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Is the French social model becoming a thing of the past?

Published on March 1, 2012 by: in: Society

To Europeans, French social model translates into a success story  similar to that of Scandinavian model. Healthcare system is estimated to be the best in the world, French work professionally for a short time and enjoy the growing life expectancy, and fertility rate is surprisingly high compared to those in ageing Europe. However, French pay a big price for this success. The costly system is responsible for the country’s public debt, and a considerable part of society is dependent on state aid. The system’s economic sanity has been questioned  by lame economic growth a few years ago, and  doubts have been cast on its social efficiency during riots in the year 2005, which  revealed its poor ability to integrate society. The present European crisis of public debt challenges the construction of this costly model and raises questions about its future.

photo: jugglerpm

photo: jugglerpm

When the French president Nicolas Sarkozy undertook the task of subduing the European crisis in autumn 2011 he not only fought for the future of the whole European project, but also for saving his own strategy of reforms in France.  The collapse of Greece and the resulting domino effect in the eurozone would force France to drastic budget cuts that would dismantle Sarkozy’s strategy that have been implemented at the beginning of his term. This strategy consists of gradual modifications of the French economic and social model instead of radical changes. The healthcare system, considered the best in Europe, constitutes the specificity of French social model together with recently reformed pension system, generous unemployment benefits and working week of 35 hours. The outstanding feature of this model is that it is second to none when it comes to its up-keeping and its being bureaucratised.

The high price paid for successes

French healthcare system guzzles 11 percent of GDP which is the second most important indicator of this kind in Europe.  Those expenses are attributed to very high administrative costs and index of sick leaves which is growing yearly, especially in public sector. At the same time healthcare service struggles against the occurrence  of exploiting the possibility of hospitalisation and tries to  cope with the amount of 3 million of patients who are treaded medically in the long term. The OECD report produced in 2011 concluded that French healthcare system has big possibilities of saving money without deteriorating the quality of service. However, the expenses for healthcare grow constantly from the end of 1970’s. To counteract this phenomenon the government introduced in 1995 the spending rule fixing the limit of increase of health expenses during a year, but the first time of this rule having been satisfied is only the year 2010.

France enjoys a fertility rate of 2,1 which is high in comparison to that of other European countries. The index of women’s employment in the age from 25 to 54, which is of 76 percent,  is one of the highest in Europe. As in the case of healthcare, these excellent results are the effect of important financial expenditure up to 3,8 percent of GDP, which corresponds to 2,4  percent in other OECD countries. According to OECD data in the year 2007 French budget’s expenses for a child at the age up to 6 years old amounted to more than 54 thousand dollars and outnumbered by half of this sum those of other OECD member countries. French family policy is formed by multiple tax exemptions, benefits, facilities on labour market and in the domain of childcare and is considered by OECD as one of the best in the world.

The structural lack of flexibility

As in the case of French healthcare system, pensions system devours essential part of GDP  – 13 percent. The French demographic situation deteriorates, even if it is still better than that in other European countries, which will be affected by a large depopulation (Germany, Bulgaria). According to estimations, the amount of people at the age over  60 years old will grow in France by 50% until year 2060. High expenses for healthcare and pensions and lengthening life expectancy ( by  3 months each year) make state budget burdens systematically grow.

The pensions system has recently undergone major changes, and the most important of them has been increasing the retirement age from 60 to 62 year old. Every year starting with year  2011 the retirement age will be increased by 4 months, which means that all French will retire at the age of 62 in the year 2017. The reform addressed the economists’ estimations, according to which the number of retired persons would grow from the present 15 to 23 million in the year 2050. What is more, the reform increased by 2 years – from 65 to 67 years old – the age entitling to collecting  pension of maximal height when the condition of contributing to  pension scheme has not been satisfied during entire required period. The period of obligatory contribution to pension scheme was lengthened from 40,5 years old at present to 41 years old in the year 2012 and 41,5 years old in the year 2020. The law largely restricted the possibilities of earlier retirement, but they will de facto persist due to the system of generous benefits that are possible to obtain before retirement. The whole reform will bring 24 milliard euros of savings to state budget yearly and translates into reversing the trend of spiralling expenses for retirement system introduced in 1983 with a decision to shorten retirement age from 65 to 60 years old.

