The French Implosion

Tax-and-spend politics has driven Paris to the brink.

While commentators remain captivated by the bleak saga of such Eurozone basket cases as Greece, Portugal, Spain, and Italy, another European Union member is quietly slipping into economic despair. After years of fiscal mismanagement, France is in a bad, bad place.

France spends more of its GDP on government-57 percent-than any other country in the Eurozone. The country's unemployment rate is at a 16-year high of 11 percent, and a startling number of richer and younger French people are leaving for more hospitable economic environments abroad.

It has gotten so bad that France's crisis-wracked neighbors might be catching up: A November 2013 Organization for Economic Co-operation and Development report warned that Paris is "falling behind southern European countries that have cut labor costs and become leaner and meaner."

The data is even more striking when compared to Germany. With an unemployment rate of 5 percent and a private savings rate of 12.1 percent, Germany has been growing at 1 percent annually while France sputters along at 0 percent.

It is tempting to blame this on the 2007 recession, but the reality is that France hasn't been doing well in years. Since the creation of the Eurozone in 1999, France has only managed a 0.8 percent annual growth rate. Germany, by contrast, has grown three times faster over those 15 years.

Across all available indexes of national economic freedom, France scores very poorly for a developed nation. The 2013 Economic Freedom of the World Index, published by the Fraser Institute and Cato Institute, aggregates and weighs national data on five broad categories-size of government, rule of law and property rights protection, sound money, freedom of international trade, and regulation. How does France rank? An unimpressive 40th, down from 25th in 1980.

This effect is echoed in a similar but more qualitative survey from The Wall Street Journal and the Heritage Foundation. Their Index of Economic Freedom for 2013 ranks France 62nd in the world, right between Thailand and Rwanda. And the trendlines in both studies are similar: The country's good or average scores in the areas of rule of law, regulation, and free trade are dragged down by bloated government and high taxes. Economic freedom is a good indicator of prosperity, and France's is sorely lacking.

Unfortunately, the French government's response to anemic growth and higher unemployment has been to tack toward less economic freedom, not more. Loyal to his promises on the campaign trail, President Francois Hollande of the Socialist Party has refused to trim France's social-welfare spending-the highest of all developed economies-and has chosen instead to chip away at the country's huge deficit by raising taxes.

Hollande's more right-wing predecessor, Nicolas Sarkozy, was only slightly better on taxes. In fact, data compiled by tax-watchdog groups and the media in 2012 show that during Sarkozy's rule, from 2007 to 2012, taxpayers were subjected to 205 separate increases, including excise taxes on televisions, tobacco, and diet sodas, multiple increases in capital taxation, and a wealth-tax hike. Sarkozy is also responsible for increasing the top marginal income tax rate from 40 to 41 percent in 2010, and again to 45 percent in 2012.

Analyzing data from the Ministry of Finance since 2009, the center-left newspaper Le Monde published a special report in September 2013 showing that 84 new taxes have been instated under both presidents. The article also noted that Sarkozy increased tax revenue by €16.2 billion in 2011 and €11.7 billion in 2012, while Hollande added another €7.6 billion shortly after his election and planned to raise an additional €20 billion in 2013. That's €55.5 billion in new tax revenue in four years, with more than half of the total collected from businesses.

France's tax haul stands at more than 45 percent of GDP-one of the highest in the Eurozone. Sarkozy did implement some small but beneficial pension reforms, which Hollande promptly overturned and replaced with a measly and insufficient increase in the pension contribution period. Not only is the new president unconcerned with the sustainability of the French pension system, but he refuses to follow the example of Europe's periphery by liberalizing French labor and product markets.

Hollande's commitment to big government hasn't won him any friends. The French rank him as the least popular president of the Fifth Republic, and young people are voting with their feet. According to the data from French consulates in London and Edinburgh, the number of French people living in London is probably somewhere between 300,000 and 400,000. That's more than the number of French people living in Bordeaux, Nantes, or Strasbourg.

