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Between Brussels and the Gilets Jaunes

by Alexis Boutefeu-Moraitis on July 18, 2019
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Elected in May 2017 on an ardently pro-European platform, French President Emmanuel Macron promised to undertake radical reforms to revitalise the French economy through strict compliance with the European Union (EU)-mandated rules on public deficits, pro-business tax and labour reforms, and the rationalisation of the public sector. He boastfully claimed he would do so despite the ‘French aversion to reforms’, adding that he ‘would cede nothing to the lazy, the cynics or the extremes’. In an ironic turn of events, two years into his presidency, Macron found himself making €17 billion worth of concessions to the Gilets Jaunes (Yellow Vests), the nationwide anti-government movement that has sent shockwaves through the French establishment.

In December 2018, the EU budget commissioner claimed that Macron had ‘lost authority’. Indeed, as road blockades, large protests and violent confrontations with the police spread across France, the government announced a €10 billion package to quell the crisis by boosting the purchasing power of low-income workers.[1] After this failed to diffuse the movement, the government called for a ‘Great National Debate’ to allow French citizens to express their grievances through a series of townhall meetings across France and through online contributions. Last April, in the aftermath of the great debate, Macron announced a second plan amounting to some €7 billion that included an indexing of low pensions to inflation, a generous cut in income taxation and a vow not to cut public sector jobs or shut down hospitals and schools during the rest of the presidency. Although the neoliberal orientations of Macron have not been abandoned, the €17 billion given to pacify the Gilets Jaunes threatens to derail the plans for balanced public finances and have given the government a new headache.

Overall, Macron’s policies and discourse earned him the title of ‘the president of the rich’ while his opponents have likened his condescending style of governance to that of a king. However, such personalised critiques obscure rather than elucidate the shaky social foundations on which French capitalism has been resting since at least the 1980s. Rather than a mere duel between an unwanted president and an angry mob, the management of the Gilet Jaunes crisis reveals a more fundamental clash within French capitalism between meeting the expectations that EU regulations and world market pressures place upon the French state and ensuring the governability of the domestic social order.

(POST-)DIRIGISME AND SOCIAL DISCONTENT

To understand the implications of the Yellow Vests movement for France’s political economy one needs to consider the evolution of the French state’s management of the economy and its ingrained social antagonisms. France’s post-war variety of capitalism was labelled dirigiste as it was characterised by the intensely state-driven character of economic modernisation. Through its control over the domestic financial system and the nationalisation of key industries, the dirigiste French state was able to direct investment and initiate grand industrial programmes in accordance with its own developmental objectives. Within the post-war political settlement, labour and its representatives were consistently ostracised from the decision-making process. State managers of the IVth and Vth Republic consistently sought to minimise trade union influence on the distribution of domestic resources and secure the smooth modernisation of heavy industry. As such, violent protest, the recourse to the barricades and the wildcat strike were labour’s main form of political action to improve its material conditions. Then, like now, the riot has been the main channel of communication between labour and the French state. In response to labour’s periodic upheavals, the dirigiste state would traditionally tolerate temporary increases in incomes while using its interventionist tools to shield domestic capital’s profitability from the inflationary spillovers of wage growth through currency devaluations and the provision of cheap credit.

Following the global economic turbulence of the 1970s, the dirigiste armour of the state was progressively dismantled. Specifically, socialist president Mitterrand’s U-turn from a Keynesian-inspired recovery strategy to a neoliberal, market enabling-economic program in 1983 constituted a watershed moment which marked the transition towards a post-dirigiste political economy. Importantly, the state’s turn away from its dirigiste qualities has been followed by the growing Europeanisation of policy-making. This process has aided and abetted the state’s task of implementing unpopular liberalising policy reforms and anti-inflationary measures since such measures were often attributed to European pressures and directives. Europeanisation has served as a depoliticising device whereby the responsibilities over certain aspects of policy-making have been transferred to the supranational level, allowing the French state to offload the pressures for direct economic intervention. For instance, the European Commission’s (EC) restrictive rules on industrial state aid that distorts competition within the common market has overall allowed for a stricter market-led adjustment to global economic competition while limiting the state’s assistance to unviable firms. The alignment of French monetary policy with the European Monetary Union and of industrial policy with the EC’s competition policy, have allowed French elites to push for market-oriented reforms while presenting them as an inescapable prerequisite for the country’s continued membership in the European family.

