The Man with Nothing to Lose

France’s president Francois Hollande these days finds himself at a similar crossroads as another French socialist president once upon a time: Francois Mitterand. After nationalizing vast swathes of industry and introducing all sort of policies favored by the Left, Mitterand was eventually forced to do an 180 degree turn to avoid inflation spiraling out of control and in order not to suffer the embarrassment of the French franc falling out of the ERM (European Exchange Rate Mechanism). Mitterand later was forced into cohabitation with a conservative parliamentary majority, and concentrated on foreign policy and defense, leaving economic policy to Jacques Chirac.

Mr. Hollande these days enjoys the relative freedom that comes from being the most despised French president in all of history. The “welfare state incarnate” as Gaspard Koenig once called him, has seen his approval rating plunge to 13% in September. Ironically, if one adds up the approval ratings of Hollande and the reportedly evil Vladimir Putin, one gets 100%. And yet, it is Hollande who is now the relatively more unconstrained of the two, after all, no matter what he does from here on out, things simply cannot get much worse.

A first sign that Hollande realizes that different economic policies are required was his appointment of the centrist Manuel Valls as prime minister about six months ago. The recent “purge”, that saw former economy minister Arnaud Montebourg, minister of culture Aurelie Filipetti and education minister Benoit Hamon replaced by people more in line with Valls’ new course was an even stronger sign. Montebourg specifically was highly influential early in Hollande’s term and as might be expected, pursued policies extremely hostile to business. All three of the ministers that were replaced were considered “Socialist rebels” – i.e., far to the left of Mr. Valls. Montebourg was replaced by his polar opposite, someone on the very right of the Socialist Party,  former investment banker Emmanuel Macron. How did Valls survive the confidence vote the purge necessitated? In spite of the rebellion of the left, French socialist parliamentarians are well aware that a new election would sweep most of them out of the halls of power. It is this fear Hollande and Valls gambled on, and they were proved right.

 

Readers may recall that earlier in Hollande’s term, we often argued that Hollande’s baffling reluctance to embrace reform could be explained by his fear of being overtaken from the left – not only the extreme leftist wing of his own party, but also the La Gauche party led by Jean-Luc Melenchon. However, recent polls in France seem to suggest that Melenchon’s outfit is facing a lot of competition from another radical party, namely the Front National (FN). To be sure, the FN is likely to steal votes from every quarter, but for a small party like Melenchon’s this can conceivably mean total wipe-out. And so it comes that Hollande is now embracing Valls’ reform course, which aims to slash government spending, lower business taxes and introduce some badly needed deregulation.

 

manuel-valls-et-francois-hollande-10975172oxxld_1713Manuel Valls and Francois Hollande, thinking things over …

(Photo credit: AFP)

 

Battling Vested Interests

However, the decision to pursue a different policy and actually implementing it, are two different things altogether. We previously reported on the power of vested interests in France, citing the example of driving schools. However, driving schools are not the only branch of industry or profession in France that vociferously defends it protected turf (protected from competition, that is). For instance, the relatively small French agricultural sector is so well-versed in defending its subsidies, that the EU spends almost 50% of its budget on subsidizing agriculture, with France on the forefront of keeping this absurdity in place. In addition, French unions wield political power that belies their dwindling membership (as we noted here, they even regularly get away with kidnapping and blackmailing managers – kidnapping and blackmail are considered crimes for everybody else, but French unions need not fear any legal repercussions).

Attempts by Valls’ new government to loosen some of the regulations that make it impossible for upstarts to compete with vested interests have just provoked another protest. This time France’s notaries are taking to the streets, who are at present earning a fortune for their services because they operate in a severely restricted market. Reuters reports:

 

“Thousands of French “notaires” held what they said were their first-ever street protests in Paris and Marseille on Wednesday to challenge plans by President Francois Hollande to deregulate their activities.

Anger at Hollande has driven everyone from medics to taxi drivers onto the streets in recent months but few can have expected to see the well-heeled equivalent to Britain’s solicitors or U.S. notaries public on the march.

Notaires typically take home a net 13,000 euros ($17,000) a month and are better known for their gilded offices and iron-clad professional status than for demonstrations.

Surveys show that Hollande, deeply unpopular over his failure to revive the euro zone’s second largest economy, has broad public support for his plan to deregulate their activities and those of 36 other professions in France: pollster Odoxa last week found a full 78 percent of French in favor. But he will nonetheless have to brave fierce resistance from the professions themselves. Wednesday’s demonstrations by thousands of notaires, trainees and sympathizers follow similar protests by bailiffs, court clerks and taxi drivers and shows how opposition is building to a deregulation drive which Hollande’s cash-strapped Socialist government hopes will show Europe it can reform.

“We have the potential to be quite disruptive – so they shouldn’t mess with us too much,” Regis de Lafforest, head of the national notaire union, told Reuters, hinting at strikes that could damage the euro zone’s second largest economy by freezing everything from property to inheritance transactions. “That’s something the government appears to have forgotten.”

On Paris’ Place de la Republique, thousands of notaires and supporters wore T-shirts bearing the slogans “I love my notary” and “Life without notaries will be at your expense”.

[…]

Under current rules, notaries even decide themselves how many can practice at once: this year it is just 9,541. A state finance inspector’s report estimated they have profit margins twice as high on average as those in the corporate sector.

In a speech to parliament on Tuesday, Prime Minister Valls said the deregulation drive was not intended to undermine the professions but to bolster the economy. “France has taken the right approach on this, which is that it will help consumers,” Anne Houtman, former top representative of the European Commission in France, said in August.

