Sarko has some terrible ideas - Macleans.ca

Sarko has some terrible ideas

Every time he has tried to address a flaw in the French economy he has made it worse

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090413_wells2When I returned from France after a year abroad I was surprised how often people asked me about Nicolas Sarkozy and Carla Bruni. Fair enough: the French president married a pop singer who likes to pose naked. It’s the sort of thing that makes people curious.

But in France people don’t talk much about Carla Bruni. In France everybody is a pop star who poses naked. And when it comes to Sarkozy they have bigger things to worry about. Mostly they talk about the way Sarkozy has shattered their hopes.

There is a new book about all this: Les Réformes ratées du Président Sarkozy (“The Failed Reforms of President Sarkozy”), by two economists, Pierre Cahuc and André Zylberberg. Its conclusion is breathtaking. Every time Sarkozy has tried to address a flaw in France’s economic policy he has made it worse. That sounds like a joke or hyperbole, but Cahuc and Zylberberg aren’t wacky guys. They build their case implacably, showing how failure is built into the way Sarkozy goes about his business.

“In every area we looked at, the government thought it could catch off guard those interest groups that would be threatened by reform by imposing very short deadlines for consultation,” they write. “But these groups are very well organized. They mobilize quickly. Their expertise is often greater than that of ministerial staff and parliamentarians.” So Sarkozy announces a grand reform, then charges into negotiations with unions, business groups and other special interests and loses his shirt.

Take the first great emblematic reform of Sarkozy’s presidency. He wanted to let the French “work more to earn more.” Previous governments legislated a 35-hour workweek on the assumption that the amount of work in an economy is finite and must be rationed like beef in wartime. Sarkozy is persuaded that “work makes work,” that up to a point, increasing labour produces its own returns that pay for the extra investment. He’s right. But what did he do? He made overtime tax-free, eliminating employees’ income taxes on every overtime hour and reducing employer-paid premiums for the same hours.

After announcing the broad outlines of the reform, Sarkozy sat down with the labour unions and the employers’ federations, who negotiated circles around him. The resulting law allows employers to pay lower wages for some hours, and make up the difference in richer overtime. In effect, they can designate as “overtime” hours that used to be worked as part of the ordinary week, and pay their employees, say, 20 hours at the lower salary and 15 at an overtime rate. The employee works the same hours, and gets the same pay, only now both employee and boss pay fewer taxes. The cost to the French state is huge, about $9 billion a year. The effect on productivity is negligible.

Onward. France’s employers are reluctant to hire anyone because it is so hard to fire them. One reason out of many: courts have declared that layoffs will only be permitted so a business can safeguard its competitiveness, not to improve it. Michelin was made to pay $15 million for the crime of laying off 147 employees while the company was running a profit.

Along comes Sarkozy in 2007. His prime minister, François Fillon, proposes a labour-market reform. Negotiation with the usual suspects produces no change to the morass of pre-existing labour law. But the “social partners” do come up with a change that allows bosses and employees to part company amicably. The ex-employee then gets unemployment insurance. For three years.

This is a great deal for employees, who can retire at 57 and spend three years on pogey before qualifying for an equally generous state pension. It’s a great deal for bosses who can replace pricey senior employees with cheap rookies. It’s a lousy deal for the government that pays for all of this without improving labour mobility. But by the time Sarkozy and Fillon figured that part out, it was too late to back out.

What else? In 1937 there were 14,000 taxis in Paris. Sixty-nine years later there were still only 16,000. Prices are high if you can even find a cab. If you want to break into this racket you can buy a new hack licence (the going rate is between $270,000 and $600,000) or get on a waiting list (the wait time is 18 years). Cracking that market open would create tens of thousands of jobs. Sarkozy and Fillon tried. By the time they were done, cab fees were up and nothing else had changed. Other professions need reforms to cut costs and increase employment: hairdressers, veterinarians, pharmacists, notaries. Having failed at his first move, Sarkozy will not try again.

The French hired Sarkozy to simplify their lives, to strip away the layers of regulation plastered on by too many too-clever-by-half governments. His last month as a popular president was September 2007, when the streets were clogged by strikers. People thought change had come. They knew it would be hard but they thought it would be worth it. Five months later Sarkozy had a new wife and everything else was the same. Today a friend asked me how Sarkozy is doing in the polls. I didn’t know how to explain to him that for the French, nothing could matter less. It’s an unbelievably sad story.