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AB 2000 studies

Alain Boublil Blog


The big economic mistakes

During the Seventies, we were convinced that prices control was necessary to cope with inflation. It is, to the contrary, their freeing which allowed France to getting rid of that structural weakness. On the same, it was believed during a long time that the consumption rebound was generating a trade deficit as in 1982. We know today that it is wrong and it was the consequences of the huge increase of the dollar on the oil bill which were at the origin, during that period, of the French trade balance degradation. The recent history is not getting itself always from this kind of false analysis.

Economic imbalances frequently generate a deep discontent and lead political leaders to look for and then to put into practice the remedies which are supposed to correct them. A high unemployment, the industry market shares downturn and the all kinds of deficits have so lead in France to the conclusion that the too high labor costs were the source of all our sicknesses. That conclusion, against all what we can believe, was not coming from the employers but from the large majority of economists. The Europe extension to the Eastern countries and after it the globalization expansion were opening our internal market to the competition of countries which had lower labor costs. The only solution to cope with was to reduce our own costs which, atop of that, were affected by the charges dedicated to finance the Social Security system.

So for twenty years, the successive governments have put into practice policies inspired by this analysis. They started with the reduction of the charges weighting on low wages, which was a paradox because that mainly regarded low-qualified jobs in services, which are less submitted to international competition. Then have been created the tax-credit in favor of research and development before adopting in 2013 the tax-credit in favor of competitiveness and employment, which, after, has been transformed into a permanent charge reduction. These measures have been partly financed by income taxes increases on households, which have hurt purchasing power and so growth and by an increase of all the public deficits, which has constantly put France in a difficult position with its European partners.

Along with the theoretical arguments, there had also the German example and the Hartz reforms, decided by social democrats under the authority of the Chancellor Gerhard Schroeder. But they had been wrongly interpreted. In the country, the labor rules and the enterprises operating ones were very protective. The government decided to soften them in order to facilitating the creation of more precarious jobs with a highly part-time. They were  called the “mini-jobs”. That inspired and that still supports these ones who are in favor of the policy which reduces labor costs. But that was not the purpose of these reforms, which have had almost no impact on the major industrial centers in the Federal Republic.

Ten years after the reunification, unemployment was still very high in the Eastern regions and migrations to find a job in the Western regions were restarting. That was worrying the social-democrats because that carried the risk to put in danger their majorities in several Western länder, because the former communists preferred to vote in favor of the far-left parties or to switch in favor of the Christian-democrats.  So these reforms had as an objective to facilitate job creations in the former Eastern Germany and to fix the populations there and not to apply them in the West in order to increase the German industry competitiveness, which did not need it.

Its successes were not lied on the reduction of wages costs, which did not occurred, but on a strategy targeted on top-of-the-range products with a highly qualified workforce and so well paid employees and a limited delocalization policy, consisting in keeping on the German territory most of the value-added and the maximum of jobs. So the German enterprises have contributed to transform the former political Soviet Union satellites into the economic satellites of the reunified Germany.

The French industry, during the last twenty years has followed the exactly opposite trend. It passed from a structural trade surplus to an heavy deficit, which has been aggravated these last years to reach near 50 billion euro and its share in the value added has not stopped to decline. Production, despite the 2021 rebound, has not over passed the 2015 level. France has still a high unemployment rate and more than three million job seekers, a figure to which must be added several million of persons who have been dissuaded to look for a job or who had to accept part-time jobs or short-term contracts. Despite that environment, there are sectors which are brightly successful, which brings the proof, if it was needed, that the reasoning on charges and labor costs is unfounded because it if was true, all the sectors would be affected in the same way.

A new economic mistake, coming this time from Brussels, has lied in the opening to competition of the energy public services. French people are now paying the price on their natural gas and electricity bills. The borders opening had contributed to the reduction and even to the near disappearance of inflation and to offer to consumers a very large variety of goods and services. But it was wrong, at the European level, to apply this principle to public services, and notably to energy. The newcomers and the former groups having a monopoly had to engage heavy expenditures to keep their market shares or to implant themselves in these new activities. They had to hire commercial agents, to launch advertisement campaigns, which has weighted on their costs and the consumers did not take any benefit of that.

In addition to that, in the natural gas and power sectors, the fact to have at its disposal important volumes and long term supply contracts is an element which allows to negotiating the prices in a better condition and this advantage can be transferred to clients. Brussels has done all it was possible to make these long-term supply contracts less interesting when they offered, beside that, a better supply safety, which, we are taking conscience today of it, must constitute, with the prices level, a major strategic concern.

Regarding power, Brussels has instituted a regulation which has had, as a consequence, to make France losing its tariff advantage constituted for consumers by the nuclear power production. When a supplier is confronted as now to the hazards of the world energy juncture, it is obliged to transfer the market fluctuations which are all the more important than they are fed by speculation. When scarcities appear in a country because its power mix is shaky as a consequence of unsuited investment decisions, it is worrying, in the name of competition rules, to make its neighbors paying the consequences.

So the positive role of competition can have exceptions and the case of electricity and natural gas are giving spectacular examples. The wrong economic reasoning leads most of the time to a result which is the opposite of what was expected. These consequences are even heavier when we keep at not recognizing them, as about labor costs, and when we persist in these mistakes.           




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