Mises Wire

France’s Crisis Is the Latest In a Long History of Conflict over France’s Un-Free Markets

Even after ten weeks, the “yellow vest” protests in France continue. Mass protests such as these, with their violence and destruction, have not been seen in France for decades.

The basic narrative of these events is well known. Macron was elected with a program, which the promise he would enhance the competitiveness of the national economy through liberalization reforms. It was a kind of “Make France Competitive Again” program to ensure that France not be dependent on the goodwill of Germany. He enjoyed some outright support among the electorate (about one quarter of the voters) and a larger pool of voters half-heartedly accepted his proposal, given that his archrival campaigned under the banner of Frexit, leaving Europe completely. His steps toward reform, it turned out, were not well liked, and his popularity went into free fall. Nonetheless, the reform process was not scuttled by violent resistance from the unions — a fate which undermined the reform attempts of his predecessors, including the left-wing Hollande and the right-wing Sarkozy.

But now, for weeks Paris has been burning due to an unexpected and shockingly large wave of protest against Macron. A wave of protest that involves most of France, and that enjoys wide popular support. There has been nothing like this in France for several decades.

The wave of protest was provoked by a large tax increase on gasoline, and not by the reforms aimed to make the French economy more like a free(er) market economy.

France’s Un-Free Economy

If there is an example of a dirigiste, interventionist state, then that is France in Europe. France was the birthplace of the mercantilist, absolutist monarchy in the early modern period. The Bourbon Kings had perfected the practice of mercantilist protection and monopolization of key industries. This included the state mandated “industrial development policies” in the seventeenth and eighteenth centuries. To the detriment of France, under the rule of the famous finance Minister Jean-Baptiste Colbert, textile manufacturers were heavily regulated, subsidized, and controlled. This mistaken policy allowed Britain — which opted for policies allowing more freedom to industrialists — to industrialize faster than France. While Britain developed to become the workshop of the world (and their fleet ruled the seas), France sunk into a series of crises and lost her pre-eminent position in Europe. The great grandchild of the Sun King paid with his head for the crisis of dirigiste state of his time.

The modern French state is the stepchild of the political culture of the Bourbons. It is the prime example of dirigisme. It redistributes as much as 56% of annual GDP and imposes the highest tax burden in Europe. The French state directly manages key industries and sustains one of the largest welfare states in Europe. Also, it imposes complicated bureaucratic red tape on economic actors, trailing way behind the Scandinavian states or Germany as far as ease of business concerned.

France is nevertheless also a great power and one of the key states in Europe, it is harboring great European and geopolitical ambitions.

The highly trained political and technocratic elite, which is probably one of the most sophisticated political elites in the world, is one of the key drivers behind the interventionist state and the European and geopolitical ambitions of France. This dirigiste French political culture was, in general, supported by public opinion, which expects the embracing of an overarching welfare state and the enhancement of “Gloire,” national pride.

The other side of the scale, however, is the slow deterioration of the position of France due to her slow economic growth, increasing debt level, high deficit, and high unemployment rate, which seems to be stable around 10%.

Since the early eighties, one of the key challenges of French political life was how to strike a balance between the deeply ingrained culture of dirigisme and competitiveness. The relative decline of the French economy not only had negative implications on internal stability, but it threatened the European and geopolitical ambitions of the French political elite. This was especially painful with the relative decline of France as compared to Germany, which is threatening the traditional leading role of France in Europe.

Probably, Mitterand was the first president who won elections based on a (leftwing) dirigiste program promising further development of the welfare state. But he had to face reality and introduce austerity measures aiming to enhance competitiveness. The predecessors of Macron — Sarkozy and Hollande — also lost their re-election hopes: they had to abandon their grandiose promises made during the election campaigns, and invariably tried to introduce reform programs aiming to lessen state intervention.

Macron was the first French politician to build his election campaigns on reform and competitiveness in order to keep up the position of France in the world. As member of the the Hollande government, Macron proposed raising the workweek from 35 to 37 hours. He worked to lessen the tax-burden on higher incomes. The competitiveness package he developed argued to lessen the protection of workers and companies in order to promote growth.

It was predictable, however, that once elected, his popularity would plummet. First of all, much of the electorate voted for him as a way to repudiate and even more threatening candidate, Marie LePen. Second, it is one thing to accept the inevitability of reforms, and another to actually experience the difficulties they pose in personal life.

There was one hope for Macron: that he had enough time that his reform package would usher in growth quickly, and in 2022 he could base his re-election campaign on good looking figures of growth, less unemployment, and better wages.

The tax increase of Macron, however, is depriving companies, entrepreneurs, and employees of what they hoped from the reforms: greater scope of action to enhance their income.

The sudden outbreak of waves of protest shows the most destructive course of action is to pursue an economic policy which on the one hand promises to liberate the economy from state shackles, but on the other hand increases taxes. Macron took away with his left hand what he intended to give with his right hand. A professed program of decreasing the role of the suffocating, overregulating and overtaxing state is irreconcilable with tax increases.

France is again at a crossroad: she has to choose between the policies of Colbert and those Anne-Robert-Jacques Turgot, the great French liberal economist, who was economic minister of France, between 1774 and 1776. Turgot had argued for free trade, less tax, and less regulation. But Turgot after two years had to resign. His work had more influence on Adam Smith than on French politics.

The real consequence of a choice between Colbert or Turgot will not be felt immediately, but from generation to generation the difference is the question of inevitable decline or sustained growth. Indeed, as history demonstrates, it is a choice of life or death.

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