Between so-called tax giveaways and risky privatisation, Macron’s France seems ruled by novices. But was it the investor banker’s logic that prevailed, and not that of the manager? Analysis by François Reloujac.
The media presents information every day about the economic policy of France: Yellow Vests crisis, failure of the Renault-Fiat merger, closing of factories by General Electric, referendum on the sale of Paris’ Airports, recovery of the wealth tax and the elimination of tax loopholes, stagnation of GDP, etc. But is there any coherence in all the measures taken by the government? And will these actions quickly lead to an improvement of the situation? Here are some examples among the most publicised to try to see clearly.
The Yellow Vests crisis
According to the “experts” of Natixis, the French economy can only really restart with a rise in range of its industrial production, which is not done in a day, or with little or poorly trained staff. In the meantime, it must hold on and, for that, they propose the choice between three possibilities:
- the depreciation of the exchange rate¹, like in India;
- an increase in interest rates, such as Turkey;
- the reduction of wages to reduce domestic demand and increase competitiveness, like in Spain or Greece.
If the first two methods are prohibited because their implementation depends exclusively on the European Central Bank (the euro obliges), the third seems difficult to adopt in a country shaken by the so-called “Yellow Vests crisis” (a slogan that confuses the analysis by preventing an immediate view of the various causes of general discontent and by isolating protesters from other members of the social body, who share the same dissatisfaction).
In this regard, governmental policy is reduced to using expedients to save time, without trying to tackle the root of the evil, which it is true that the treatment would be painful. If one retains the analysis of the “experts”, the training of personnel required for the restart of the French economy will be all the longer and more difficult as a significant part of the active population, or those likely to be, seem unwilling to accept the demands that this entails. The unemployment rate, despite all the expedients implemented, is therefore likely to remain higher in France (8.7%) ² than in the euro area (7.6%) and throughout the European Union (6.4%).
Moreover, this economic stagnation runs counter to any real environmental policy since in France, 59% of the appliances purchased today are in replacement of appliances that are out of order or too expensive to repair, for a lack of spare parts.
Taxation in the service of globalisation
The slogan put forward to explain all the recent tax manipulations is that they favour work, and indirectly employment. Thus the wealth tax – supposedly to curb productive investment – has been replaced by a real estate tax, which would not create jobs. In reality, movable assets are often placed in international securities or shares of companies that relocate to improve their profits, while real estate wealth – which can not be relocated by definition – needs to be maintained, which maintains local activities essential to the survival of rural populations.
At the same time the government claims to increase the supply of housing, which, given the fact that small local businesses cannot afford to survive, favours large industrial developers such as Bouygues, but also Caisse des Dépôts or the big banks and insurance companies and their multiple epigones.
At the same time, the government abolishes the housing tax for 80% of households, leaving the municipalities the option of maintaining their lifestyle by increasing the property tax. It is therefore the same taxpayers who will bear both the property tax, the housing tax maintained, and the increase in the property tax. Two social categories will be particularly affected: middle-upper management, which is in fact the main driver of economic activity, and retirees, who will also support the increase in the CSG. It should not be surprising if young graduates leave to settle abroad … which will not facilitate “the rise of industrial production!
Two events marked the end of the French spring: the opening of the procedure for the launch of a popular initiative referendum on the privatisation of Paris’ Airports, on the one hand, and the failure, on the initiative of the Minister of Economy, of the merger between the Renault-Nissan-Mitsubishi Group and the Fiat-Chrysler Group, on the other hand. For there to be no ambiguity, it should first be stated that it is not the vocation of the State to be an industrialist, nor a terminal manager, nor a landowner.
In these circumstances, there was no reason for Renault’s largest shareholder to oppose the plans of the man he appointed to head the company and, conversely, the government would be right to get rid of Paris’ airports. But if from a theoretical point of view there is no reason in itself to criticise what has happened, it does not mean that the reasons which led to these two psychodramas should not be examined.
We search in vain for the reason that led the government to favour Nissan-Mitsubishi, whose immediate apparent health seems brighter than the medium-term prospects, except to imagine that it would be part of a secret agreement with Japan in the context of the case Carlos Ghosn. In the absence of a clear reason, one can indeed imagine everything. As for the foreseeable consequences, they are obvious: considering the current policy of the government of President Trump, the refusal of an alliance with an American manufacturer (Chrysler³) could close Renault’s access to the American market. Is this what we want? Could this have an impact on employment in France and the balance of payments?
With regard to Paris’ airports, the question of their privatisation is of a different nature. What is it? Looking for an immediate return of funds so that France does not seem too far away from the rules imposed by Brussels for the respect of the Maastricht agreements? Why not! But besides the fact that these airports are the main point of entry for foreigners in France and therefore deserve to be monitored as a border (and here we are in the sovereign domain), we can wonder if we will not risk selling them off. Indeed, Paris’ airports are at the head of a very large land asset that the state can not value by using the approaches to the landing strips for new constructions. A prospective buyer will undoubtedly make them profitable. And, like the Chinese who had captured the Toulouse-Blagnac airport, they will resell their shares as soon as they can “crystallise” the added value, leaving the government to face the NGOs that are sure to denounce the nuisance suffered by residents.
What economic logic?
These examples sufficiently show that the government favours by far appearance in the short term at the expense of long-term health. How can we explain it? After all, it is the government’s role to plan for the future and to prepare the country for it. One of the keys of possible reading is to look for the personality of current elites or those who claim to be such.
These elites seem to be modeled on the business banker, who is no longer someone who takes risks to create and support an industry whose cost would be too high for the sole entrepreneur, but a speculator who seeks to “create shareholder value”, i.e., to capture the profits generated by any economic activity for the exclusive benefit of the owners of the capital at a given time. These are often only pension funds or other undertakings for collective investment in transferable securities. Every business banker today looks at industrial enterprises in the same way that a player appreciates the form of horses on a racetrack, and not as an owner-rancher. From one year to another, from one day to the next, he is ready to bet on the one that seems to him in form – whether or not it is doped with subsidies, tax optimisation or relocations – and to withdraw his bet from the one he supported the day before. The gain realised in the operation is, meanwhile, mostly used to try to stay in the game.
When such a mentality wins those who run the country, France no longer appears as a great nation with secular traditions that should be developed for the benefit of all its children and in respect of others, but as a “start-up “to be effective in a world open to free competition and the free movement of everyone.
1. In a self-sufficient country, like France, a devaluation is not an impoverishment, but an external competitive advantage.
2. Among non-graduates, this rate is above 18.3%.
3. Note however that the Fiat-Chrysler Group has a board of directors that includes three Italians and eight Anglo-Saxons to support the president who is a former General Electric.