In a stunning display of hubris, Hollande responded to this tax flight not by implementing beneficial reforms but by beefing up the exit tax that Sarkozy created in 2012. Sarkozy's penalty taxes capital gains at the rate of 19 percent, plus a 15.5 percent payroll-tax-like penalty, payable when exiles sell their assets any time within eight years after leaving the country. Under Hollande, that period is now being expanded up to 15 years.

For cockeyed optimists, there are still slivers of hope. During his New Year address, Hollande turned into a rhetorical supply-sider, making the case for cutting taxes and public spending, improving competitiveness, and creating a more investor-friendly climate. He also promised French businesses a "responsibility pact" to cut labor-force restrictions and thus promote increased hiring.

While free market economists don't believe a word of this, it is worth noting that France has reformed successfully before. Both the 1980s and the '90s saw large waves of privatization, marginal tax cuts, and slighter spending increases. To secure robust prosperity for new French generations, leaders should extend the lessons of these brief shining moments by seriously tackling government spending and reining in destructive tax rates.

Is it possible? Maybe. Many of the countries that have managed to engage in true reforms were led by left-leaning parties at the time. In Canada, the Liberal Party reduced the debt-to-GDP ratio from 67 percent to 29 percent in a few years by cutting spending in absolute terms and engaging in serious structural reforms. And while it's not exactly the same, President Bill Clinton kept the size of government in check in a way Republicans didn't when they were in control. He signed welfare reform, too.

If we're lucky, Hollande will want to make history by being the Socialist who turned France around. If not, the next Greece may well speak French.

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  • Fist of Etiquette||

    During his New Year address, Hollande turned into a rhetorical supply-sider...

    How the mighty have fallen. And I really thought economic policy based on class warfare was going to work this time.

  • ||

    Hollande just got a little advice from Andrew Cuomo, who now admits taxes kill business and jobs.

  • Fist of Etiquette||

    How bad to things have to look for those types to have a come to Jesus moment like that? Even if it's only lip service.

  • ||

    I was stunned when I was visiting VT last summer and saw commercials touting these "tax-free zones" and how they'll drive innovation and employment. With Mr. Sandra Lee hisself sounding like the most libertarian libertarian from libertarianville.

    And I was all like, "no shit Sherlock". Then I was all like "What happens in 10 years when they have to start paying taxes?". Then I got a sadz.

  • JWatts||

    New York state has been running a lot of expensive commercials touting 10 years of no taxes for business willing to relocate.

    But still how effective can that be in the long run. They aren't after all cutting state spending, so they have to collect the taxes from somebody else to make up the difference.

  • Gorilla tactics||

    It's amazing how even then, they can't connect the dots. Low taxes to lure business, then we raise taxes and we drive them out. Not one lesson learned, ever.

  • Cytotoxic||

    But some like Cuomo are at least connecting to reality.

  • LarryA||

    "If we can just put The Right People in charge."

  • Tony||

    Yes but what about measures of standard of living that actually matter to real human beings?

  • Doctor Whom||

    Like unemployment and emigration?

  • tarran||

    You mean the one where people say, "I'm better off over there than here?"

    Hollande's commitment to big government hasn't won him any friends. The French rank him as the least popular president of the Fifth Republic, and young people are voting with their feet. According to the data from French consulates in London and Edinburgh, the number of French people living in London is probably somewhere between 300,000 and 400,000. That's more than the number of French people living in Bordeaux, Nantes, or Strasbourg.
  • Sevo||

    Tony|3.31.14 @ 10:09AM|#
    "Yes but what about measures of standard of living that actually matter to real human beings?"

    Yeah, Tony, the ones on the public dole ain't going anywhere' they love it!

  • NealAppeal||

    Tony - "We must maintain, at minimum, an 8% unemployment rate as an acceptable standard of living! Why 8%, you ask? It is my favorite percentage. Truly the French have exceeded my expectations!"

  • JWatts||

    Those aren't 8% unemployed. Those are 8% who aren't being forced into corporate slavery! /derp

  • Lord Humungus||

    The food and accommodations are fine in Gulag 17. Why would you ever want to leave?

