It is not only in politics that the wrong ideas are prospering, in economy too and they have a hard life. Forty years ago, the 3rd Mauroy government, after its reshuffle, announced measures which will be qualified as a rigor plan or as the “rigor turnaround”, along with a third realignment inside the European Monetary System. It is then interpreted by the opposition of the right as the recognition of the failure of the economic policy followed since the election of François Mitterrand and still today by a part of the left as a treason and the submission to neo liberal capitalism. Yet, the degradation of the foreign accounts, which was at the origin of these measures, was in no way the consequence of the rebound policy decided in 1981 against what was affirmed at that time and which is still today frequently asserted.
It had as its origin the sharp monetary turnaround initiated at the end of 1979 by Paul Volcker, then the chairman of the Federal Reserve in Washington. It was followed by a very strong increase of the dollar and so of the France energy bill because its oil imports were denominated in the American currency and it had not yet at its disposal its nuclear power plants. The increase of the foreign trade deficit between 1980 and 1982 was, with a difference inferior to one billion franc, equal to the increase of the energy bill and not to the consumption rebound. Anyway, during these two years, household consumption increase was almost equal to the exports increase (+33%) which confirms the lack of link between its rebound and the trade deficit.
Second wrong idea, the succession of the realignments inside the new European Monetary System would be the resulting of that rebound policy qualified as a Keynesian one. It is forgetting that during the previous decade, under the bounds of the short-lived European Monetary Snake, there has been as much if not more instability of the exchange rate between the Franc and the Mark. The setting of limits to the fluctuation of exchanges rates in Europe in an international environment where, after the abandon of the Bretton Woods rules, all the other currencies were freely floating was already a difficult project. The functioning of the European Monetary System will rise problems even more complexes.
The dollar rise was favoring the German economy when it hurt the French one. Germany had coal and its exports took profit from the Mark fall. To the contrary, France was importing its fossil energies at an increasing price without taking advantage at the same level than Germany from the fall of the franc against the dollar.
The realignments did not only concern the franc and the mark but four currencies in 1982 and seven in 1983 with, that year, three falling and four increasing. It is why it is inappropriate to use the word devaluation. At last, it is forgotten to point that the rebound policy in 1981 saved France from the sharp recession which affected in 1982 Germany and the United States, without making worse the French public finance situation whose deficit in 1981 and 1982 will be by large inferior to the German deficit (4.6% of the GDP for these two years in France against 7.5% in Germany).
These points are essential because still today, i.e. forty years after the events, a such serious newspaper as Les Echos and a columnist who is atop of that professor of economics, continue to spread these wrong ideas. Especially, the ideology which inspires them, the condemnation of every policy in favor of demand and purchasing power and the promotion of policies based on supply and on the support to enterprises under the form of huge fiscal and social charges reductions, has become from 2012 for the successive governments, the alpha and the omega of their economic policies.
The France foreign accounts had known a spectacular improvement during the Eighties and the Nineties and the balance of the goods exchanges remained with a surplus until 2003. From that year, enterprises, with in the first position were the carmakers and Renault at the top of the list operated a massive de-localization strategy and have increased the deficit. Governments, then, followed that wrong idea: it would be the labor costs which would be at the origin of their loss of competitiveness. It is enough to have a look at the Renault financial results to verify that the enterprise did not take any profit from its strategy. To the opposite, Toyota which implanted itself in the North of France at the end of the Nineties has not stopped to increase its production capacities. Onaing has become the largest French plant and has overpassed Sochaux. They have just celebrated the delivery of its millionth Yaris.
In 2012 was given to a major industrial manager, Louis Gallois, the redaction of a report about the recovery of the industry competitiveness. But its conclusions were deformed and massive charges reductions were granted to every enterprise, and not only to industry, and even worse, these charges reductions were more important for low wages. It was ignoring two major points: industry weight in France among working people and value added was under 15% and the sectors were mainly employing qualified workers. The main benefactors were the financial sector, the big retailers and the service activities for household.
The charges reductions were mainly financed by a heavy fiscal shock which weighted on growth. French economy had then three quasi-stagnation years without getting, to the opposite, any improvement of its foreign trade exchanges. The French economy was so going into the social, sanitary and international crisis with a weak position: huge public and foreign deficits, unemployment above three million persons, access into professional life later and later. During that period the degradation of the public services, which were constituting a determining factor of social peace, in a context of high inflation and of a reduction of the purchasing power, lead to a general discontent.
It is the moment the government chose to launch its pension reform based on the idea that people had to work more. Critics against the 1981 decisions, the retirement at 60 years old, the fifth week of paid vacations, the fifth team for the posted jobs and the 39 hours working time in a week, reappeared. Instead of giving these social advantages, it would have been better to work more. What is still today forgotten, it is that it is not the supply which determines the level of production but the clients of the enterprises. Once more, the wrong ideas have had a strong life.
Scientific analysis based on facts, on figures and on reasonings validated by experience must not be mixed up with ideology and political action. The caricatured presentation of the 1981 policy is related to the two last concepts. It wouldn’t be serious, because it is the historians duty to set the record straight, if today it was not used as a pretext to deliver wrong ideas and to inspire decisions in the essential domains like economy and social issues, decisions which are not understood and which are so rejected by the population.
The degradation of the foreign exchanges, with a trade deficit superior to 160 billion euro in 2022, has not the same consequences than in 1981 thanks to the euro. But it definitely must convince the political leaders that their action leads to a no-way and that the elaboration and the adoption of another policy is indispensable and urgent.