The bill was originally due to be sent to parliament in October but has since been delayed until early next year to refine its content. Already, the professions are fuming.

 

[…] but professional representatives have emerged furious from their consultations with government officials.

If they fight deregulation like licensed taxi drivers fought online for-hire car services like Uber.com – with wildcat strikes until the government agreed to restrict the latter’s ability to pick up customers – Hollande faces an uphill battle.

 

(emphasis added)

It should be pointed out that licensing laws are restricting competition all over Europe, and France isn’t even the country with the largest number of regulated professions (Germany and Austria are taking the top spots). However, the fact that French notaries can e.g. decide how many of them are allowed to practice nation-wide every year is a privilege that to our knowledge exists nowhere else.

 

Notaries and bailiffs hold placards as they demonstrate during their first-ever public protest against a plan to chip away at rules shielding them from competition  in MarseilleFrench notaries are taking to streets, fearing for their privileges.

(Photo via findka.com / Author unknown)

 

As the new economy minister Mr. Macron (it should be mentioned that to his credit, Arnaud Montebourg was also in favor of deregulating the professions) pointed out, the rules governing France’s notaries have been cast in cement since he was one year old.

 

Conclusion:

It remains to be seen whether this “uphill battle” can be successfully fought. The historical record isn’t particularly encouraging on this point, but we will keep an open mind for now. It also remains to be seen whether the government has the stomach to confront the unions, as it inevitably must if it wants to reform France’s sclerotic labor legislation. The country’s 3000 pages long “code du travail” is undoubtedly the single biggest impediment to bringing unemployment down.

 

france-unemployment-rate

French unemployment rate: even in boom times it couldn’t manage to drop below 7%. The country’s antiquated and restrictive labor legislation is the main cause of this high institutional unemployment rate. At a current 10.2%, the situation is quite grave (note that unemployment statistics are as a matter of principle beautified everywhere).

 

 

 

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2 Responses to “Reform in France: Mission Impossible?”

  • woodsbp:

    “French unemployment rate: even in boom times it couldn’t manage to drop below 7%. The country’s antiquated and restrictive labor legislation is the main cause of this high institutional unemployment rate.”

    Pater, you sure about your conclusion here? France is a ‘developed’ economy and has (or had) a well developed manufacturing and production sector. That sector has come under relentless pressure from similar sectors in low or very low cost, Asian economies – investment capital (or leveraged debt!), the waged-labour positions and “land-sites” are all “barged” overseas, leaving the labour factors behind – where they are both un-employed and (mostly) un-employable. The French gov – or any gov in any developed economy is almost powerless to reverse or undo this liberalization. They could, but it would not be pretty.

    The US has attempted QE to get its economy ‘back-on-track’. You really have to excavate the relevant stats. Its been an heroic and brilliantly successful failure for them. Japan ditto. The UK ditto. And now the EZ is going to give it a shot. That’s insanity by any definition.

    This is, allegedly, a ‘liberal site’. You profess to believe in prudent behaviour with one’s currency. Good! You complain about and critique ‘big gov’. Careful! But, you also seem somewhat silent about the massive fiscal benefits and transfers of taxpayer dollars/euros/whatever to large corporations. These are colossal. They easily equal, and may even be greater than welfare transfers.

    “I hope it is not a case of transfers to individual folk BAD, transfers to corporations GOOD!”

    Someone recently mused about giving individuals, rather than financial corporations, ‘cash’ payments. They opined that much of this ‘cash’ would trickle down (like the wheat grains falling out of the horse’s arse!) into the general economy (for the sparrows). In principle, at least, this proposal seems somewhat less looney than giving the financial sector the money to gamble with (no wheat at all for the sparrows!).

    Again, I recommend Monica Prasad’s: ‘ The Politics of Free Markets’. She explains why France (and Germany – no trashing of Germany then?) are less amenable to the imposition of unfettered liberalisations. Whereas Ireland, the UK and the US have experienced (and will experience more of) this societal damage.

    Folk with low incomes get hungry. They then ask for ‘bread’. When no ‘bread’ arrives, but are offered ‘stone’, they will pick real stones off the ground and chuck them about. The moral: “Stone in air more eloquent than stone on ground.”

    Take care what you, and other libertarians, may wish for Pater. Big Brother in place of Big Gov!

    Brian.

  • Mark Humphrey:

    There may be another profession within the USA that has the power to regulate its numbers: medical doctors. Ronald Hamoway, once professor at the University of Alberta, wrote a great essay on the subject about 35 years ago, published in the Journal of Libertarian Studies.

    After the Civil War, American medical practitioners espousing a particular medical approach successfully lobbied state legislatures for licensing restrictions. They were granted power, through the vehicle of the American Medical Association, to supply accreditation to the schools that only the AMA could select and approve. By restricting the accredited schools, the AMA severely restricted the supply of MDs graduated from medical school, thereby guaranteeing every MD–regardless of knowledge, honest or competency–a princely income. By controlling the accreditation of medical schools, the AMA also controlled curriculum, so that today, conventional MD’s practice all together a fair amount of quackery.

    The big reason that MDs and other medical personnel are able to rake off high rates of compensation is licensing restrictions. However, the entire American medical complex is built around a cost-plus model of remuneration: hospitals, doctors and nurses, and medical technicians and staff. More than fifty cents of every dollar spent in medical care is tax funded. Since the United States is still a comparatively prosperous place, the cost-plus rake off is highly remunerative.

    My guess is French notaries would be jealous.

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