The United Kingdom is getting a lot of attention because voters just chose to leave the European Union.
I think this was the smart choice. Yes, there will be some short-run economic volatility, but the long-run benefits should make it worthwhile. Sort of like chemotherapy being painful, but still being much better than the alternative of cancer.
My main argument for Brexit was that the European Union is a sinking ship. The continent is in trouble because the bureaucrats in Brussels reflexively support centralization, bureaucratization, and harmonization. And it’s in trouble because most member governments support dirigiste policies on the national level.
Consider France. The country is so statist that even some folks from the establishment media have warned that government has too much power. Heck, even some of the people at the European Commission have complained that taxes are too high.
Perhaps most miraculously, there was even a column in the New York Times last month explaining how bad government policy is killing France’s job market.
It’s obvious that the current system isn’t working. …business owners are reluctant to hire employees, because it’s so complicated and expensive to fire them when times are bad. …times are pretty bad: France has 10 percent unemployment, roughly twice the levels in Germany and Britain. For young people, it’s around 24 percent. …While many other European countries have revamped their workplace rules, France has barely budged.
The most important thing to understand is that employers are extremely reluctant to hire full-time workers because it’s nearly impossible to fire them if they don’t do a good job or if the company hits hard times. And that translates into temporary jobs combined with lots of unemployment.
The Hollande government has proposed to tinker with this system.
The new labor bill — weakened after long negotiations — wouldn’t alter the bifurcated system, in which workers either get a permanent contract called a “contrat à durée indéterminée,” known as a C.D.I., or a short-term contract that can be renewed only once or twice. Almost all new jobs have the latter.
But even though the reforms are very timid, the French are protesting.
…it isn’t just unions that oppose the bill. So do more than 60 percent of the population, who fear the bill would strip workers of protections without fixing the problem. Young people took to the streets to oppose it, demanding C.D.I.s, too. Why are the French so wedded to a failing system? …they believe that a job is a basic right — guaranteed in the preamble to their Constitution — and that making it easier to fire people is an affront to that. Without a C.D.I., you’re considered naked before the indifferent forces of capitalism. …young protesters held a banner warning that they were the “génération précaire.”
Here’s the most amazing part of the story. The protesters think that a government-protected job is a rite of passage into adulthood. They want the “right to grow up,” even though their version of adulthood involves complete blindness to economic reality.
They were agitating for the right to grow up. …getting a permanent work contract is a rite of adulthood. Without one, it’s hard to get a mortgage or car loan, or rent an apartment. Mainstream economic arguments can’t compete. “Basic facts of economic science are completely dismissed,” said Étienne Wasmer, a labor economist at Sciences Po. “People don’t see that if you let employers take risks, they’ll hire more people.” Instead, many French people view the workplace as a zero-sum battle between workers and bosses.
The obvious answer is to dramatically reduce government intervention in labor markets. But since that’s a near impossibility in France, high levels of joblessness almost surely will continue and short-term employment contracts will be the norm for those who do manage to find work.
By the way, the system doesn’t even work that well for the workers with the government-protected positions.
Many workers here have permanent contracts that make it very hard to fire them. So some companies resort to an illegal strategy: They try to make someone so miserable, he’ll quit. “What happens next is, I’ll lose my team and my staff, and therefore I’ll have nothing to do,” the man predicted. “You still have to come to work every day, but you have no idea why.” …those lucky enough to have C.D.I.s can struggle at work. In one study, workers with C.D.I.s reported more stress than those with short-term contracts, in part because they felt trapped in their jobs. After all, where else would they get another permanent contract?
No wonder so many people in France want to work for the government. That way they can get lavish pay and benefits with very little pressure to perform.
In any case, the net result is that the French economy is stagnant. Potentially valuable labor (one of the two factors of production) is being sidelined or misallocated.
Writing for Market Watch, Diana Furchtgott-Roth shares her analysis of crazy French labor law.
…reforms are vital because the French economy is stagnant. GDP growth for the latest quarter was 0.6%. Over the past decade, growth has rarely risen above 1%. The unemployment rate is over 10% and the youth unemployment is 25%. Clearly tax and regulatory reform, including more labor flexibility, are needed to encourage employers to hire. …a French court this week ruled that Société Générale rogue trader Jérôme Kerviel, who lost $5.5 billion of the bank’s assets in 2008 and almost caused its bankruptcy, had been unfairly dismissed. Société Générale was ordered to pay Kerviel $511,000 because it decided he was dismissed “without cause.” …When employers cannot fire workers, they are less likely to hire them, leading to a sclerotic labor market and high unemployment. This is what the left-wing Hollande is trying to repair. …Some view France as a worker’s paradise where the government protects workers from abusive employers. The reality is that France is a worker’s nightmare where jobs are scarce and work ethic is prohibited by law.
