What is wrong with France?

The situation in France has been troublesome for Emanuel Macron and his effort to reform the French economy. From what I have read, his policies would benefit France in the long run. Is it even possible for Macron achieve anything anymore?

Comments (59)

Dec 18, 2018

Bump, looking for some lively debate on this, feel like some on here would feel strongly about this.

Dec 18, 2018

Well France has always been opposed to any reforms and some of their revendications are honestly legit

Nonetheless a lot of the yellow jackets revendications make no economic sens => basically they want less taxes but more help from the state

Moreover Macron represents everything that an average French guy hates and this reinforce their ressentment : he is a smart and young banker and sometimes can appear as elitist

Personnaly I wish Macron to continue his job (afterall i voted for him) and he seems to be willing to continue. Thus let's wait and see what is going to happen during the Christmas Holidays

Ps : I have been currently abroad for 4 months so this mainly what I can read from news

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Dec 18, 2018

Good point making a new thread, I didn't feel to derail the other thread, I'll just sum up the points I made.

1) Macron and his entourage represent a too specific segment of the French population, upper class, urban, cosmopolitan, with very specific preferences and experiences, roughly 20% of French people. He run a reform package intended to make France what is California for the US, creating a Silicon Valley equivalent around Paris, while ditching the collapsing French car industry.

On paper, it's a modernization that's welcome.

2) In practice, it's semi-worthless for the current issues France faces. It's the 80% that's struggling, not the educated upper class that would take those new jobs. For the lower class, Macron adopted the usual package that's become that norm among economists, temp jobs. Unfortunately, temp jobs require you to have multiple ones to make it to the end of the month, provide no security whatsoever, nor a career path.

3) He removed a wealth tax and further allowed capital to flee France in the name of liberalizations.

4) He slapped a triple regressive Diesal tax, that hits primarily those who can't rely on public transport regularly, the non-urban voters, and those who rely on old cars. In short, the poor. This is unfortunately a huge problem Macron has, he relied on experts, but those aren't immune from cognitive bias. The policy was intended to shift consumer habits from diesel to renewables. Again, on paper, it's great if that's your goal. Environmental goals however clash with the economic needs of those who aren't well off and Macron's team forgot about it. This is abundantly clear because in polls, it's generally well off urban voters who name climate change as their primary worry, while the underclass cites jobs, immigration or personal safety as issues. The way Macron implemented it was plain stupid.

5) The whole point of Macron's presidency was to prove that the German economic model was universally applicable. It'd convince Germany to complete the Eurozone reform with the budget and a minister. That's obviously not going anywhere anymore.

6) Macron's arrogance throughout the first year and half obviously irritated too many people. He mocked the unemployed, told people to stop complaining about problems and seemed to much interested in given rebuttals to Trump about nationalism than caring about his own garden.

7) France is too centralized and if the problem is at the periphery, it's basically unsolvable until you bring down the whole system.

8) The French electoral system works great if you have two major parties, and it aims to reproduce that. However, in the current state of things, the two biggest parties gather at best 25% each, meaning that everyone else has to pick the lesser evil, while they don't want to, which creates a feeling of lack of representation and thus protests.

In conclusion, it's an overlapping of differences in terms of class economic interest, political preferences, sheer geography, culture, education, representation and to some degree religion. It takes an extremely brilliant figure to solve that mess and Macron isn't that person.

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Dec 18, 2018

I agree with most of your points and your conclusion. Nonetheless, given the current political landscape I don't see who can appear as a brilliant figure to solve this mess.
Macron just had the perfect timing and this was one of the main reason of its election. And I don't see anyone who can fit this role for the next election

Dec 18, 2018
bukos:

I agree with most of your points and your conclusion. Nonetheless, given the current political landscape I don't see who can appear as a brilliant figure to solve this mess.
Macron just had the perfect timing and this was one of the main reason of its election. And I don't see anyone who can fit this role for the next election

Yeah France really doesn't have anyone in terms of political leaders, ironically that's why the French took it upon themselves, because all political parties suck.

I forgot 9) France also has the wrong currency. The Euro is great for Paris and Germany. However for the rest of France it just inflates the purchasing power, making people buy more than they can actually afford. This is worse in other countries like Spain, Italy, Portugal and Greece anyway.

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Dec 18, 2018
neink:

7) France is too centralized and if the problem is at the periphery, it's basically unsolvable until you bring down the whole system.

This gave me nightmares about another Revolution.

Cash and cash equivalents: $138,311
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Dec 18, 2018
LeveredCat:
neink:

7) France is too centralized and if the problem is at the periphery, it's basically unsolvable until you bring down the whole system.

