European Central Bank.

posted by Dan on 07.12.05 at 04:25 PM


"Protection means you have a social safety net to help you during a transitional period, and a whole system of education, training and retraining that obliges people to find a new job"

That sounds suspiciously like the American Model, but somehow I doubt it will ever be framed that way.

posted by: Mark Buehner on 07.12.05 at 04:25 PM [permalink]

It sounds a lot like the Clinton campaign in 1992, which for postwar Sweden or France would be a sharp move in economic policy to the right.


posted by: mark safranski on 07.12.05 at 04:25 PM [permalink]


I think thats what some people hoped the american system might become. It would have been interesting if the democrats had advanced a more clearly defined outline of the kind - a positive but proscribed role for government in dealing with joblessness and poverty. But I don't think they did.

Anther interesting notion would to correlate government social aid to the advantages to the nation's economy. This also they did not do. A complete lack of imagination. I would have thought that would be the response to the conservative challenge. Perhaps their history of complacency about the actual effect of government action in eleviating poverty embarrasses them.

posted by: exclab on 07.12.05 at 04:25 PM [permalink]

Weel, many people in france share Noyer's opinion. After all, who can say our "social model" is something people can envy in the world. It produces 10% unemployment, we face very high integration problems, we have a higher poverty rate than in UK...
Not all french are arrogant and give lessons to the world. Chiracians do. Some socialists and gaullists (right) still believe that our unique way to manage public affairs (centralized state, poor unions, "public service" managed by state monopolies...) is the best way in the world. But those who think others are doing better tend to grow into a majority, mainly under the influence of the right (Sarkozy). A lot of our social-democrat leaders (not all) tend to make a religion of this centralized-state-monpolistic-public-management, which is a pity.

Things are changing in France. Malgré Chirac.

posted by: versac on 07.12.05 at 04:25 PM [permalink]

OK, before everbody gets too excited about the "flexible Nordic model," some points are in order, based mostly on the case I know best, which is Denmark.

1. While official unemployment may be about 5 pct., over 800.000 people aged 20-59 out of a workforce of 4m are on "transfer income", i.e. supported by other taxpayers while not working or studying. While some of these people may be unemployable in the local market, others simply have no incentive to find work. Real unemployment in Denmark may be no lower and may be higher than in France or Germany. Danish authorities are just cleverer at hiding it.

2. The tax burden is over 70 pct of GDP if you include the total effect of direct (marginal rate 63 pct.) and indirect taxes, special taxes on all manner of goods from light bulbs to soda to cars (180 pct. on cars), and VAT at 25 pct. on top of everything (including on top of the other taxes).

3. While unemployment insurance is formally distinct from government welfare and most people belong to an unemployment insurance program, these programs are in fact mostly paid for out of tax revenue. The member fees of the programs only cover about 15 pct. of the costs.

4. While hiring and firing are easy, the much-vaunted protections that allegedly lead people to accept a liberal labor market come at a very steep price. The tax take is about 50 per cent higher in Denmark than in France. (Non-Nordic EU average tax burden is about 40 pct. of GDP).

5. All in all, the Nordic and esp. Danish systems (Sweden is a low-tax country compared to Denmark for two important and overlapping categories of people -- families with children and car owners) appear to have a relatively free labor market, but in other respects box people rigidly into lives dictated by the rules of taxes and subsidies to which people are entitled by political decision. Danes have less to spend after tax (by PPP) than inhabitants of any other rich OECD country. In Denmark, only the very rich drive what in America would be perfectly ordinary cars, and only the rich can even consider not sending their children to public daycare or having a mother not work for a few years.

6. Even before tax, Denmark has the most equal income distribution of any country. I suspect that egalitarianism, the by international standards extreme tax burden, and the pocket of liberalism in the labor market are all parts of a political culture resulting from paths taken long ago and not easily changed; similarly, the French system is also path dependent. It is not easy to import bits from one to the other, which is not to say that one can't try, while realizing always that the effects won't be entirely predictable.

Denmark is peaceful (although now, we hear, a terror target), stable, and predictable, but a solution to European unemployment problems or a model for a dynamic future it is not.

Recently, an economist at Denmark's only non-government think tank proposed a flat rate tax for Denmark. The rate? A daringly, revolutionarily low 43 pct. The amazing thing is that such a low rate would indeed lower taxes for most people.

posted by: David G on 07.12.05 at 04:25 PM [permalink]

Merkel and Sarkozy (a pro-American in Paris) are leading the Thatcherite and Reaganomics revolutions to the Continent.

posted by: ARCHER on 07.12.05 at 04:25 PM [permalink]

Not all french are arrogant and give lessons to the world.

Please excuse my phrasing if it offends- why do the French let the ones who are run the place?

posted by: rosignol on 07.12.05 at 04:25 PM [permalink]

1. These comments are only un-French if by French you mean the caricature of said nation peddled by the American right wing.

2. Noyer is a central banker. If he's not in favor of market flexibility, that would be big news indeed.

3. Angela Merkel is no Margaret Thatcher. Nor is Germany comparable to late-1970s Britain.

I could make a tidy sum betting on the weird fantasies of US conservatives in regard to Merkel. In fact, ARCHER, make me a good offer on how you think Merkel will do what you say, and chances are good I will give you an opportunity to put your money where your comment is.

posted by: Doug on 07.12.05 at 04:25 PM [permalink]

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