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Sarkozy le Capitaliste?

Thursday, March 8, 2007

French Presidential candidate Nicolas Sarkozy is not a Thatcherite. The real question: Can he get the modest reforms he wants, over the objections of French labor leaders?

Many entrepreneurial Europeans—and Americans with an interest in European affairs—are looking with great hope to Nicolas Sarkozy, the candidate of the center-right UMP Party. They hope he will put France back on a pro-growth track through reforms that increase economic freedom. But political realities in France will sharply limit Sarkozy's options. 

In mid-February, Sarkozy said he would “push for a European tax on ‘speculative movements’ by financial groups, such as hedge funds,” should he win. He says he hopes to “raise moral standards and improve security in financial capitalism.”  In late February, Sarkozy condemned “colossal rents” and “gigantic profits,” and told a rally: “I believe in the advantages of free trade, but a managed, regulated free trade, where the state intervenes to compensate for social, monetary and ecological dumping.” He added that “Europe needed to protect itself from ‘speculators and predators’ and from ‘Asian dumping.’… ‘I don't accept that capitalism works in favor of some funds who buy up companies and start by firing 25 percent of the staff.’”

Sarkozy (300)Sarkozy’s admiration for the policies of Germany's ostensibly “center-right” leader Angela Merkel is equally worrisome: “Mr. Sarkozy admitted he was watching Germany's three percentage point increase” in sales tax, from 16 to 19 percent, with interest. “Everyone said it would be a disaster. But there have not been price rises or recession. I will study this option,” said Sarkozy.

All of this is not merely election rhetoric crafted to appeal to voters in the French political center: during Sarkozy's tenure in government, his record on issues related to law and order was distinctly conservative, but when it came to economics, he was far more of a dirigiste (the French term for an enthusiast of central planning) than he was a free-marketer. It was under his watch that the troubled French company Alstom, over strong objections from EU Competition Commissioner Mario Monti, received substantial infusions of public funds. Monti argued France was violating European rules of fair competition. Initially, Sarkozy even refused to let German engineering group Siemens take over Alstom's turbine business, prompting Germany's left-of-center Chancellor, Gerhard Schröder, to dub Sarkozy's methods “extremely nationalistic.”

Similarly, while serving as finance minister, Sarkozy shepherded the merger between Sanofi-Synthelabo and Aventis through France’s regulatory hurdles to create a unified French pharmaceutical giant, Sanofi-Aventis. In a briefing for reporters, an unnamed French official claimed that Sarkozy put tremendous pressure on Sanofi CEO Jean-Francois Dehecq “to raise his offer for Aventis.” The pressure paid off: in April 2004, the companies merged into Sanofi-Aventis after the Board of Aventis agreed to a generous $65 billion offer by Sanofi, substantially higher than the amount that had been previously offered. Putting that type of political pressure on a CEO might be good politics, but it’s bad business.

Leaders on both sides of France’s political spectrum, are often schooled at the prestigious Ecole Nationale d'Administration (though Sarkozy himself was not), and they tend to adhere to a technocratic model of governance that relies heavily on interference in the economy by the state. President Jacques Chirac, ostensibly “right of center,” has repeatedly said he does not favor “Anglo-Saxon” capitalism, and recently wrote that “[classical] liberalism, like communism, is a perversion of human thought,” a remarkable criticism of free markets.

Unless a French political leader has a careful strategy, a strong will, and sufficient public support to hold firm in the face of protests organized by labor unions, any attempt at meaningful reform will fizzle.

Sarkozy does have a number of good ideas: he would “return €2,000 to every family in tax cuts,” give people the right to work longer than 35 hours per week if they should choose to do so, give workers the right to choose their retirement age, exempt most estates from the inheritance tax, and “reduce the size of the state by replacing only half the civil servants who reach retirement age.” While not earth-shattering, these are all good proposals.

Unfortunately, should Sarkozy win and try to introduce them, he will run into a formidable political wall: French labor unions. French leaders with a reformist bent have experienced defeat on this front, almost without exception: unions have successfully vetoed almost every attempt at meaningful reform in years past. 

In 1995, right-of-center Prime Minister Alain Juppé proposed to re-organize the national railway company SNCF and end the right of railway workers to retire at age 55. After massive strikes brought France to the brink of chaos, Juppé withdrew his retirement proposals.  Similarly, in 1996, transport unions staged widespread strikes and once again, the government caved in. Truck drivers received substantial raises and won the right to retire at age 55.  

Politically weakened, Juppé left office in 1997, and was replaced by Lionel Jospin of the Socialist Party. Jospin, in turn, was also humbled by labor unions, and was often forced to offer concessions as a result of paralyzing strikes.

The right-of-center leaders who succeeded Jospin faced similar hurdles. In October 2005, hundreds of thousands of workers marched nationwide, causing “massive disruption to transport, schools and industry.” They were protesting plans by Prime Minister de Villepin “to privatise state firms,” complaining that low pay was reducing their quality of life.  Political repercussions of the national strike were so far-reaching in scope the day was dubbed “black Tuesday” for the government.

Most recently, the Contrat Première Embauche (CPE), which would have introduced much-needed flexibility in the French labor market by making it far easier to hire and fire younger workers, was scrapped in the wake of massive protests, even as youth unemployment continues to exceed 20 percent. The CPE protests effectively doomed Prime Minister Dominique de Villepin, who had championed the new measure, to irrelevance.  

All of these protests and government retractions hold a lesson: unless a French political leader, socialist or conservative, has a careful strategy, a strong will, and sufficient public support to hold firm in the face of protests organized by labor unions, any attempt at meaningful reform will fizzle. For any stand against unions to hold, the French public must be on board, just as the British public was (narrowly) on the side of Margaret Thatcher in the early 1980s. So far, despite high unemployment, stagnation, and general pessimism, there is little evidence that the French public is as fed up with the status quo as the British public was in the wake of the winter of discontent.

Whoever wins the coming French presidential elections, therefore, will struggle to reform a nation that does not yet want the help it badly needs. Should he win, Sarkozy will have to fight like a lion for every modest economic reform. In this environment, even modest change would be an impressive legacy.

Image credit: photo by Flickr user Grébert; filtering effect by Darren Wamboldt

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