The post-1980s restructuring undergone by the French state, has also altered its logic of managing social discontent. Indeed, with monetary policy in the hands of the European Central Bank, it became unfeasible to devalue the currency or simply let inflation accommodate growing incomes as during the dirigiste heyday. While certain aspects of economic policymaking have successfully been transferred to the EU level, the post-dirigiste state has found itself burdened with newfound responsibilities in the realm of welfare provision. In his masterful analysis of the French state’s restructuring, Jonah Levy has aptly characterised contemporary France as a social anaesthesia state. As he describes, since Mitterrand’s U-turn, public authorities have consistently had recourse to generous social compensation – in the form of, for example, enticing early retirement plans, a relatively high minimum wage and various social assistance programmes – in order to placate resistance to painful economic adjustment and mitigate the social and regional dislocations accompanying the liberalisation process. The depoliticisation of industrial and monetary policy has been accompanied by a costly state-led exercise in harnessing labour resistance. In contrast to the depoliticising aims of Europeanisation, the State’s assumption of extensive responsibilities in terms of social welfare has thus to an extent increased the expectations for intervention upon the state. As recently testified, the incomplete retrenchment of the French state from the economic scene has opened the door to legitimacy-threatening social movements directly targeting French political elites.

BRUSSELS, THE WORLD MARKET AND THE GILETS JAUNES

Today, both institutional and world market constraints intervene to inhibit the post-dirigiste state’s management of social unrest. Due to the high price of assuaging social tensions through welfare, France has become the largest social spender in the OECD. High public deficits were the norm rather than the exception in French public finances during the 1990s. Even more so, since the 2008 crisis, France has consistently failed to bring its public deficit down to the 3% limit set out by EU guidelines. Although in 2017 and 2018 public authorities laboriously managed to bring the deficit below the 3% bar, the Fiscal Compact, signed by European member states amidst the height of the Eurozone crisis, further pressures member states to bring down the structural part of their deficit – the part of the budget deficit that excludes one-off payments and cyclical effects – which in France has been traditionally high. Abiding by the EU deficit rules is also seen by the current government as a way to progressively reduce the country’s public debt, which at 98% of GDP is higher than the EU average and significantly above the 60% limit set by the guidelines of the Stability and Growth Pact. Such fiscal pressures strike at the heart of the French state’s post-dirigiste spending practices and severely pressure it to break the habit of maintaining budget deficits in the face of growing social tensions.

On the other hand, the post-dirigiste spending spree is constrained by world market pressures. The country’s global market shares have been on a declining path since the 2000s, and for a decade France’s current account has been in deficit as French exports have found it increasingly difficult to compete internationally. In response to this trend, since day one of his presidency, Macron has strived to create a business-friendly environment that seeks to diminish costs for capital in order to enhance competitiveness and attract foreign productive investment to French soil. Amidst wide mobilisation against its plans, Macron’s government enacted a far-reaching labour market reform which, among other things, enabled the decentralisation of collective bargaining, permitting the adjustment of labour costs to firm-level rather than sector-wide conditions. In a similar vein, the government engaged in an extensive programme of tax reforms to liberate funds for productivity-enhancing investments. These have included exemptions in firms’ social security contributions and a lowering of the corporate income tax from 33.3% to 31% which is planned to further decrease to 25% by the end of the presidency. Most controversially, as of January 2018 the government repealed a tax on wealth, the Impôt de Solidarité sur la Fortune (ISF) which was initially set up thirty years ago to finance a kind of social benefit for low-income individuals, and was replaced by the IFI, a tax on real estate property. Repealing this reform was at the heart of the Gilets Jaunes grievances as it was considered to be Macron’s unequivocal ‘gift to the rich’. In sum, Macron’s fiscal reforms seek to unburden the tax share of capital while gutting the foundational basis of the post-dirigiste welfare state.

