STAFF NEWS & ANALYSIS
Medef Cuts the Knot but Socialism Still Strangles French Economy
By Staff News & Analysis - September 26, 2014

French employer group urges 'shock therapy' for economy … France's main employer group urged the government on Wednesday to scrap the 35-hour work week, raise the legal retirement age and cut the minimum wage to bring down chronically high unemployment and stimulate growth. Medef said its proposals would help Europe's second-largest economy create 1 million jobs over the next five years. France's unemployment rate is stuck above 10 percent, with nearly 3.5 million job seekers registered in August. Unions reacted with outrage earlier this month when some of the proposals were leaked to the media, prompting Socialist Prime Minister Manuel Valls to urge all parties to steer clear of "provocations." – Reuters

Dominant Social Theme: Medef misspoke. French regulations are necessary for economic health.

Free-Market Analysis: Suddenly, in one brief, political exchange of opinions, the pretense has been stripped away, revealing the underlying distortions of the French economy.

France is suffering from the problems that Southern European countries know only too well: high unemployment, a rigid regulatory and tax structure and high public deficits that cannot be paid down because of the general economic malaise.

Within this context of a suffering France, the head of Medef has made a bold stroke, slicing through the Gordian Knot of faux economic theory and socialist sophistry.

  • It doesn't ever help to "reduce" the work week for employees because employers either have to hire other workers, an expensive proposition, or monitor and even reduce the amount of business they can handle.
  • It is also well known that a minimum wage discourages employers from hiring as many individuals as they would prefer, thus contributing to unemployment.
  • Mandatory retirement limits put a continued burden on the French economy, as benefits are triggered by retiring workers who might otherwise have continued to work.

All these are rational and economically literate suggestions. That they were made publicly in the hopes of generating an educational debate is still somewhat startling – and actually triggers the faint hope that French pols may at some point be persuaded to take appropriate action before France entirely lurches off a fiscal cliff and topples into bankruptcy, revaluations and worse.

No, that is probably too much to hope for. Nonetheless, the suggestions are a proverbial "breath of fresh air."

What is Medef? Here from Wikipedia:

The Mouvement des entreprises de France (MEDEF), or the "Movement of the Enterprises of France", is the largest union of employers in France. Established in 1998, it replaced the Conseil national du patronat Français (CNPF), or the "National Council of the French Employers", which was founded in 1946.

It has more than 750,000 member firms, 90 percent of them being small and medium enterprises (SMEs) with fewer than 50 employees. MEDEF is engaged in lobbying at the local, regional, national, and EU-wide levels.[2]

Every year, MEDEF International organises a number of delegations of French business leaders with concrete projects to targeted countries, especially developing countries. MEDEF espouses "sustainable development", raising companies' awareness to the fact that protection of the planet may also be numbered among their competitive advantages.

One can see from the above that Medef in many ways accepts the status quo. Sustainable development and protection of the planet are among its priorities. Gattaz himself is apparently a child of patronage, as his mother ran Medef's predecessor organization in the 1980s.

And yet Gattaz seems willing to present ideas that are bound to be unpopular and will garner considerable criticism in the mainstream French media.

Here's more from the Reuters article on Gattaz's proposals:

Medef chief Pierre Gattaz said he was ready to accept controversy to spark a proper discussion about what is holding back the French economy. "We accept that risk because … it's our future together that is at risk," he wrote in an introduction to the pamphlet, noting that some proposals "will certainly seem aggressive or exaggerated to some people".

… Hollande's government is set to introduce a law loosening rules that limit competition in regulated professional sectors, and has flagged a move easing rules on thresholds for worker representation, which companies say put a brake on hiring.

Yet Gattaz pressed him to go further and end the 35-hour work week introduced by a Socialist government in 2000, allow firms to get around the 1,445-euro ($1,856) monthly minimum wage, scrap two of 11 public holidays, and authorize exploration for shale gas, currently banned on environmental grounds. He also called for a cap on taxes on companies, a further loosening of labor rules, and an overhaul of a generous jobless benefit system to encourage more job-seekers to accept employment.

"Having a legal work duration of 35 hours imposed on every company no longer makes sense in the France of today," Gattaz told BFM TV. "We propose that each company negotiate its own work duration, according to its business needs."

The government is unlikely to implement most of Gattaz's ideas as Valls told parliament last week that neither the 35-hour work week nor the minimum wage would be changed. (1 US dollar = 0.7787 euro)

Too bad the government won't consider Gattaz's ideas; but surely the impact of his statements should not be minimized, as they contradict decades of propaganda. One of the problems with the modern French political and economic dialogue is that too often both sides have agreed on socialist prescriptions – and thus, arguments in favor of free or freer markets simply do not get aired.

And even now with the French economy nearing virtual collapse, the government can barely even bring itself to acknowledge the kinds of ideas that Gattaz is suggesting.