Ambrose Evans-Pritchard is even more negative in his column for the U.K.-based Telegraph.
An intractable economic crisis has been eating away at the legitimacy of the French governing elites for much of this decade. This has now combined with a collapse in the credibility of the government, and mounting anger… The revolt comes as Paris battles a wave of protest against labour reform, a push that has come close to rupturing the Socialist Party. The measures were rammed through by decree to avoid a vote. Scenes of guerrilla warfare with police on French streets have been a public relations disaster… Rail workers are demanding a maximum 32-hour week. Eric Dor from the IESEG School of Management in Lille says powerful vested interests have made France almost unreformable. …Dor said the labour reforms have been watered down and are a far cry from the Hartz IV laws in Germany in 2004, which made it easier to fire workers and screw down wages.
He points out that the damage of labor-market intervention is exacerbated by a wretched tax system (I’ve written that the national sport of France is taxation rather than soccer).
France’s social model is funded by punitively high taxes on labour. The unintended effect is to create a destructive ‘tax wedge’ that makes it too costly to hire new workers. It protects incumbents but penalizes outsiders, leading to a blighted banlieu culture of mass youth unemployment. There are 360 separate taxes, with 470 tax loopholes. The labour code has tripled… Public spending is 57pc of GDP, a Nordic level without Danish or Swedish levels of labour flexibility. Unemployment is still 10.2pc even at this late stage of the global cycle.
Given the various ways that government discourages employment, is anyone surprised that the French work less than any other nation in Europe? Here’s a blurb from a report in the EU Observer.
French put in the least working hours in the EU, according to the bloc’s statistical office Eurostat. Full-time workers in France clocked up 1,646 hours of labour last year.
By the way, there’s a tiny possibility of change.
There’s an election next year and one of the candidates has a platform that sounds vaguely like he wants to be the Ronald Reagan or Margaret Thatcher of France.
Here are some of the details from a report by Reuters.
French presidential hopeful Alain Juppe, the frontrunner in opinion polls 20 years after serving as a deeply unpopular prime minister, said on Tuesday he would roll back France’s iconic 35-hour working week and scrap a wealth tax if elected next year. In the mid-1990s Juppe triggered France’s worst unrest in decades because he would not budge on pension reforms. He eventually had to drop them after weeks of strikes and protests. …”The French are being kept from working by excessive labor costs. I want to cut those costs,” Juppe told hundreds of supporters as he outlined his economic platform. …Juppe said he would raise the retirement age to 65 from 62 while cutting both taxes and state spending. Juppe said he would aim to cut public spending by 80-100 billion euros over five years and to reduce payroll taxes by 10 billion euros and corporate taxes by 11 billion euros. …Juppe also said he would cap welfare subsidies.
Amazingly, Juppe is the favorite according to the polling data.
So maybe French voters finally realize (notwithstanding the bad advice of Paul Krugman) that becoming another Greece isn’t a good idea.
P.S. My “Frexit” title simply recognizes the reality – as shown in this video – that productive people already are fleeing France. Hollande’s punitive tax policy has driven many of them to other nations. French entrepreneurs in particular have flocked to London.
P.P.S. Watch Will Smith’s reaction after being told France has a top tax rate of 75 percent.
P.P.P.S. France’s effective tax rate actually climbed to more than 100 percent, though Hollande mercifully decided that taxpayers now should never have to pay more than 80 percent of their income to government.
P.P.P.P.S. The big puzzle is why the French put up with so much statism. Polling data from both 2010 and 2013 shows strong support for smaller government, and an astounding 52 percent of French citizens said they would consider moving to the United States if they got the opportunity. So why, then, have they elected statists such as Sarkozy and Hollande?!?
P.P.P.P.P.S. In my humble opinion, the most powerful comparison is between France and Switzerland.
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Unfavorable views of the EU does not translate into desire to exit, in most cases. That is the vicious cycle.
Favorable view of the EU by Greeks may be down to 27% — yet still, a full 74% want to stay in the EU. What they want is to convert their loans into grants.
