French President Francois Hollande (Philippe Wojazer/EPA)
Jonah Levy is an associate professor of politics at the University of California, Berkeley. He’s an expert in French politics and comparative political economy, and is the author of forthcoming book, “Reluctant Reformers: The Left and Economic Liberalization.” I asked him five questions about the ruling Socialist party’s collapsing vote in last weekend’s municipal elections, and what it means for French politics and the French economy.
Henry Farrell: The Socialist Party fared poorly in municipal elections last weekend. What were the most important outcomes, and why does the performance of a party in municipal elections matter anyway?
Jonah Levy: As the first elections since François Hollande became president nearly two years ago, the municipal elections were treated by the voters as a referendum on the government’s performance. For Hollande, the results can only be described as disastrous. His Socialist party lost hundreds of municipalities, big and small alike, including many that it had governed for decades. Even Socialist municipalities that were considered well run and led by popular mayors were not spared. Clearly, the municipal elections were about more than potholes.
Although the conservative opposition, the UMP, benefited from the Socialists’ unpopularity and its leader boasted of being the nation’s largest party, French voters were unenthusiastic about both of the mainstream offerings. Abstention reached nearly 40 percent, a record under the Fifth Republic. In addition, the populist, xenophobic National Front led by Marine Le Pen received over 15 percent of the vote in the municipalities where it competed, its best municipal result ever, and now governs nine municipalities of over 10,000 inhabitants. In other words, the municipal elections saw essentially one-half of the French electorate rejecting the nation’s two governing parties.
Many commentators suggest that Hollande’s vacillations over economic policy hurt his party in the municipal elections. Why did Hollande have such difficulty in putting forward a coherent economic vision for France’s future?
François Hollande’s vacillating economic policy stems from two factors. The first is personal. Hollande’s main experience prior to his election as president in 2012 had been as head of the Socialist party from 1997-2008. There, he established a reputation as a conciliator, adept at papering over internal divergences through vague general motions that gave something to everyone. This skills set, while quite useful in holding the fractious Socialist party together, was not what France needed in 2012. The country needed a strong, coherent reformer, not a cautious temporizer.
Which brings me to the second factor behind Hollande’s incoherent economic policy: a failure to initially fathom the extent of France’s economic difficulties. In his 2012 presidential campaign, Hollande pledged that by rolling back some €30 billion in tax cuts that governments of the right had conceded during the previous decade, he would be able to both eliminate France’s budget deficit by 2017 and fund new spending priorities, such as aid to industry, public housing, and jobs for young people. It was a tinkering strategy, not an ambitious reform agenda.
In any case, continuing slow growth rendered Hollande’s projections moot, and his government has been forced to implement a succession of austerity programs. It wasn’t just public finances that were a mess in 2012. In addition, French industry had suffered an alarming erosion of its competitive position and was hemorrhaging jobs. Rightly or wrongly, Hollande has responded with several large tax cuts for business, which are to be paid for by some €50 billion in future spending cuts. The effect of all this back-and-forth has been politically and economically disastrous: the initial redistributive thrust of Hollande’s fiscal policy has been erased, thereby demoralizing and angering the leftist faithful, while French business views the recent concessions as insufficient and remains distrustful and reluctant to invest.
After the economic crisis, the European Union has emphasized austerity and has tried to ‘discipline’ the budgets of member states like France to curb their deficit spending. Will this make it harder for Hollande to come up with more popular economic policies?
E.U. ‘constraints’ have not really been all that constraining in the case of France (at least, to date). Successive French governments, of left and right alike, have consistently run budget deficits above the ceiling authorized by EMU, while avoiding punishment. They have also bailed out high-profile, loss-making companies, in defiance of EU competition policy.
The fact that the commission has been relatively toothless does not mean that Hollande is operating without constraints, however. For one thing, with French public debt nearing 100 percent of GDP, a big increase in France’s budget deficit in order to fund popular new spending programs could turn France into the next domino in the European sovereign debt crisis. In theory, Hollande could finance higher spending through higher taxes, but in practice, such a tack would be politically parlous to say the least. French public spending now totals some 57 percent of GDP, one of the highest figures in the OECD, and French taxes are correspondingly elevated. During the past year, a series of anti-tax protests, cloaked in images of the French Revolution, have rocked the country, leading the government to pledge not to raise taxes any further.
Do Hollande’s difficulties tell us anything about the broader situation of the European left today, or do they reflect a uniquely French set of circumstances? Is there anything that Hollande can do beyond austerity and labor market deregulation?
One of the most frustrating aspects of Hollande’s economic policy is that he hasn’t lacked for good ideas. Thomas Piketty, a brilliant economist who was a professor at MIT in his early 20s, has advised the Socialist party for years. Piketty, along with Camille Landais and Emmanuel Saez, drafted a proposal to fuse France’s assorted payroll taxes and income tax into a single tax that would be more transparent, progressive, and economically efficient. The tax reform was part of Hollande’s 2012 platform, but he has yet to do anything with it.
The same is true of a proposal by Piketty and Antoine Bozio to transform France’s pension system along Swedish lines, with notional accounts, under which each euro of contributions earns the same amount of benefits. Such a reform would not only make France’s pension system financially sustainable and self-adjusting, but also eliminate unequal treatment of different groups and increase incentives for older workers to remain in their jobs. Hollande has also remained deaf to appeals to reform France’s massive welfare state by reducing spending on transfer payments to the unemployed and retirees in order to increase “social investment,” that is, social spending with an economic pay-off, such as child care, education, vocational training, and lifelong learning. What all of these proposals have in common is that they have been implemented in various ways by other European governments, often governments of the left. In other words, France could improve its fiscal position and competitiveness without sacrificing its commitment to social cohesion, let alone becoming like the United States. Yet Hollande has balked at such ambitious undertakings.
Following the municipal elections, Hollande went on TV to address the French public. He acknowledged the dissatisfaction of the voters and promised to respond to it, but his initial announcements do not seem to foreshadow a major shift in economic policy. Hollande promised to reduce taxes on employees without specifying how or promising any wider reform. He also appointed a new prime minister, Manuel Valls, who is known primarily for his tough law-and-order positions as minister of the interior, as opposed to his (centrist) economic positions.
Art Goldhammer, an important commentator on French affairs, suggested yesterday that Hollande needs to get French firms to agree to restructure their supply chains, in exchange for concessions on taxes. How easy or difficult will this be, given the current relationship between France’s government and businesses?
The tax concessions that are on the table, between €20 billion and €30 billion, are not enough to make French companies fundamentally change the way that they do business. The government hopes to get French employers to commit to increase hiring of low-wage workers, but any agreement is likely to be difficult to enforce and, in any case, the main effect would be to encourage the hiring of one set of tax-subsidized workers over another unsubsidized set of workers. As for supply chains, it would take a lot more than €30 billion to get French multinationals, which are highly integrated into the global economy, to change their strategies. Even when the French auto industry was on life support in 2008-09 and receiving massive government subsidies, it rebuffed President Sarkozy’s appeals to boost sourcing in France.
The announcement of tax breaks for French companies, whether conditioned on certain behaviors or not, has been a political disaster for Hollande. The sums in question are not enough to fundamentally change corporate strategies, yet have infuriated leftist voters. From an economic standpoint, Hollande would do better to spend the money along the lines of a social investment strategy. For example, for €12 billion, the government could double spending on France’s universities.