This gave me nightmares about another Revolution.

arr
What about this picture?

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Jan 2, 2019

Great write up. Hit all the nails.

Dec 18, 2018

What is wrong with France? The answer is simple, and is also what is currently wrong with many Western European countries. France instituted various anti-growth policies (made it harder to fire workers, ridiculous numbers of holidays and paid leave, draconian tax system, rent controls etc.) that has resulted in 20%+ youth unemployment and a garbage economy. Emmanuel Macron sees this and has tried to reverse said policies in order to stimulate growth (this fuel tax thing is a minor issue in the grand scheme). Instead of dealing with the hard realities and the hard truths (that their previous economic system is unsustainable) the French protesters are blaming Macron for their economic woes. They are doubling down on the anti-growth system and are asking for more government handouts, more rent control, more worker protections, a reduction in the retirement age, and an increase in pension benefits. Obviously, these demands, if met, would just accelerate France's decline. So that's whats wrong. The french people need to work more, retire later, and vacation less in order for their economic issues to ease. Obviously, this is a tough (read: impossible) sell so some populist/socialist politician will likely win the next election, blame Macron and immigrants, roll back Macron's reforms, further support the socialist state, and France's economy will continue declining. This is what much of Western Europe is facing, and people are talking about refugees/ immigrants as if they are of import.

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Dec 18, 2018

Very wrong. I don't know the numerous intricacies of the French economy but this American fallacy that working like a dog is the best way to grow an economy is not a solid starting point. The US ranks 5th in productivity (http://time.com/4621185/worker-productivity-countr...) just two places above France with a difference of $2.7GDP/hr whilst France works on average 5.4 hours a week less than the US. Meanwhile, top spots go to countries with similar 'socialist' systems like France such as Norway and Belgium.

The US is also not in the top 22 countries with the happiest and most loyal employees (https://nordic.businessinsider.com/the-23-countrie...). France is 16th.

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Dec 18, 2018

Your analysis is pretty flawed here. Maybe you're trying to make a case that fewer hours worked can lead to higher productivity, but you're trying to connect that to "the best way to grow an economy," where absolute GDP/capita is the useful metric. Through this lens, the fact that France is less productive per hour and works fewer average hours compound each other, and the US is 24% more productive per worker per week. Simply, the way to grow an economy is to maximize productivity per hour and hours worked. That may not be life's only goal, but it's the cold math around why France won't have nearly as much to go around at this pace.

Also, the Time article shows a correlation with fewer hours worked and higher productivity per hour, but there's an obvious causation issue. Look at the list of countries and you'll see how the more educated nations are more productive per hour, and therefore their workers don't need to put in as many hours to get by.

Dec 20, 2018
The Pharma Guy:

Very wrong. I don't know the numerous intricacies of the French economy but this American fallacy that working like a dog is the best way to grow an economy is not a solid starting point. The US ranks 5th in productivity (http://time.com/4621185/worker-productivity-countr...) just two places above France with a difference of $2.7GDP/hr whilst France works on average 5.4 hours a week less than the US. Meanwhile, top spots go to countries with similar 'socialist' systems like France such as Norway and Belgium.

The US is also not in the top 22 countries with the happiest and most loyal employees (https://nordic.businessinsider.com/the-23-countrie...). France is 16th.

Uh, U.S. GDP per capita is 54.5% higher than France's, and France is hundreds of years older than the U.S. and is a former hyper-power.

Dec 19, 2018

Bob?

Dec 19, 2018

Hola

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Dec 18, 2018

I know this is kind of off-topic, but why does it seem like French girls dress a lot more skimpier and show WAY more skin than girls from any other country including the US?

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Dec 18, 2018

Can confirm this, my French lady friend casually takes off her top on the beach all the time. Pretty normal for us, but the families around us reacted in horror.

Cash and cash equivalents: $138,311
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Dec 18, 2018

Jesus. Do you take a look at them when she takes it off? I don't think I would be able to control it, tbh

Dec 18, 2018

Because the average American girl is a dog compared to the average European girl

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Dec 18, 2018

I was only commentating because I realized the girls who showed the most skin tended to be French, and they had no problems showing it off

Dec 18, 2018

Bye thread

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Dec 19, 2018

Really insightful answers above make me wonder how many of the local experts in French politics have actually been to France, less so actually stayed there for more than two weeks.

PS. I don't think an average French woman is that different from an average American one, except marginally less fat.

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Dec 20, 2018

Not marginally less fat. The US is top 5th percentile in almost every "fat-bracket". There are roughly 2,5 times as many obese women in the US compared to France.

