Labor Market Reform Paper for France Released

Yesterday the long awaited Gallois report on labor market reform, commissioned by the French government, was released. It seems highly likely that it will join its more than 30 predecessors and henceforth begin to gather dust in some drawer in the bowels of France's bureaucracy. Mr. Gallois, a French industrialist, and currently the 'general commissioner for investment', not surprisingly proposes a major overhaul. Why does he do that? Because it is absolutely necessary. Why won't it be implemented? Because it goes against the socialist grain and president Hollande has already spoken out against 'shock therapies'.

As economist Elie Cohen remarks:

Some in the government are well aware of the fragility of our industry and are pushing for change," he said. "Others are obsessed by a growth model based on consumption, deficits and debt and cannot see how to get away from that.”


Among these 'others' the president himself can be found. It is well known that he equates deficit spending by the government with 'growth'. It is also widely held that France should consume itself to prosperity, in short the French administration is eager to follow the Keynesian advice of putting the cart before the horse.


As Reuters reports:


“"The French people need to support this collective effort which could be a magnificent project for our country — winning back our industry," Gallois said after handing the prime minister 22 proposals. "This will require real patriotism."

The widely leaked recommendations set frustrated industry heads against a government reluctant to shift part of the tax burden from employers to households which are already struggling with rampant unemployment and an austerity budget.

President Francois Hollande has dampened expectations of any radical reform in advance by ruling out any "shock" measures.

But he told reporters with him on a visit to Laos the government would outline "strong decisions" in its response to Gallois on Tuesday as he seeks to quell anger from business leaders who feel he does not have their interests at heart.

"We are working on all the options," Industry Minister Arnaud Montebourg said in Paris, but declined to comment on an online report by Le Point weekly which said the government will offer companies tax credits from next year as a compromise.”

In other words, they plan to do 'something' in the form of wealth redistribution via the leaky hose called government, but they won't do what the report suggests.  You might think that Gallois has presented an truly earth-shaking, radical paper. Far from it!

“He steered clear of suggesting loosening the rigid labor laws that make it hard for firms to hire and fire in response to changing business cycles, a sensitive issue the government is already broaching in talks with unions.

But he advocated keeping a series of business-friendly policies in place for five years, creating tax incentives for investment in small businesses and lifting some of the legal and fiscal obstacles for small firms trying to grow bigger.”


(emphasis added)

The labor laws are not even discussed in the report! France's several telephone books thick 'code du travail' is one of the most rigid and restrictive collections of labor market regulations ever devised anywhere outside of the communist bloc. Changing it should actually be on the very top of the list of priorities.



The somewhat dour looking 'general commissioner for investment' Louis Gallois (left) speaks to the 'minister for industrial renewal' Arnaud Montebourg.

(Photo via AFP/Pierre Verdy)



The Cemetery of Buried Reports Beckons

Gallois tried to find a compromise to enable government to claw back tax revenue it would lose by cutting payroll taxes elsewhere. His proposal is to raise consumption taxes, this is to say VAT in this case. We are against all tax increases and it would be far better to simply cut government spending instead, but since he had to offer some compromise, he certainly did the right thing by proposing that the tax burden be shifted from production to consumption. However, that scares the Keynesians in France's government, who believe that 'consumption is the motor of the economy'. These people have evidently no idea how utterly misleading GDP statistics are. There is as a rule far more spending in the economy on producer goods than there is on consumer goods. It is merely not counted in the national income statistics (but can be gleaned from the gross domestic output statistics). In other words, this focus on consumption and consumer demand is an error born of focusing on the wrong type of statistic.

A few quotes by leading French politicians seem to indicate that the report might as well not have been commissioned in the first place. There will be no 'big bang' as many representatives of French industry are hoping:


A shock causes trauma, whereas a pact reassures," Finance Minister Pierre Moscovici explained last week.

"This report is a contribution. It's the government that governs," Social Economy Minister Benoit Hamon warned on Sunday.

In all likelihood the ultimate outcome is foreshadowed by the fate of a similar report commissioned by the government of Nicolas Sarkozy – which was nominally 'conservative', but ended up doing nothing to alter the labor market situation either. Such reform proposals tend to land in what 'Le Figaro' calls 'our cemetery of buried reports'.

Many economists fear the report by Gallois, ex-chief of aerospace group EADS, could end up stuck on a shelf alongside a similar review ordered by Sarkozy when he took office in 2008. That report, by economist Jacques Attali, called for an overhaul of labor laws and cuts to labor charges.

"The worst would be for this to end up in our cemetery of buried reports," Le Figaro daily said of the Gallois review.

Perhaps we are too cynical and things will turn out better than we fear. But we are not holding our breath.




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2 Responses to “Gallois Report Ready to Gather Dust”

  • White eagle:

    For our Pater and other blessed souls that understand French,little fun on the way to Niagara Falls:

  • White eagle:

    When Sarkozy appointed Attali I knew he was s fake leader of conservative party.For God sake,Attali is pure marxist and statist and he was supposed to turn around French economy and society from stagnation with his proposals.I have read his proposals at the time and it was complete statist BS,no capitalism even remotely.Funny enough even that was deemed to radical by fake conservative Sarkozy and thrown away,the rest is history,as they say.That was probably last chance for France and since then I have no hope for France.If I remember right,that year chief of Public accounts for France warned that France is approaching red line of 80% of public debt and establishment ignored him.
    I guess France with her vast public sector is like supertanker and nobody can turn her around in this small place that separates her from Niagara Falls.Her people are even more statist than both mainstream parties.Shame,such a beautiful and glorious country filled with so many ignorant people.Not that the rest of Europe is any better,but I expected more from France,country that has Liberty so often on her lips.

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