  • Drake||

    Like how much vacation time for the bureaucrats?

  • Tonio||

    Like being of African descent and being able to get a good education and a decent job?

  • Brian||

    Tony:

    Yes but what about measures of standard of living that actually matter to real human beings?

    Because no one correlates standard of living with GDP.

  • Cytotoxic||

    Those were discussed dipshit. Those are the ones driving the young into other countries. Looks like capitalism wins again.

  • Dave Krueger||

    The data is even more striking when compared to Germany. With an unemployment rate of 5 percent and a private savings rate of 12.1 percent, Germany has been growing at 1 percent annually while France sputters along at 0 percent.

    Not to worry. I bet Germany can't wait to bail France out just like they've been so enthusiastic about bailing out the other Eurozone basket cases.

    Yes, that was sarcasm.

  • Sevo||

    "Not to worry. I bet Germany can't wait to bail France out just like they've been so enthusiastic about bailing out the other Eurozone basket cases."

    And now Ukrainians can learn to love the Germans also!

  • Pro Libertate||

    Well, before they can bail out the French, they'll have to bail out Belgium. Then they can bail out Poland and later Russia.

  • BakedPenguin||

    They could try to bail out Russia. I don't think they'd succeed, though.

  • James Taggart||

    I think you've hit on a solution: each country borrows money from the country to the right of them and bails out the country to the left of them. Then, they go: "1-2-3, all debts forgiven" and everyone is bailed out and no one is in debt!

    Why didn't I think of this before? I could have married Carla Bruni!

  • Almanian!||

    You forgot the hashtag!

    #RealManofGenius

  • OneOut||

    James you have pretty much described the global economy of our times minus a few pockets of value added production.

    Long Live Fiat Currency !

  • Death Rock and Skull||

    They do it so much they sure don't seem to have anything against it.

  • GregMax||

    I'm confident it's the fault of the Rich and their lap dog Republicans. Workers of the world unite! (Coming to America!)

  • GregMax||

    I wonder what human behaviorists call the tendency of people, who, upon seeing there's a 3 foot thick brick wall in their path . . . choose to accelerate?
    Oh, yeah, "socialism".

  • Doctor Whom||

    The people who tried it before just weren't doing it right. This time, we will.

  • ||

    C'est la vie!

  • Doctor Whom||

    L'enfer, c'est les autres socialistes.

  • Old Dave||

    A+

  • LarryA||

    Plus ça change, plus c'est la même chose.

  • Sevo||

    Fuckin' A!

  • ChrisO||

    The people at the top do very well under this system. Since one effectively has to serve a long internship to become employed due to France's crazy labor law, only the "right sorts" get the good jobs, since they're the only ones who can afford to go unpaid for any length of time.

    There's no real libertarian strain in French politics. It'll struggle on until the system collapses under the weight of it all.

  • TheZenomeProject||

    That's what is so insidious about socialism and systems like it: no matter how many people are negatively effected by its numerous side effects and consequences (often felt by the intended benefactors, the lower socioeconomic classes), there's always an influential minority that benefits from the obstacles that it creates among the individuals underneath their higher class status.

  • Eric Bana||

    That, and the fact that the failures of socialism are blamed not on socialism but on free markets, capitalism, the rich, etc. necessitating an even further extension of socialist policies.

  • TheZenomeProject||

    Crony capitalism often facilitates a socialist agenda. At least from my tiny, insignificant "experience" of being the one libertarian student at that notorious progressive compound known as Chapel Hill, few really understand or comprehend the true differences between cronyism and actual free market capitalism. A lot of the move towards extreme left-wing ideology has a lot to do with people having contempt towards cronyism, but at the same time being utterly clueless about what causes it to occur.

  • dantheserene||

    It would help to separate the terms "crony" and "capitalist", since cronyism can thrive under any system.

  • Free Society||

    and less so in markets that are more free than others.

