How Macron Would Fix the French Economy

https://www.nytimes.com/2017/04/27/opinion/how-macron-would-fix-the-french-economy.html

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The world keenly watched the first-round vote for president in France last Sunday because of the rise of Marine Le Pen, who wants to take the country out of the European Union and shut immigrants out of France. But she came in second to a centrist, Emmanuel Macron, who positioned himself as anti-Le Pen and “anti-system.” He attributes the nation’s woes not to outsiders — European officials and immigrants — but on France’s own “sclerotic” and unsustainable welfare state.

The next French revolution now seems unlikely to be a populist uprising. Polls predict Mr. Macron will easily beat Ms. Le Pen in the May runoff, and if he does, his government would work to strengthen the European Union rather than hold a vote on whether to leave. It would invest more in integrating immigrants into French society, rather than banish them. Most strikingly, Mr. Macron would work to slim down one of the world’s fattest welfare states, rather than build it up as Ms. Le Pen would do.

Of course France has attempted welfare state reform before, without success. The latest effort came last year, when Mr. Macron was a minister in the Socialist government, and wrote the Macron laws, opening regulated industries to competition. Those plans set off mass protests, and were watered down, but Mr. Macron says there is a big difference now: Earlier governments were not elected with a mandate to downsize the welfare state, while his could be.

Clearly the case for change has grown more urgent. The strong state goes back centuries in France, and its absurdities have been the butt of jokes for almost as long. Georges Clemenceau, who served twice as prime minister between 1906 and 1920, cracked that his country was very fertile: “You plant bureaucrats and taxes grow.” Over the last decade state spending has grown even more, to 57 percent of gross domestic product, up from 51 percent.

That’s higher than any other nation in the world, and 18 percentage points higher than the average for developed nations. It’s tough to say how much state spending is too much, but France has clearly fallen out of balance, and Mr. Macron is right that the trend is “no longer sustainable.” The public payroll is similarly bloated, and Mr. Macron aims to rebalance the economy by cutting 120,000 public sector jobs, streamlining the pension system and dropping state spending back to 52 percent of G.D.P.

Mr. Macron leads an emerging centrist consensus that recognizes that — more than immigrants or the euro — the main obstacle retarding France’s economy is its attachment to a welfare state culture of short workweeks and generous benefits. After the debt crisis that began in Europe in 2010, Spain, Portugal and even Italy made some effort to become more competitive, whether by cutting debts, restraining public spending, lowering labor costs or all three.

France has gone the opposite way. Labor costs have risen, and in the last five years total public and private debt has risen by 38 percentage points as a share of gross domestic product — compared to 15 percentage points on average for eurozone countries. This rising debt has delivered little for beleaguered French workers: Per capita G.D.P. has been growing significantly more slowly than the eurozone average.

When Mr. Macron criticizes the sclerotic system, he is referring to the size of the state and to the way its myriad rules benefit “insiders” with protected government or union jobs. French political and economic life revolves around the government in Paris, the most dominant capital in any major developed country, with a population six times that of the country’s second-largest city, Lyon.

The rules that pour out of the Paris bureaucracy make it difficult for newcomers to rise in French business, which is dominated by old families. According to data from Forbes, a staggering share of billionaire wealth, 73 percent, comes from inherited fortunes in France, compared to less than 50 percent in most other countries.

Resentment against rising regional and class inequality fuels a deeply anticapitalist culture. In recent years France’s high income taxes have been chasing artists, executives and entrepreneurs out of the country. Last year, 12,000 millionaires emigrated — the largest millionaire exodus from any country by far. Mr. Macron — who once said that stifling taxes threaten to turn France into “Cuba without the sun” — has strong support among young, professional urban voters who would prefer opportunity at home to an expat life in London.

France has been so resistant to change it can feel like an open-air museum, but Mr. Macron may have stronger support than reformers in the past. The center-right leader François Fillon finished third on Sunday, promising even bigger cuts in public jobs and pensions that would lower state spending to 50 percent of G.D.P. Unlike Mr. Macron, Mr. Fillon combined his anti-state message with a harsh anti-immigrant line, appealing to voters who believe the welfare state is too generous to outsiders. He has endorsed Mr. Macron, which could help him steal conservative votes from Ms. Le Pen.

The coming battle could be brutal. France is deeply divided. Together, Mr. Macron and Mr. Fillon took 43.5 percent of the vote, a sign of deep discontent with the welfare state status quo. However, Ms. Le Pen is an old-fashioned French statist, and so is the radical-left candidate Jean-Luc Mélenchon, who promised a 100 percent tax on high incomes and finished fourth. Together he and Ms. Le Pen took 41 percent.

Whoever wins the runoff, the other side is likely to revolt. And if Mr. Macron prevails, those protests are less likely to be about Europe or immigrants than about the future of one of the world’s largest welfare states.