Dec 19, 2018

The situation in France seems bad. I'm headed there next week for a quick trip--my first since the gilets jaunes protest took root, and that will give me a clearer picture of what's going on.

Some thoughts:

  • French PMI peaked last year and I've been quite bearish on the CAC since. Macron, while still France's only known hope, really has himself to blame for much of the negative sentiment. I would have thought his approach with EM would have carried through to his Presidency. It seems, however, that he campaigned one way, and is ruling in another.
  • Long-term, the drivers of growth (labor, productivity, and capital) look to continue in decline. France needs to increase its labor force growth rate (e.g. immigration or improving incentives for childbirth/childrearing), improve its productive output (improving education, aligning industry with new and emerging technologies), and increase capital (lower marginal tax rate, easier flow of capital, protection of private property, etc.) in order to remain competitive. But this is a long wish-list and is unlikely to be improved.
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Dec 19, 2018
Rahma:

The situation in France seems bad. I'm headed there next week for a quick trip--my first since the gilets jaunes protest took root, and that will give me a clearer picture of what's going on.

Some thoughts:

  • French PMI peaked last year and I've been quite bearish on the CAC since. Macron, while still France's only known hope, really has himself to blame for much of the negative sentiment. I would have thought his approach with EM would have carried through to his Presidency. It seems, however, that he campaigned one way, and is ruling in another.
  • Long-term, the drivers of growth (labor, productivity, and capital) look to continue in decline. France needs to increase its labor force growth rate (e.g. immigration or improving incentives for childbirth/childrearing), improve its productive output (improving education, aligning industry with new and emerging technologies), and increase capital (lower marginal tax rate, easier flow of capital, protection of private property, etc.) in order to remain competitive. But this is a long wish-list and is unlikely to be improved.

Just to point out:
-capital attraction for large European countries is hard; the main reason is that they share a free capital flow agreement with micro-states like Luxembourg, which can afford insignificant tax rates due to low population and no particular need for defense budgets or similar. To compete, a large country would have to abolish its military to cut expenses and that's not doable for practical reasons.
-labour fource participation in France is at 72%, which is fine. The country has high unemployment, meaning it doesn't need immigration unless it's highly skilled. Their birthrate is also 1.96, which is close to the 2.1 needed for replacement rates. Population growth has been steady.
-productivity can be improved using temp jobs, which slash labour costs and working hours, making people work only when needed. However, it cripples career prospects which leads to popular malcontent

Though I agree that France should try to focus on technological progress and capital attraction to foster growth, in their current context it's going to be improbable.

Dec 20, 2018

France's issue isn't so much that they aren't doing ok now, it's that their future is a diminishing slice of the pie.

  • A high unemployment rate means that there is a skills mismatch-- hence, a requirement for investment in training and education. However, they can take advantage of economic gains today by making it easier for immigrants and visa holders to work and do business in France. Without the offsetting commitment to long-term training and education for existing French un/underemployed, there will be resentment (as we see today in practically every large liberal democracy).

Capital flows don't necessarily need low tax rates, they just need returns. France attracts it with higher interest rates, but in order for more money to flow into French companies, there needs to be positive momentum in economic growth and a strong business environment. France can do this, but without offsetting social policies, resentment becomes too strong. Policy is a balancing act, and we're seeing the repercussions of poor policy-making over the past 20+ years (again, not just in France but across all major liberal democracies).

As you pointed out, increasing temp jobs is not very attractive-- Macron has hinted that he wants France to adopt a Nordic model, though his signalling has been way off.

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Dec 20, 2018

https://www.nytimes.com/2018/12/19/opinion/meritoc...
''In France, where the extraordinarily unpopular Emmanuel Macron presides over a country roiled by populist protests, a leading politician of Macron's centrist party was asked in a televised interview what policy mistakes his peers had made: "We were probably too intelligent, too subtle," he told the interviewer, whose eyebrows danced with disbelief.'''

The ''source'' is from Twitter so I'm not sure this actually happened, but if it did, then we are at the Marie Antoinette moment.

Dec 20, 2018

It's France...enough said. Give Marie Le Pen a chance...

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Dec 21, 2018

@GoodBread WSO's resident Frenchman needs to chime in.

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Dec 22, 2018

Neink's comments are on point.

Arrogance is probably the number one reason for Macron's woes. He can't go a week without saying something out of touch (big one earlier this Fall was that you could just cross the street to find a job, at 9%+ unenployment). In the age of 'fake news,' social media and the like, that is a huge vulnerability. Trump may tweet insane things but a whole lot of people love it, Macron is not speaking on behalf of the "little people."