  • Lord Humungus||

    If the French need to escape their heavy debts, they can always work the oil fields of Porvenir.

  • BakedPenguin||

    They're in such bad shape, they can't even pay for color photos now.

  • Fist of Etiquette||

    That picture in the teaser. I expect to see Leonard Zelig behind Hollande there.

  • BakedPenguin||

    I thought it looked like a still from a Godard movie. I double checked the brunette to see if it was Anna Karina or Joan Seberg.

  • Death Rock and Skull||

    France could scrap the Eiffel Tower and pawn the Louvre.

  • Almanian!||

    PWND indeed

  • JWatts||

    President Bill Clinton kept the size of government in check in a way Republicans didn't when they were in control.

    That's some repainting of reality there. Clinton didn't particularly keep the government in check as much as raise taxes. Furthermore, he was highly constrained in his attempts to enlarge the size of government (HillaryCare comes to mind) by Republicans in Congress. Clinton was not in a small government President by any stretch of the imagination.

    While Republican's have consistently enlarged the size of the Federal government, it takes a ridiculous cherry picking of facts to attempt to claim that Democrat's haven't been worse. In almost every case where Republicans have enlarged the Federal government, Democrats have pushed for even more spending. About the only exception would be cutting military spending, but even in the case, they have always wanted to use the money "saved" to increase spending somewhere else.

  • TheZenomeProject||

    I think that people don't always understand just how much more impact that having a majority in Congress can have when compared to the power that one president can truly "achieve". I'm not necessarily saying that presidents are powerless (It's really not the case at all), but Clinton's real strength as a politician was that compared to other presidents, he was good at compromising with the opposing majority, and though overall the taxes were higher and the government still grew, it was far more restrained than when either party had full majority of both Congress and Executive branches, like with GW Bush and Obama.

  • Robert||

    Attempted analyses of gov't growth in term of the actions of political parties & politicians are interesting but ultimately unsatisfying. I think popular pressure keeps building for gov't spending, and it's just a matter of who's in charge when the relief valve has to be opened. That's how I take Medicare Part D, for example; can't blame Bush & GOP, it's just that they were in after years of restraint in spending growth, and had to give them something or be tossed out.

  • JWatts||

    It's always hard to analyze exactly who did what and when it took effect. But what's easy to look at is how the corresponding bills compare. In almost every case the Democratic proposed bill on a given law spends more money than the Republican bill on the same subject.

    Though to be fair, generally the Democratic bills raise more taxes. So, if you are talking purely about Fiscal discipline then the picture is mixed and may even lean towards the Democratic party.

    However, if you are talking about "keeping the size of government in check", then it's a pretty clear picture. Democrats almost always spend more money and grow the size of government. The claim that Bill Clinton was somehow great on the subject ignores the fact that the Republicans controlling Congress at the time were equally as great.

  • Almanian!||

    That picture reminds me of "Dr. Strangelove", which was on last night (I DVR'ed it).

    CAPTION: "Now Dmitri....you know how we've been talking about what might happen if something went wrong with the bomb?"

  • Francisco d'Anconia||

    But all advanced societies provide these services to their people free of charge, and they aren't having any problems. Just look at Europe.

    /any prog

  • Eric Bana||

    In addition, it's as if the U.S. government isn't already spending way more than it's taking in (not to mention future liabilities that are going to blow up).

  • db||

    The country's unemployment rate is at a 16-year high of 11 percent, and a startling number of richer and younger French people are leaving for more hospitable economic environments abroad

    Clearly, the solution is to.close.the.borders.and.prevent those looters from fleeing.

  • TheZenomeProject||

    I would tell you to not try to give Hollande any ideas, but really its the inevitable next step considering the virulent anti-immigrant minority among certain political groups in France. No doubt that sections of the voting public there would support border closures (or at least border restriction) for both immigrants AND emigrants "for the strength of France".

  • JWatts||

    "Clearly, the solution is to.close.the.borders.and.prevent those looters from fleeing."