Arrogance — oh arrogance!! — of the British who did not want to participate in international socialization of their wallets.
What right do those inhabitants of the dreary cloudy island have to deny Greeks a life of state welfare dependency and beach?
hmm….. what would you call it? “National Socialist European Workers Party”?
European SUPERSTATE to be unveiled: EU nations ‘to be morphed into one’ post-Brexit
EUROPEAN political chiefs are to take advantage of Brexit by unveiling their long-held plan to morph the continent’s countries into one GIANT SUPERSTATE, it has emerged yesterday.
By Nick Gutteridge
from the pew research center:
“Euroskepticism Beyond Brexit”
“Significant opposition in key European countries to an ever closer EU”
By Bruce Stokes
http://www.pewglobal.org/2016/06/07/euroskepticism-beyond-brexit/
Why do French voters seem to sense what is wrong but are yet unable to correct it?
Because France — and other collectivist societies — are deadlocked — deadlocked in pain.
It is like a room full of naked men where each person has grabbed the cojones of two adjacent bystanders and squeezes.
Everyone is oppressed by everyone else. Everyone squeezes and is been squeezed.
Most importantly — everyone keeps squeezing even more — because that is the only leverage they have on the system — and when you’re hurting like that the reflexive instinct is to squeeze others more to get them to quit.
Occasionally a reasonable fool sees what’s going on and lets go attempting to break the vicious cycle. He quickly finds himself been squeezed while having given up his only squeezing leverage on the system. He soon resumes squeezing in pain — regretting his brief attempt at letting go.
They are deadlocked in pain.
And they will not give up until they all faint in pain. In the past it was warfare that brought the final obliteration and consciousness losing exhaustion which finally made people give up into a new start. Today warfare is too devastating, so the spiral of coercive collectivism will have to find another way to unwind — one hopes! — but it will be painful. The people will not stop squeezing until they faint in pain and exhaustion. They will hang on to the collectivist dream — turned nightmare — until the bitter end.
Those who desperately need an exit — and will not realize it until it’s too late — are the Germans.
The Germans, having lost an important European fiscal policy moderation ally (the British) are now in an even more precarious minority position.
The minority giving wallets of the North (Germany, Netherlands, Austria, Finland, Ireland) will face the confiscating socialist supermajority of Southern voters (Portugal, Spain, France, Belgium, Italy, Greece).
The voter tally in the above lineup is 117 million voters of the north — who must give according to ability –, against 205 million voters of the south — who will vote to take according to need.
Is there really anyone who wonders about the outcome?
In a unifying Europe (whether unification accelerates or temporarily stalls is secondary, bureaucracy will inevitably move in that direction ) the giving wallets of the north will be voted away by the taking voters of the south. Things will get worse.
Hence, Europe — at best! — will continue its slowest growth continent trendline — not quite one quarter the average world growth — a deterministic path to decline.
And decline brings discord — and that is a good thing after all !! At least there seems to be some correction mechanism that dismantles failed collectivism — but it’s a painful process. It would have been much better to fall into that trap in the first place. Alas…
Americans — now with a growth trendline around half world average — are circling the same drain. A breakup of the United States may come earlier than even *I* ever anticipated!
Under a growth rate that is merely a fraction of world average — nothing is sustainable — nothing! Nothing survives. And what cannot go on, will not go on. People (voters) may not understand why the country is now a growth laggard, but the malaise effect of slow growth cannot be kept at bay. The vicious cycle will tighten as the malaise of slow growth and decline reflexively causes desperate voters to clasp ever more government. Big events may be nearer than anyone anticipates. The financial distortion gimmicks –the perpetual motion machines of low effort prosperity — will also have to unwind. A narrative whereby the crisis is due to people’s reluctance to acquiesce to central planning will complete the cycle.
P.S. France is too far down the road to coercive collectivism to be reformed. Everyone depends on everyone else, nobody can muster enough enthusiasm to be competitive in a seven billion planet, and society is deadlocked — left in the dust by the rest of the world. The reforms will be tried. But they will be too little –way too little– too late. People will say “We’ve tried the reforms and they did not work” — i.e. the country did break out into a four percent growth which matches wold average and forestalls decline — “So let’s go back to our French ways”. Whatever French prosperity is left is short lived now.
This is a country and a continent that a majority of Americans are on the verge of wanting to emulate.