France is in a funk.
Its president, Francois Hollande, finds his public approval at a record low of 25 percent in April -- a bit better now. Unemployment remains stubbornly high -- above 11 percent -- and has remained above 9 percent for most of the last decade. Among French youth, unemployment exceeds 25 percent. High unemployment seems endemic under both Socialist and conservative governments, but Hollande is now in charge. Recently, France stumbled back into negative growth, meaning another recession. Taxes appear to be rising, and some French citizens, who have had enough, threaten to leave the country to avoid the new charges. Some, like actor Gerard Depardieu, have even expressed the desire to relinquish their citizenship.
For Americans who recall the "malaise" of the Jimmy Carter years, this scene is all too familiar. The mid-1970s in England also presented a similarly grim picture of "stagflation," constant labor unrest, including strikes and riots, and a general crumbling of civil society's social fabric. The fact that both the U.S. and England reversed these slumps should offer some consolation and hope to the French.
Today's economic doldrums do not have to last forever, and President Hollande has an opportunity to reverse this situation, especially since the Socialists control both chambers of the French parliament and a majority of departmental and local offices around the country. But he has to move quickly and in a way that puts pragmatic, growth-oriented reforms first -- and Socialist ideology second.
As a Socialist, Francois Hollande is unlikely to decide suddenly to emulate the successful reforms of right-leaning, free-market leaders like Ronald Reagan and Margaret Thatcher (although Barack Obama did make it known after his 2008 election that he was closely studying the Reagan presidency). The models that President Hollande should be considering, however, are not on the Right -- but on the center Left. Here are four examples, all but one of which comes from Europe.
British Prime Minister Tony Blair saved England's Labour Party -- mostly from itself. Old Labour greeted the world with "Comrade" salutes and was stuck in the outmoded debates of the Trotsky era. New Labour preserved the best of Thatcher's reforms and promoted the idea of "business Socialists" who found a "Third Way" consensus on how to reform the British economy. They put economic growth first and "dividing the pie" second.
Germany's Chancellor between 1998 and 2005 was Gerhard Schroeder, a Social Democrat, who championed the labor-market and social-welfare reforms that enabled Germany to move relatively quickly from being Europe's sick man a decade ago to the most dynamic economy in Europe and the fourth largest in the world, after the U.S., China, and Japan. (France is still fifth.) Although Schroeder later lost re-election to Angela Merkel, his efforts are credited with laying the groundwork for today's vibrant German economy. As he announced in a March 14, 2003, speech, "We will have to limit the state's contributions, promote personal responsibility and demand more initiative from each individual."
In the early 1990s, Sweden's extremely generous welfare program began to collapse in the wake of a major financial crisis. The country's political leaders realized that Sweden's substantial entitlement and retirement programs were no longer affordable. When the Social Democrats returned to power in 1994, they enacted major reforms, including sweeping pension reform in 1998. Sweden reduced its national debt from 84 percent of GDP in 1996 to 40 percent in 2011.
And finally, in the United States, Bill Clinton embraced "New Democrats" and became the first Democrat to win re-election since Franklin Roosevelt. "Big government is over," he famously announced in one of his State of the Union messages, and he reoriented his party in a manner that finally broke with the anti-war McGovern image that had plagued it for decades. Clinton championed welfare reform, free-trade agreements, and sound fiscal and monetary policy that produced a brief budget surplus. He also nurtured the "business Democrats" within his own party.
Francois Hollande is a very bright man. He is a graduate of both the Ecole Nationale d'Administration and of France's most prestigious business school, HEC. Unfortunately, he came into office with a blueprint for new ways to divide the French economic pie. The 75-percent-tax idea quickly bit the dust, and almost immediately he had to deal with companies threatening -- and then implementing -- layoffs and plant closings due to slack consumer demand. The problem is that efforts to divide a shrinking economic pie often produce the type of outcome France is experiencing right now - especially when there is high unemployment, concern over immigration, and an uncertain future for its young people. A country's basic social fabric can unravel when the scramble is over a diminishing economy.
Things don't have to be this way in France -- as evidenced by the "turnaround" leaders cited above. But Hollande must be willing to set a new direction, to break with Socialist ideology and establish France as a nation open for business, receptive to swift reforms, willing to reduce its bloated government bureaucracy (at all levels), and optimistic about its future. He recently acknowledged that France was "blocked," and he now has a unique opportunity to change France's seemingly allergic mindset when it comes to reform.
Sophie Pedder, the Paris Bureau Chief of The Economist, published an important book last fall, entitled "The French Denial: The Last Spoiled Brats of Europe." Although the book was written and published in French (and is not yet available in English), French friends tell me it has not been well-received, primarily because its author is British. But the truth often hurts, whatever its source, and Ms. Pedder's basic facts about France's current malaise are beyond dispute. As she summarizes matters, France offers a social welfare system similar to what one finds (or, more accurately, used to find) in Sweden but paid for with public finances of a country like Spain. Ouch! But her recommendations need careful consideration at the Elysée Palace and at Bercy, the French finance ministry. They constitute an important blueprint for the reforms France needs.
I realize that France doesn't like to be, or need to be, lectured from abroad - but in my case, the suggestions come from within the family, so to speak. My partner is French, and we have a one-year-old son. He has a French passport and an American passport, and nothing would please us more than for him to live in two countries which have vibrant economies, healthy civil societies, and hearty appetites for economic growth.
The choice is now up to Francois Hollande. He ran for office on a platform to change France's destiny. He concluded his manifesto with these words: "Le changement, c'est maintenant." This is Hollande's moment.
Charles Kolb is president of the New York-based French-American Foundation-United States. From 1997 until 2012, he was president of the Committee for Economic Development, and he served as Deputy Assistant to the President for Domestic Policy in the George H.W. Bush White House (1990-1992). The views in this article are solely the author's.
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