Tuesday, May 8, 2007

A Restored Ally?

Last week may have put an end to French jokes for a while. America-friendly, pro-free market, center-right candidate Nicholas Sarkozy edged out Socialist candidate Ségolène Royal 53% to 47%. Sarkozy's platform included desperately overdue economic reform, lift trade barriers, reduce taxes, and roll back regulations. Royal advocates, as Steve Forbes put it, "to boost France's job-killing minimum wage, meddle even more in its nationalized electric industry and increase state control over the financial and media sectors." She also continues to express support for France's strict 35 hour work week cap and mandatory vacation.

The increasing socialist influence in France has inhibited growth for several years. As the venerable British magazine The Economist said in 2002:

At the time of its introduction, most economists pronounced the law's motivation--that if each employee works fewer hours, there will be more hours to share around--to be nonsensical. The idea that a fixed quantity of work exists, to be parcelled out among workers, is the so-called lump-of-labour fallacy. France's own Frederic Bastiat had pointed out two centuries ago that there is no limit to the work that needs doing.

But, unemployment did go down after the enactment of the 35 hour work week, and some productivity figures remained the same. At least, so it appeared.

In sum, the productivity figures may be misleading. Restrictions on hours mean that output per hour is bound to rise, as firms shed lower-value, yet still profitable, tasks. France's output per worker, however, has remained flat. What is more, the government bought big employers' agreement to the law by offering tax breaks. These tax cuts would have helped to bring down unemployment even had there been no 35-hour law.

The original problems on a more fundamental level weren't be alleviated by perpetuating the same state-dependent mindset. The French voters desperately wanted a change, an innovative reform-style candidate. Sarkozy represented the majority party in France, and by all accounts, the socialist to left candidates should have had the upper hand. But Sarkozy projected himself as a new, fresh, reformist candidate, and took the popular vote. Perhaps in a lesson of strategy to the GOP in 2008.

His platform included some no-brainer solutions that we've known for years, as The Economist said back as far as 1997:

Why not seek instead to reform France's rigid, high-cost labour market, for instance, by encouraging more part-time work (which occupies 16% of French workers, against 24% in Britain and 38% in the Netherlands); by lowering the minimum wage (of FFr6,643, or $1,127, a month); by making it easier (and less expensive) to sack workers; by reducing France's generous unemployment and welfare benefits, and so on? Not, apparently, on Mr Jospin's mind

As music to the ears of a Bush White House, Sarkozy also promised to restore relations with America and the Bush Administration (that have been less than cordial under Jacques Chirac). Of course, Mr. Sarkozy retains his fair share of flaws, but a fundamentally feasible philosophy under riding the French President, along with some basic economic understanding, could do wonders for the cornerstone EU state. Not to mention, France could remain a dedicated ally and friend to their freedom-loving comrade across the Atlantic.

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