    No, as the article notes. The French solution is not to prevent them from leaving, but to take a huge chunk of their "ill-gotten" gains (20%+) as they attempt to leave. And you can expect that number to grow over time. Because the people leaving can't vote, so there is no electoral incentive to lower the amount and there will always be people willing to vote to raise it, since they don't have to pay.

  • Brian||

    bitcoin

  • JWatts||

    "French Regulator Requires Bitcoin Exchanges to Register"

    http://www.coindesk.com/french.....-register/

  • Cytotoxic||

    Black market.

  • CentristClassicalLiberal||

    I miss defending France and going "Viva la France!" back when the neocons were bashing them over not wanting to get involved in Iraq. Now I really don't have anything good to say about them.

    At least Germany still has sexy goths, even though I can't stand what industrial and dark wave music have turned into.

  • XM||

    Didn't France want us to get involved in the Vietnam war? They were even asking us to consider the nuclear option.

  • JWatts||

    No, France was fighting the Vietnam War and wanted us to take over.

  • Curtisls87||

    You give them credit, when you call it "fighting."

  • CentristClassicalLiberal||

    And that's the nonsense i'm talking about. France was a brutal empire at one time.

    Let me guess you were stupid enough to support the Iraq war.

  • CentristClassicalLiberal||

    I didn't say France was peaceful. I just defended them out of spite when Bush was president. I bought alot of imported French stuff and always said FRENCH fries.

    People think contemporary leftists stupid. I mean they are but "freedom fries"?

  • CentristClassicalLiberal||

    *contemporary leftists are stupid

  • AlgerHiss||

    Leftism: It will do it every time.

  • Will4Freedom||

    That's them. It could never happen here. We have Top.Men!

    /prog derp (did I do that right?)

  • DH||

    Ah the French, bunch of cheese eating surrender monkeys.

  • Free Society||

    If we're lucky, Hollande will want to make history by being the Socialist who turned France around.

    So if we're lucky, a Socialist will implement reforms promoting economic freedom, so that the inevitable growth will be attributed to socialist ideology? We're lucky if people get even more confused about what creates prosperity, a confusion that will create legions of new socialist acolytes? We already had a generation of New Deal apologists in this country, France doesn't need one.

  • Waffen Hans||

    "It is sometimes tougher to fight my superiors than the French." - Heinz Guderian

  • Gorilla tactics||

    It's fucked up how world war II totally got them stuck with that reputation.

  • Waffen Hans||

    Napoleon Bonaparte wasn't French.

  • Gorilla tactics||

    Tru dat-though France conquered Corsica I think the same year he was born. The family is actually Italian/Genovesian. "Buonoparte"

  • ||

    And the Franco-Prussian war.

  • JWatts||

    And WW I ...

  • JWatts||

    But to be fair, I think the French were pretty bad ass during the Napoleonic era. Napoleon might not have been French, but the Imperial Guard were. France has generally had good troops, but they've more than made up for it with the quality of their leadership.

  • Gorilla tactics||

    It's cuz the revolution allowed for more avenues of promotion into the military. So the officer corps was no longer the plaything of aristocrats but a meritocracy. Hence the superior French Fighting force.

  • OneOut||

    The French were at their most badassness during the American Revolution at the Battle of Chesapeake bay.

  • Gorilla tactics||

    France fought well in world war I, but they did lose the Franco Prussian war hands down, I mean they occupied Paris FFS.

  • Free Society||

    I'd just like to say, fuck the French state and it's kill machine. Militaries are just another government program.

  • Gorilla tactics||

    c'est la faute de Bush

  • Ken Shultz||

    "He also promised French businesses a "responsibility pact" to cut labor-force restrictions and thus promote increased hiring."

    Creative destruction often requires increased firing.

    If I took over GM, today, and I had no restrictions on who I kept or fired, getting rid of the deadwood would be the first and easiest thing to do. Getting rid of unproductive workers saves money and doesn't cost you in production!

    It probably needs to get worse before it can get better.

    When the government makes it hard to fire people for decades at a time, you're going to collect a lot of deadwood over the years.

