The ongoing demonstrations in France suggest that a welfare state is very much like an addictive drug. Even though it no longer delivers the euphoric feeling that first lured users, even though almost all concerned, including the most dependent, know that continued use will eventually destroy or severely damage the body (politic and economic), the addiction at least for many is stronger than common sense.
Is this simply a rite of spring in la République, where street demonstrations against the establishment that often turn violent are something of a national tradition?
The answer in part is probably close to yes. But these demonstrations also are a bit different. They are aimed at preserving the status quo of employment law and overweening job protections, making this a revolution against change. Furthermore, this particular status quo has led to high unemployment, which is a clear and present concern for many young people in France and a heavy contributing factor in riots in predominantly Muslim neighborhoods last fall.
For many years, in addition to high taxes, France has had very restrictive labor laws, designed to prevent people being laid off or fired. A French employer must notify a worker of an impending layoff in writing a minimum of six weeks in advance, and in some sectors nine months. A hearing must precede a layoff, and a laid-off worker gets hefty severance pay.
This inflexibility and imposed complexity the French employment code runs 2,500 pages creates costs and serious economic consequences, including inhibiting investment and growth. Because it is so difficult and expensive to lay off a worker, French employers are reluctant to hire new people.
The unemployment rate in France has hovered since the early 1990s around 10 percent, or more than twice the current U.S. rate of 4.8 percent. France has created fewer than 3 million jobs in the last 20 years, compared to 31 million new jobs in the United States. France’s growth in gross domestic product during the 1990s ran about 1.9 percent per year, compared with 4.3 percent in the United States.
France’s top personal tax rate is 48 percent, with a value-added tax (VAT) of nearly 20 percent. That makes France, which has tried hard to create utter security for workers and seemed to succeed for a while when there was still surplus from more productive eras, anti-wealth, anti-opportunity, anti-markets, anti-jobs, and anti-capitalism, which French intellectuals scornfully refer to as "Anglo-Saxon" economic theorizing.
The picture for young people is even worse. Unemployment in France for people under 25 is about 22 percent, and in many Muslim neighborhoods it’s as high as 40 percent. Lack of meaningful employment along with a sense that many French people don’t want them integrated into the larger society and a culture of separatism encouraged not only by the larger (for now) French society but by many religious leaders was one cause of the riots that scarred France last fall.
Of course, it’s not strictly a French disease. Newly elected German chancellor Angela Merkel promised during her campaign to deal with similar problems caused by similar laws in Germany, but now that she’s in office some are doubting her nerve. The demonstrations and riots in neighboring France can hardly be encouraging.
Last summer, British Prime Minister Tony Blair made a dramatic speech to the European Parliament in which he criticized all the Western European economies for being overly statist and inflexible, and therefore increasingly unable to compete globally. "What type of social model is it that has 20 million unemployed in Europe?" he lamented. "Productivity rates falling behind those of the USA? That, on any relative index of a modern economy skills, R&D, patents, information technology is going down, not up?"
Apparently it’s a model French students and labor union members are willing to defend to the end, with demonstrations and riots and a bitter-ender determination not to allow any change at all. One is tempted to speculate that those on the streets are among the 75 to 80 percent (assuming youth unemployment stays around 25 percent) who expect to get lifetime sinecures with the first job they take out of college, and don’t want to think about the larger social consequences of unemployment and unrest that result from their ability to live out their lives in such favored circumstances.
But it’s probably something a bit more than mere selfishness and those favored by the system protecting their privileged positions. There is a real ideological fervor here, a conviction that in spite of all evidence to the contrary, this rigid system is the best of all possible worlds and is on the verge of creating a real workers’ paradise.
Not everybody in France shares the conviction. Prime Minister Dominique de Villepin introduced a law that would make employment “at will” for two years for those under 26 meaning an employer could lay off or fire a worker without giving a reason or going through a hearing. The idea is to reduce the disincentives for hiring new workers by allowing more flexibility when an employee doesn’t work out or business conditions change.
Last August a similar bill allowed small companies this kind of flexibility. According to the Paris research institute IFOP, in the law’s first five months, these small companies created 335,000 new jobs, a third of them the direct result of the legislation.
In Spain, the problem of inflexible employment laws was addressed by permitting temporary employment contracts for workers ages 16-25. Unemployment fell from 16 percent in 1999 to 8.7 percent in 2005. Youth unemployment was 17 percent in 2005 still high perhaps, but better than 25.3 percent in 1999.
So why should a law permitting greater flexibility in hiring and firing, which would almost certainly create new jobs and reduce unemployment, spark demonstrations and riots? Why have the demonstrations built into a movement that has become a more general challenge to the government, which is ironically billed as "out of touch" because it wants to loosen government control over the economy in just one minor fashion?
To many French people, this smacks of cold-blooded “Anglo-Saxon economics.” And many French students apparently prefer an empty promise of security that leads to stagnation to even a few years of uncertainty. They seem ready to defend a system even as it falls apart around their heads although there are apparently enough French people who work hard despite the incentives to do otherwise to make it possible to believe the system can be sustained a while longer.
To be sure, M. de Villepin slipped this bill into another piece of legislation as an amendment, so it was passed in the wee hours of the morning without debate. Depriving the country of a chance to discuss this approach something the prime minister apparently feared, perhaps (as events may be demonstrating) with good reason has turned out to be a significant political blunder.
It appears that French universities have not done well at teaching logic to the young people in their charge.
Change Without Crisis?
All this raises questions about whether welfare-state policies, once entrenched and having created a critical mass of beneficiaries can be changed even after it has become apparent that they are harming an economy and society at least without a serious crisis or more profound changes in the form of government, as happened in France after student riots in 1968. There seem to be serious dangers and moral hazards in government promises of total security in our lives, be it for jobs, health, or income.
Even when the truth finally dawns that government cannot repeal economic laws like supply and demand, a significant portion of the population still feels entitled and resists efforts at reform, even reform that will almost certainly improve the lot of young workers overall at the cost of what appears at least to Americans accustomed to working "at will" their entire lives to be only a minor amount of insecurity.
To be sure, there are countervailing tendencies in France. The unions have issued a deadline of April 15 for the repeal of the new law. Some have said that the deadline could reflect trade union concerns the union leaders can be expected to be more realistic than the students that the protests could fizzle out over France’s scheduled spring holiday period. So perhaps there is more wiggle room to develop more realistic policies than current events would indicate.
Nonetheless, events in France suggest that once a welfare state is firmly entrenched the government accounts from more than half the GDP in France it is almost impossible to reform it without a crisis that finally makes the promise of a period of time without guarantees appear less threatening than a future without economic prospects at all. Will France find its Maggie Thatcher who called out troops to quell strikes, so her period of reform was hardly without crisis or will it continue to slide toward stagnation?