France’s failed socialist experiment

French president François Hollande has a lot of explaining to do, and not just about his private life, says The Times. France’s overall tax burden of 46% is the highest in the eurozone; public spending as a proportion of GDP stands at 57% (the highest of any large economy in the world); a punitive labour code enforces rigid contracts, unsustainably high labour costs and a £66bn a year administrative burden on employers. No wonder unemployment is “stuck” at 11%.

Meanwhile, thanks to Hollande’s top tax rate of 75%, there’s been a bolt for the border by the “very people who create economic growth”, says Janine di Giovanni in Time.

A description of what has led to France’s “economic sickness” by Allister Heath in City A.M. (an “overbearing state, horrendously high tax levies, insane regulations, absurd levels of inefficient public spending and generalised hatred of commerce, capitalism, success and hard work”) so rattled the establishment that the French embassy was moved to draw up a list of ten reasons why it is not a “failed socialist experiment”.

Hollande has nevertheless signalled that he wants to save his country from ridicule by setting out a “responsibility pact” this week, says Larry Elliott in The Guardian. His proposals include public spending cuts of €50bn, a €30bn cut in the social charges borne by businesses, and areduction in red tape. In return, firms will have to employ more people, guarantee decent wages and provide better training. But will this be enough?

France is becoming less competitive, it can no longer devalue the franc to boost exports and there is “no appetite for wrenching change”, hence the “small-scale, incremental nature” of the proposed reforms. “For all the familiar reform-or-die rhetoric, Hollande is firmly in the Mr Micawber camp.”

And yet “do not write off the French economy”, says Hamish McRae in The Independent. Remember what happened under the socialist president, François Mitterrand, in the 1980s? He started off by increasing public spending, taxes, business regulation, the minimum wage and social benefits. After 18 months, when the disastrous results of these policies were plain to see, he executed a U-turn, cutting public spending and easing taxation. The economy responded with a “similar about-turn”.

Hollande is doing much the same thing. We won’t know for a while whether he is making a “sufficiently radical reversal to kick-start the French economy”, but given the economy’s underlying strengths, there is no reason why it can’t be revived.

But Hollande’s reforms are too modest and smack of a “corporatist belief” that the government can somehow strike a deal with business, says Allister Heath. The only solution is a “revolutionary change of tack”; massive cuts to public spending, “drastically lower” taxes and a long-term commitment to supply-side policies that create incentives for the private sector. Will we see this “real pro-capitalist shift? No chance.”

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
Cheaper oil

Who benefits?

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Vote in the MoneyWeek Readers' Choice Awards

Vote for your favourite financial services companies in the inaugural MoneyWeek Awards, and you could win a year's subscription to MoneyWeek magazine. Find out more and vote here.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.