Instead, President Francois Hollande has offered minor payroll tax cuts to firms, and made it a little easier to hire and fire employees. The government predictably has taken to subsidizing jobs as well – and yet unemployment continues to rise (except for this past month), mimicking Southern Europe generally.

This reluctance to deal constructively with fiscal and regulatory issues is a big reason why central banking is so important to modern economies. By printing money, central banks can generate a facsimile of industrial prosperity.

Money printing does not demand regulatory legislation or generate endless tax wrangling. It can be done efficiently by a few and justified in impressively technocratic jargon.

As we pointed out yesterday in an article about Japan, this is the solution that first-world countries are increasingly adopting. Whether it is Asia or Europe and the US, the main lever to generate economic "growth" is increasingly seen to be a monetary one. Of course, it is a chimera, because much of the money merely flows into ever-expanding asset bubbles that eventually burst and leave society worse off than before.

This is, in fact, why securities marts are inflating the world over, why the Wall Street Party is gradually expanding into a worldwide "financial fiesta" and why despite the money that flows generously among individuals in higher earning brackets, the mass of the middle class remains enmeshed in difficulty while the poor grow even poorer.

After Thoughts

It's refreshing to see an economic conversation include valid ideas that acknowledge the reality of the marketplace. Too bad the reality of French politics seemingly precludes their adoption.

Posted in STAFF NEWS & ANALYSIS
  • Myron Goodrum

    Thanks for the insight DB. It seems that no matter how many may speak out about the elephant in the room, the western states will look at it, and then, put out of their minds its presence. Then, with greater gusto, put the pedal to the floor, speed headlong towards that upcoming cliff they call prosperity.

  • SSMcDonald

    As the French government continues its 98% tax rate against real estate sales, the French economy will never improve. Those who hold real estate cannot sell (or trade it, as the government assess what the property is worth and the owner pays the 98%regardless the terms of a trade), because the government confiscates 98% of the sale profits. Who in his right mind would try to acquire French real estate? And as real estate goes, so goes the French economy.

  • Harry Skip Robinson

    It is interesting how it has become a political battle between the government sector workers and private business with the private sector workers caught in between trying to decide which of the two perspectives is preferable to them. Throw in multi-nationals ,the government contractors and the educational grant system into the fray and you have the basic economic model of just about every single nation state on the planet; a socio-economic mess riff with conflict. Exactly what the ruling oligarchy wants.

    • Rick Fitz

      Spot on. Imaginary hobgoblins and such. Divide and conquer. BTW, it’s “rife”.

      If English was a person it would be confined to an insane asylum, or be a popular comedian. Nun uv the speaquing and werding and grammer since make due they?

      • Harry Skip Robinson

        It’s more laziness and time allocation than anything. I write a great deal in blogs and get tired of editing. lol I especially like to read people whose/who’s first language is not English and are trying to make points, especially mechanical or scientific. It’s amazing how well they can actually articulate something in really broker English, reversing the sentence structure or the adjectives with the nouns, etc. I don’t remember his name, but there was a pretty well known author in the early 20th century who used no capitalization or punctuation. I tried reading the Magna Carta and I could not get through it. I did not have a clear idea of what it really meant. Language has surely gotten very stringent in modern society. I wonder if that is another social meme of the ruling oligarchy. Editors are expensive and the average person is surely not a English major, limiting their ability to be recognized as legitimate or edumacated? I do love the English language though, just can’t remember all the stupid rules and don’t like all the rules in the first place. Lol. Libertine or libertarian?

        • Rick Fitz

          I’m a gentleman so I didn’t say that English is also the biggest whore on the planet, freely incorporating words and phrases from any other language she can seduce. Thank God ze Fwensch have begun the laborious process of stitching a new hymen on their language. All these damned foreign words and concepts, like Schadenfreude and laissez faire and mañana.

          I copy edit, and so I notice it. I’ve corrected people like David Stockman, Walter Block, even Lew Rockwell- never with malice, I just know know how some people will use a simple mistake to invalidate arguments.

          Cheers!

        • Rick Fitz

          ee cummings I think is the author. Dreadful.

          To me, libertine equals Pete Doherty (lead singer of “The Libertines” and serial jerkoff, one of the people who introduced Amy Winehouse to heroin and Hep-C) and the dangers of Liberty without responsibility.

          Libertarian equals Ron Paul, who has never touched heroin but advocates for legalization.

          • Harry Skip Robinson

            Comparing a physical libertine with intellectual? Cool. I do parasite, colon, liver and kidney cleanses as preventive medicine. Isn’t it interesting how much our perceptions affect/effect our society. This is the kind of stuff the oligarchs do not want us to analize.