At the same time, the Yellow Vests have impeded the government’s objectives, as mentioned above, and the upheaval has come at the cost of €17 billion worth of concessions from the government. The efforts to smother the social turmoil by loosening the purse strings has, according to the Commission, ‘reduc[ed] to zero’ the government’s efforts to redress its public finances. Similar concerns were expressed domestically with the Audit Court, which oversees public finances, pointing to the lack of palpable progress in the government’s efforts for fiscal consolidation, especially with respect to the reductions in the structural deficit expected by the objectives set through the Fiscal Compact. More recently, in its annual mission statement, the IMF warned that France’s debt was ‘too high for comfort’ and called for the government to further resume its commitment to balancing the reduction of the tax burden with corresponding spending cuts.

To be sure, Macron’s concessions do not signal a U-turn in the government’s ongoing liberalising reforms as it has not indicated a willingness to backtrack from the most contentious reforms of its programme, such as the transformation of the ISF. Equally, the current low interest rates on France’s debt give the government some breathing space to appease the Yellow Vests without severe immediate economic penalties. Nevertheless, the government’s strategy to consolidate state finances through a strict abidance to EU rules has fallen through, as it is far from achieving its initial goal of balanced budgets and a significant decrease in public debt by the end of the presidency. Although, Macron’s political adversaries have, with some justification, characterised his concessions as an exercise in smoke and mirrors, they nevertheless reveal a fundamental tension in French economic policy-making; namely, between the increasing necessity to appease domestic cleavages and the growing difficulty to do so through an expansive and costly welfare state.

IRREMEDIABLE TENSIONS

The French state has been consistently displacing the social tensions of the country’s political economy in time, through a debt-driven process of social demobilisation, and in scale, by delegating important policymaking responsibilities to the EU. However, such policy directions have increasingly started to boomerang back on French elites. On one hand, world market pressures and EU regulations exercise a combined pressure on the French state’s post-dirigiste management of social discontent. On the other, the growing Euroscepticism and disenchantment of the French population has dealt harsh blows to the domestic political establishment – the last straw being the 2017 elections, when both mainstream parties, the Republicans and the Parti Socialiste, failed to figure in the last round of the presidential elections. The cherry on the pie was the Rassemblement National’s[2] – the French far right and Eurosceptic party – second victory in the European elections in France.

This last point denotes a peculiar paradox in French political economy. Indeed, EU regulations stand as useful tools for the French political elites’ pursuit of socially painful but allegedly necessary market reforms, although at the same time, the appeal to such external impetuses becomes seriously anachronistic in France’s current Eurosceptic climate. As the aforementioned IMF statement lamentingly argued, ‘[s]ocial consensus around reforms’ is necessary for the economic success of the government’s policy agenda. Concurrently, it is precisely this required unanimity that appears to be all the more unreachable today in France. Ultimately, these tensions are but a national manifestation of a more universal contradiction permeating modern capitalist societies between the satisfaction of human needs and the rational management of money.


[1] The concrete policy measures entailed among others a boost to an in-work benefit for low-income workers, the cancellation of a tax increase on low pensions and the elimination of taxes on overtime pay.

[2] The Rassemblement National party was previously known as Front National

Alexis Boutefeu-Moraitis
Alexis Moraitis holds a PhD in Politics and International Studies from the University of Warwick, UK. Alexis has taught political economy at different UK universities including Warwick, Oxford Brookes and Birmingham. His research interests include industrial policy and deindustrialisation, the political economy of France and the European Union, and state-market relations in the global economy. Some of his work has been published in Capital & Class, French Politics and New Political Economy.
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  • Elsa
    July 18, 2019 at 10:24 pm

    Very interesting analysis. Thanks! I agree that post-dirigiste France has been caught between deep market-oriented structural reforms and the “social anesthesia” state. Now that social anesthesia is being retrenched, the underlining dynamics of French capitalism are made more obvious/hurtful. Yet, I am not sure that the tension between these two aspects of French political economy can be reduced to the confrontation between “market-friendly” Brussels and the gilets jaunes. Macron’s policies have led above all to increasing the share of the wealthiest citizens in France dramatically. This is not equivalent to creating a “business friendly environment” nor abiding by budget discipline – except if the French government truly believes in the’trickle-downism’ fairytale (and I don’t think they do). Above all in my view, Macron is implementing policies benefiting his own (domestic) political constituents – not Brussels.

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