    They don't need a politician to make it okay for them to hire more people. They need politicians who understand that politicians interfering in the labor markets are bad for the economy over the long run.

  • Sevo||

    Ken Shultz|3.31.14 @ 3:13PM|#
    "He also promised French businesses a "responsibility pact" to cut labor-force restrictions and thus promote increased hiring."

    You want me to hire people based on the presumption you won't change your mind the first time two froggies set fire to a car?!
    Ha and ha! Sorry, Mr. President, I don't believe you.

  • XM||

    One of my favorite French pop songs

    https://www.youtube.com/watch?v=eonVQ4SUN4k

  • Gorilla tactics||

    Here is a good French song

    http://www.youtube.com/watch?v=XTqg8s6oLyw

    it's not pop, my grandparents and my parents liked it so it may be an unfair comparison.

  • gaoxiaen||

    Both of those songs make me regret that I studied French.

  • ||

    excise taxes on [...] diet sodas

    Sin tax on Aspartame?

  • LarryA||

    Yeah, I caught that too.
    including excise taxes on televisions, tobacco, and diet sodas
    It sounds good. "We'll raise money with excise taxes on things people shouldn't have." But the amount the government gets from the taxes pales beside the dead cost to business and government in calculating and collecting the money.

  • Pulseguy||

    I was walking around the Gardens of France, a giant public garden on what was once the main Renault factory, with my wife's French cousins. Ultra left Liberal academics. One of the two main large greenhouses was empty, and many of the garden areas were not well cared for. My French friend was appalled and said how ashamed he was that such an important symbol of France was decrepit. He pointed out the Orange Garden was overgrown with weeds and was furious at Sarkozy, at the time, who made such cuts to the budget that this was uncared for. I pointed out they were broke. He acknowledged this but said 'there must be some way to do this'. Well, of course, I said, there is a simple way. What is that? Take each of the Garden areas, the Orange Garden, the Blue Garden, and create volunteer committees who would compete each year to outdo the other. In a few years there would be tremendous public involvement and the gardens would thrive, and community would thrive. He thought about it, and said....'An interesting idea, but we could never do that, the Unions would go crazy.'

  • Pulseguy||

    I pointed out the French don't have the money to do everything they want, and pay pensions, and run a giant civil service, and so on. He is not stupid, but said, 'I think we do.' Kind of defiantly, and kind of idiotically. Because they don't.

    And, the US is the same. You can't run the biggest army, have the biggest prison system, the most universities, the biggest pension system, the most policemen in the world, do the most research, etc. You aren't productive enough. So, instead of living within your means, you borrow and buy things from cheap countries.

    Until productivity improves we can't have what we all want and still be able to pay for it.

    I don't know why this is not obvious to everyone.

  • Free Society||

    You don't make it sound nearly immoral enough. So instead of living within their means, they're indebting the unborn and seizing people's productive capacity by force, in order for them to enjoy higher standards of living.

  • marshaul||

    You significantly undermine your argument & credibility by implying that "buy[ing] things from cheap countries" isn't the inevitable and proper action in a free market.

  • Pulseguy||

    I didn't mean to imply that. I see I did though. I don't have a problem buying from poorer nations.

    But, people should stop complaining about it. They've set the system up such that the country can't produce enough goods that it 'thinks' it needs, therefore these goods come from borrowed funds, and they must come from other places. The Left/Lib arguing that business is bad because it sources from China and then arguing for services the nation can't afford guarantees we buy from China et al. If we had government half the size then 20% of the work force would be rationally pushed into making things, which would alleviate the need for Chinese products, and they would be locally affordable because there would be less fiat money in the system, ie price level would be lower.

  • Johnimo||

    Don't be silly, the Republicans WERE in control when Bill Clinton cut taxes and implemented welfare reform. Clinton would have done neither had Mr. Newt not been in the US House.

  • marshaul||

    The notion that "rule of law" has anything whatever to do with economic prosperity is decidedly un-Rothbardian.

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