  • Adam

    Brilliant article. I told anyone that would listen at the time that the French electing Hollande would be the final nail in the coffin for the French economy. I just get so frustrated that no matter how many times socialism is attempted and fails (100%), people are still attracted to the idea and it keeps getting pushed on the masses as a viable ‘solution’ to the economic mess most of the developed world finds itself in nowadays. Will we EVER learn?

    • MetaCynic

      Will the belief in magic ever end?

      • Thanks. One can hope …

      • davidnrobyn

        No. It’s ingrained in our character. We’ve always wanted to believe in magic. It’s part of the human condition. Thanks for asking the question.

    • Fabian

      It’s understandable. See even in France the unemployment rate is about 10%. It means that’ about 90% of the workable force has a job. Those who have a job feel secure under the socialist umbrella and don’t care less about those who don’t have a job. You keep the 10% quiet with modest alimonies and by loosening pot regulations and all is fine and dandy until a catastrophe happens. And it will.

  • chuck martel

    The Bretons are burning down tax offices and generally creating urban-style havoc in frustration with French national policies that include confiscatory taxes and EU regulatory burdens. It’s not bad enough yet but it’s getting there.

  • MOLON LABE

    Milton Friedman – Moving Toward Economic Liberty

    From “Free to Choose,” Milton Friedman explains how big business is the primary beneficiary of government regulations and how the citizens were better off having a free market. Lawrence Spivak.

    https://www.youtube.com/watch?v=EfLhwTs7POU

  • MetaCynic

    Several years ago I was told by an employee of an American company that his company had shut down its French branch because the French government’s labor laws made it too expensive to do business there.

  • Ozymandius

    “All these are rational and economically literate suggestions. ” Really ? They may be conventional techniques as applied in the context of a fiat monetary system, but it’s all just tinkering. The eventual demise of fiat economies is inevitable. In the ‘conventional’ sense France’s best hope would be to boost it’s exports by devaluing it’s (fiat)currency. It can’t even do this because it’s trapped in the Euro. It’s problems may well be exascerbated by idealogical inflexibility and bureaucracy, but really it is just another national entity serving notice that the entire global fiat financial system is on the skids. A very fundamental return to sound money is the only way to avert disaster….if there is time.

  • Danny B

    Dear Bell, I already laid out the 3 options for our debt mountain. Default crash,,, free money,,,, jubilee. The CFR proposed free money. QE is losing favor, “Enter quantitative easing (QE) as the white knight, as envisaged by the
    European Central Bank. This is fast becoming a modern-day rain dance. QE
    is not a cure. It is a shot of morphine that sedates an ailing patient ”

    Now the Guardian proposes debt forgiveness, “http://www.theguardian.com/business/economics-blog/2014/sep/26/eurozone-crisis-forgive-debt
    “This is a game of dominoes. Any solution that does not involve large-scale debt forgiveness is doomed to failure.”

    There you have it, the complete menu.
    ZIRP is slowly poisoning the debt markets, http://tedbits.com/new-tedbits-when-leverage-fails-and-hope-turns-to-fear/

    Tyler Durden says that the FED must lift rates. http://www.zerohedge.com/news/2014-09-25/gig

    I can’t imagine how rates can go up without crashing the IRS derivatives.
    I’ll leave a vid; https://www.youtube.com/watch?v=BainzD2lKmk

    • nada

      Yes, debt forgiveness for the top 20 % of “earners”, I estimate to be 100% likely.
      For you and I? I foresee a 100% unlikeliness.

  • Pater Tenebrarum

    Reform in France: Mission Impossible? http://www.acting-man.com/?p=32993

  • davidnrobyn

    “‘Having a legal work duration of 35 hours imposed on every company no longer makes sense in the France of today,’ Gattaz told BFM TV.”

    Haha–I had to laugh at this one. The old chronological argument, beloved by every modernist progressive. Always works in this newer-is-better culture. He borrowed this one from the opposition; it’s a nod to political correctness. If you can’t lick ’em, join ’em, eh?

  • davidnrobyn

    Let’s see..with a 35-hour work week, $1445 euros a month is about 10 euros an hour, or about $12.85 an hour. No wonder unemployment is so high…the ones not worth that wage are simply not hired. I’m surprised it’s only 10% of the workforce. 30% would be more like it. Of course, maybe the French are harder-working and smarter than the rest of us…

  • Curby Weaver

    Any child who is conditioned into accepting that 3 plus 3 equals 5 will never succeed in a career in economics.

    Any politician who is conditioned into accepting Keynesian economics and Marxism will never succeed in improving a nation’s economy.

    Any citizen who confuses the “American Dream” with the “welfare state” is part of the problem.

    Economic freedom is best represented in a model depicting those at the top reaching down to help those at the bottom rise up the economic ladder because they understand that those at the top are supported by those at the bottom.

    Economic tyranny is best represented by those at the top kicking downward against those attempting to climb the ladder through ridiculous regulations, oppressive taxation and a punitive legal system imposing fines and penalties.

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