There was an article on The American Interest recently about how Macron's policies are actually not radical enough. Aiming to be a mini-Germany is silly when you consider that the German model relies heavily on its export prowess and a very poorly paid underclass. The Eurozone is just barely able to sustain Germany's export surplus, having France try to do the same is impossible. And France has long prided itself on not having the working poor of Germany or the US.

So what could actually be done? There are some really big measures that could change things. Scrapping the whole temp contract thing for one. People's career dreams mainly lie in getting a 'CDI,' a contract with no fixed length, that gives massive protections to employees. The problem is that given how costly they are, employers would much rather give you a fixed-term (up to 2 years) 'CDD' and roll those than give you a permanent job. This creates a two-tier structure of haves and have-nots in the job market. Weakening the protections somewhat of permament contracts while scrapping the ubiquitous temp ones could be a major step forward.

On the diesel tax, the answer is that it does not go far enough. France sinned by undertaxing diesel for decades but now a full-blown carbon tax on everything is what is needed. That requires getting the rest of the world on board as well, which is trickier than soaking the rural guys commuting to work...

Ultimately there are a lot of issues that are far trickier than even these, and which will have a big impact on Europe going forward. All of these small towns out in the countryside where there is now absolutely nothing to but preserve some nice architecture, or make a local kind of food...

We'll see how things shake out for Macron over the next 3 years. His caving to the gilets jaunes bought some cover for the Italians. The weakening of Germany's CDU is bringing a confrontation of eurobonds and the euro closer. Some sort of massive green bond as Varoufakis has been preaching about sounds like the best option at this point to keep the euro project together.

Germany can't let Italy default, and it can't really turn the screws on France. If it wants to keep its massive surplus, Germany needs to play ball to keep the euro alive as long as possible. This gives France and Italy opportunities to reform while pushing for deficits the way Italy has been. But short of really transformative leaders, hard to see things getting much better.

(Btw, if you want to bet on France's next president, I think Dupont-Aignan and Asselineau could offer decent value ie their chances vs Le Pen, Melenchon or Hamon (lol) are underrated).

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Dec 22, 2018

I had actually forgot, but yes, you are right, the whole Eurozone can't be a German like humongous exporter. You need an equivalent importer on the other end and there is not. Germany exports because France imports.

Under that aspect, Macron's ''European Silicon Valley'' made sense: France would import goods but export tech services. However France lacks the infrastructure, the culture, the highly skilled personnel, investment and a tech oriented school system. It short it has zero competitive advantage. Assuming you can build something like that you need a degree of protectionism for infant industry purposes (Macron tried to get that through the European Commission fining US tech giants) and a decade at least to develop.

I also like your point about contracts but overall, France still lacks investment in re-training as Rahma pointed out.

Here's how I expect it'll play out: at the European elections next year it'll be Merkel's last triumph. Expect a new European Commission and ECB dominated by Germany, with core positions going to the German bloc (Netherlands/Finland/Austria primarily) and maybe something for France because Macron is too important to be dropped at the moment.

This Gilet Jaunes thing is still ongoing every Saturday, even though less people are participating. However, it'll come back in full force next time Macron does something stupid (I fully expect him to do so, there's a serious cultural problem among his circles). Italy has softened tones for the moment, but once there's a German takeover at the next elections and Draghi is out, it'll be full on conflict. Not sure if they'll go through with the parallel currency, but it's a possibility. There will be pressure to have Draghi as Prime Minister, but it'll fail. French protests will likely continue because the demands are too fragmentated to put together a coherent agenda and they might force Macron out. I don't see any French politician taking his place, it'll be a general from the army.

Dec 23, 2018

This thread is truly an homage to American ignorance: "If France only reject its anti-growth policies i.e. rent control and two more holidays than America their economy would be booming!"

Would you please care to elaborate how those trivial policy changes can have such a profound effect on the economy. While importing millions upon millions immigrants from third world (shithole) countries with low IQ and no work morale doesn't have the slightest effect on the economy. Furthermore, these people constantly demand that more and more resources are allocated to them while returning nothing to the society except for crime, violence, sexual assault and general degradation. As consequence the French people, research, innovation, education, etcetera suffers.

That's why France needs Le Pen, a zero immigration policy and beginning of re-immigration. If they're not willing to go voluntary, they should do so by the sword.

Macron

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Dec 28, 2018

What's wrong with France? Kind of the wrong question. Their point of view is different: people take a very hard line in negotiations. That's WHY they have all the benefits they do. Compare to America where people take everything laying down.

Obviously they'll reach an agreement, and the average citizen will be well represented at the bargaining table. Again, compare to America where even lobbying for seat belts gets you labelled a communist :)

Jan 2, 2019
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Jan 2, 2019
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