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AB 2000 studies

Alain Boublil Blog

 

The great comeback of the State

The tackled issues since the beginning of the European elections campaign as the social movements show that a real turnaround is taking place in public opinions. For decades, and not only in the Anglo-Saxon world, the trend regarding the State disengagement was the object of a large popular consensus. We see today a turnaround which is not without links with the rise, in the Western world, of populism. The reestablishment of borders and the stabilization and even the stoppage of immigration are regalia missions by nature. The trial against the globalization and multilateralism is examined by these ones who want the State to recover the power to negotiate the conditions through which international exchanges are done. The hostility Europe and the euro are giving rise is resulting from the conviction that every State would act better in the interest of its population if it regained the powers it abandoned in favor to community institutions.

The 2007-2008 crisis and the difficulties affecting several States which have put in danger the euro, have left heavy scars. The countries have not regained the growth and the continuous increase of life level and wealth they knew before. Many believe that it is because the State has abandoned its means of action. Several foreign examples are pushing in the direction of a flashback. In the U.S., a country which, for a long time has supported the most liberal thesis, Donald Trump slogan, “America First”, has lead to the return to an omnipresent State which subsidizes inside the country and which rise barriers toward the external world. The economic results, even if they include a large share of mirage, are better than in Europe. In China, despite the growth slowing, the spectacular success of the late three decades is also attributed to the public action, directly through public-owned enterprises or indirectly through financing or through regulations designed to orientate economic agent choices in the direction decided by the State.

The deep and irreversible evolution of the world toward more exchanges of goods, services, finance and information has disrupted the State ways of intervention on the economy. For a long time, it was believed that it was not its role and that market mechanisms were providing in any circumstances the equilibriums, especially regarding employment. Almost a century ago, Keynes, confronted with a lasting unemployment, suggested that an increase of investment, through public expenditures could remedy to it and restore equilibriums the market was unable to accomplish. It was not the remedy which mattered and, against what we frequently read, the most important point in Keynesian thought. It was the principle put forward. So was born the economic policy concept. The States could correct market flaws. This concept has been later enriched by the apparition of the monetary tool, used to fight against economic overheating which generated inflation. Interest rate increases were used to slow investment and consumption and to reestablish price stability.

The first tool has become difficult to put into practice due to the States indebtedness and the demographic worries. In presence of a declining population, who would be in charge of reimbursing the debts? The second one has become by large without any purpose. Inflation has nearly disappeared in developed countries due to the intensity of internal and external competition. Innovation, in many categories of goods and services has also allowed productivity gains and costs reductions. To the opposite, the manipulation of monetary tool has become the major cause of fluctuation in financial markets and this one must be used with the highest carefulness. The European Central Bank has understood it. In keeping its interest rates at such a low level, it reduces public debts charges and implicitly allows States to have budget latitudes to support activity. But it is necessary the State uses them in an appropriate way. So the State must become a “Strategist State”, and not only anymore a” Spendthrift State” or a “Ruler State”.

It must first elaborate a financial strategy. Public debt management must take the maximum of return from the very low level of interest rates through an increase of the maturity of the bonds it issues in order to profit of the current policy during the longest possible period. It must manage its stakes in listed companies with the same spirit. It is absurd to sale shares which provide generous dividends  in order to obtain an infinitesimal reduction of the public debt when the saved interest charges are, as an average, five times lower than the dividends it has renounced to. In return, a huge quantity of real-estate assets is under-utilized and costly to maintain or to renovate. Their sale could constitute resources instead of generating expenses.

The State must also elaborate an industrial strategy based on an industrial employment strategy. The supply-side policy would be much more efficient if it was targeted. Massive social charges reductions have not the same consequences in big retail or in catering as in research, new technologies or new industrial capacities. Until now, this policy did not give any return. French trade deficit in manufactured goods is, in Europe, a disorder. The unemployment rate reduction has mainly resulted from the blowing out of the number of precarious jobs, with working contracts carrying duration under one month. But it would not be possible to guarantee the quality of a product and the client satisfaction with such a volatile work force. Atop of that, the financial consequences of that policy have been heavy and have weighted on purchasing power, and then on growth.

It must, at last, adopt a strategy regarding environment. It is easy to make stunning declarations and to take very long term commitments, because these who are making these announcements will not be there, and for a long time, to be judged about their achievements. Regarding strategy, it is not possible to follow two different objectives in the same time. Each incentive must result from a clear choice, from the definition of a priority. If we want to obtain a better isolation in homes and a significant reduction of fossil fuels use, incentives must be efficient and funding of the investments easy to get. To submit aides to resources conditions is going against these objectives because these who have high resources are these who live in large homes and who proportionally consume more energy. But we must not be naïve. If the minister of Finance insists so much to introduce revenue ceilings in this sector, as for instance for the replacement of most polluting vehicles, it is obviously to have the least possible number of beneficiaries in order to have the lowest cost for the State. With these limits,  posted objectives will never be reached and the credibility of public action, such praised in these inflamed speeches, will be heavily hurt.

As much as the State, in France, will not become a “Strategist State”, it will be criticized, sometimes violently and it will favor the rise of populism. The challenge is the same for Europe. As much as the States in Europe will put on Brussels the responsibility of their failures, electors worry will increase. Germany has a particular duty because it cannot, in the same time take advantage from European consumers when they buy its products and impose to their States restrictive policies which weaken the support to Europe.      

        

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