The next few days, analysts say, will make or break French President Nicolas Sarkozy. I hasten to add that the next few days will make or break the French economy.
For several days now, French cities have been rocked by large demonstrations that seem to become more violent and confrontational by the day. The street marches, forever fashionable in this land, cap massive strikes called by the trade unions.
Strikes called by refinery unions have led to widespread fuel shortages. About a third of petrol stations in France are now dry. If the situation continues for a few more days, the economy will ground to a halt.
Transport services have also been hit hard by strikes. Train and airport services have been effectively disrupted. Some streets in Paris have actually been blocked by barricades and cars have been torched.
This is the second time that Sarkozy’s pro-market reform policies have been met by widespread protests led primarily by the left-leaning unions. The first time, just a few months after Sarkozy took over as president, the protests were sparked by a move to relax labor protection standards.
That policy change intended to address the high rates of unemployment among young workers. The Sarkozy government believed the high rates of youth unemployment were caused by tough labor laws that made employers hesitant to hire young workers. Once hired, under the existing labor protection regime, it will be very difficult to fire workers.
The unions, understandably, are unhappy with any relaxation of labor protection standards — even if this meant continuous high unemployment. They refuse to concede that high labor protection standards are the cause for high unemployment.
In this new round of protests, the provocative issue is a law about to be acted on by the French national assembly raising the retirement age from 60 to 62. The adjustment in the mandatory retirement age is considered a key economic reform measure of the Sarkozy government.
Through the length of the 20th century, the French have measured social progress by gains made in reducing working time and lowering retirement ages. The French take pride in reducing the workweek to 35 hours, the enlargement of the period allotted for vacations and the lowering of the retirement age to 60.
These measures of “progress” are not sustainable, however. The peril of high labor protection standards abetting unemployment is well established in economic studies. The lowering of retirement ages is unsustainable as well. At some point, in the near future, there will be less people working to support the large number of people living off pensions. That will spell bankruptcy for the social security institutions.
The lower retirement age will likewise bring tremendous economic opportunity costs. Highly trained technicians, well enough to work, will be retired and put on pensions, replaced by less trained workers.
Recovery of the social investments in building the skills of the workforce will be shortened. Productivity is likely to fall. The domestic economy could stagnate in a regime of high taxes (to support pensions), high labor protection (which inhibits hiring) and declining years of worker productivity.
When Sarkozy sought the presidency, he committed to reforms aimed at restoring market disciplines and reducing the social protection policies that tie down economic performance. The increase of the retirement age is a key plank in Sarkozy’s reform program.
The Sarkozy presidency resembles the pro-market reform regimes of Helmut Kohl in Germany and Margaret Thatcher in Britain. Both regimes scuttled the old economies of high social protection and economic stagnation that threatened the viability of the domestic economies choked by the social welfare state system.
Because of the reforms carried out by both Helmut Kohl and Thatcher, the economies of Britain and Germany shifted from stagnation to newfound dynamism. The same sort of pro-market reform policies characterized the “Reagan revolution” in the US.
In the three cases of Reagan, Thatcher and Kohl, the reform effort needed to battle through a thicket of vested interest groups and trade unions to get the modernizing policies in place. While Britain, Germany and the US managed to work themselves out of the stifling welfare state system in the eighties and the nineties, France remained trapped in a policy framework that caused growth to be low and unsustainable.
Sarkozy, a staunch free market advocate, was elected to office to get the French economy humming again, restoring its competitiveness and preparing it for this new century. If he allows his program of reforms to be stymied by noisy protests from the streets, his presidency will be a failure. If he manages to battle through the barricades and advance the reforms he committed to, he will rank among the great pro-market reformers of this age: Thatcher, Kohl and Reagan.
There is much at stake in the raucous confrontation in the streets of France today.
This is a decisive battle between the forces of the old statist arrangement and the reformist Sarkozy presidency. France will either be thrown back to a regime of over-regulation and economic stagnation — or charge forward to a new age of nimble economies, innovative firms and flexible workforces.
Sarkozy is not about to back down. He represents the modern visionary leadership France needs. He is the right man for the daunting challenge of dismantling the superstructure of regulations that hold back his country’s vast potential for competitiveness.
The reforms might seem unpopular; but they are indispensable. Fortunately for France, the country is led by a president of substance — not a public relations hologram merely mimicking presidential leadership.