The increase of the retirement age will render labour market of persons over 55 year old more elastic in the long term; it is anticipated that entrepreneurs will hire older workers and invest in their professional training more willingly if the perspective is their longer professional work. What is more, the essential factor encouraging the entrepreneurs to hire such persons is the support of state budget which will fund 14 percent of a salary of a worker older than 55 years old.  This incentive has been introduced to counteract the one of the major problems of French labour market – unfavorable conditions for workers younger than 25 years old and older than 55 years old. According to estimations, 650 thousand of workplaces for the representatives of the first group and 800 thousand of workplaces for the representatives of the second one are lacking.

The situation described above is a part of the structural flaw of labour market, which is characterised by very high taxation imposed on employers, high minimal salary and  poor quality of relationship between employers and workers’ trade unions. The trade unions are not so numerous – only 8 percent of workers  are  involved in trade unions’ activity – but they mobilise their members in order to strike with big efficiency while being passive when current working relationships are concerned.

The inflexible social model cannot be more divergent from Danish model – flexecurity, which gains more and more approval in Europe and becomes a remedy on the dilemma how to reconcile the requirements of capitalist competition and social protection of welfare state.

How to tackle the ‘gain’ of the Left

The striking feature of the French social system is a working week of 35 hours, implemented by the government of Lionel Jospin in the year 2001 and considered a main ‘gain’ of the lefty movement. This solution was based on the assumption that the reduction of working hours of an employee will drive the employers to hire an increased number of workers. The aim of the reform was to energise the labour market and to create even as much as 700 thousand of new workplaces. But the  reality proved wrong this assumption. The unemployment in France rose in the years that followed the implementation of the reform, and its modest drop in the second part of the decade was mainly due to a good situation worldwide. According to its critics, the reform struck mainly the blue-collar workers and the least educated workers.  It caused shifting the activity of many companies operating in France to new member states of European Union because of high labour costs in France (for example, taxation imposed on overtime working). The reform was severely criticised by Sarkozy during electoral campaign that preceded presidential election in 2007 – he referred to it as to ‘a social and economic catastrophe’. One of his electoral slogans was ‘work more in order to earn more’ (‘travailler plus pour gagner plus’). Many of the observers saw ’35 hours’ as one of the causes of big growth of support to National Front of Jean-Marie Le Pen, registered from the year 2002.  He enjoyed a high volume of votes attributed to blue-collar workers and unqualified workers, whose economic situation deteriorated in that period. Besides, the radical right is still the most often chosen party in this social group.

After his electoral victory Sarkozy didn’t take the decision to abolish ‘35 hours’ and restore the previous working week of 39 hours, in spite of continuing to publicly  denounce the reform. Shortly after the double victory of right in 2007 the government succeeded in enforcing exemption of taxation of overtime working in both public and private sector. According to the government’s calculations from the moment of implementing this solution 9 million of French earned on average 450 euros monthly  more, what justified the conception ‘work more in order to earn more’.

The 5-million army (of government officials)

Nicolas Sarkozy acquired the power under the motto of ‘peaceful break’ (rupture tranquille) with the social and political model of the V Republic. He managed to enforce the programme of economic reforms thanks to the world crisis, which enlarged the field of action if  budget cuts and unpopular changes are concerned. The state budget in the year 2010 was the first one in the history of France when the budget spending became smaller.    The reform of retirement pensions in the year 2010 reversed the trend of enlarging retirement privileges, steady from the year 1983. The plan of limiting the budget deficit under 3 percent until the year 2013 was also adopted. During Sarkozy’s term a reduction by 150 thousand of the number of state officials became possible, mainly thanks to a rule  of replacing each two retired officials  by a one succeeding after them. That was how the expansion of state bureaucratic machine was stopped. During the period from the year 1990 to the year 2007 a million of new state officials arrived and the total number of officials became 5 million. Today, French public sector employs almost one-fourth of all workers, twice as much as in the year 1970. Nearly a half of French is dependent on the state-funded salaries, benefits and pensions. They form an electorate interested in maintaining  the status quo and in preserving the leading role of state in economy. An interesting cultural barrier that makes it impossible to reform the system is the fact that nearly a half of French deputies are the former state officials. At the same time, according to the calculations of the former president of International Monetary Fund, Michel Camdessus, France is characterised by very low productivity. A typical American works on average 37 percent of hours more than a typical French.

A statistical way down

Since the year 1981 France systematically has fallen in the rankings of wealth, competitiveness and investment attractiveness. This process has partly been due to the questionable economic policy of François Mitterand that among other things consisted of renationalisation of the part of industry, and decreasing of the retirement age. During the last 25 years France plummeted from the 8 to 19 rank  if GDP per capita is taken under consideration. In the year 1991 French GDP per capita was equal to 83 percent of the American one, and today it amounts to its 71 percent. Public spending inhibited a low economic growth, unemployment remained high (9-10%), and the companies overpowered with taxation moved their production to Eastern Europe and Asia. French public debt equals to 83,5% of GDP today while in the year 2007 it amounted to 63,9%.  Nearly half of this debt is due to the renationalisation of industry in the 1980’s and working week of 35 hours, introduced in 2001.

Diagnosis of the ‘Doctor Growth’

Shortly after taking office Nicolas Sarkozy entrusted Jacques Attali, the former president of European Bank for Reconstruction and Development, with the task of leading  the commission formed regardless of  political divisions in order to ‘free economic growth’ of France.  The underlying aim of appointing Jacques Attali was to diagnose the state of economy and social system.

The final report of the commission comprised of 316 recommendations, including 20 ‘fundamental’ and 8 ‘ambitious’  decisions. The way of governing  France since the end of the Second World War was assessed mercilessly. The formal and mental barriers that accounted for restraining France in the economic motionlessness were all defined. The report pictured a huge potential of development of France, but also the enormous errors in governing the country.

The report presented fatal statistics: only 5 thousand of enterprises employs more than 250 persons, the French produce 35 percent less than the American during their professional activity.  The part of French export in world export has dropped continuously since the year 1994. Merely 52 percent of children from blue-collar workers’ families  acquire secondary education. For about 2,5 million of unemployed fall 600 thousand workplaces ready to be staffed, and the young people’s unemployment amounts to more than 20 percent (50 percent in some regions of country). The Attali’s Commission  predicted that public debt will be of 130 percent of GDP in the year 2020, and the share of retirement pensions’ spending in GDP will hit 16 percent in the year 2050. The report did not omit the phenomena considered as characteristic for France – the level of English teaching at schools was assessed as ‘catastrophic’.

The report called France a country of privileged, where the state controls the smallest signs of life and establishes the climate of social distrust. Very high taxes were stressed, as well as the biggest public spending among the OECD countries and budget deficit constantly exceeding the limit of 3 percent.

On the other hand, the factors building the economic growth’ potential of France were listed: the highest fertility rate in Europe, the very high level of healthcare, the well-developed infrastructure and dynamic intellectual and social life. According to the report, the strong points of France are also pharmaceutical, nuclear, communication and tourist industries that are on a leading position in the world.

Many of Attali’s proposals have been implemented in the recent years, including the reform of universities, increasing the scope of competence of government  bodies responsible for controlling if the rules of competition are obeyed, increasing spending for research and development. But a lot of them was not turned into practice or became implemented partly by Sarkozy, according to his policy of small steps and not radical reforms, with which Poland is somehow familiar.

A road without a possibility to turn back

The subsequent destiny of French social model depends on French citizen’s choice probably  between Nicolas Sarkozy and François Holland from PS – Socialist Party during presidential election in 2012. The latter is not as socialist as many of his predecessors. From a couple of years, elite of PS realised the inefficiency of the country’s social and economic model, despite voicing the need to maintain the status quo.  The ongoing European debt crisis undermined the field of governmental action in an extent even more important than up to the present.  Regardless of belonging to a specific party the government will have to restrict the public spending, which will naturally affect the funding of social policies.

The most prosperous years of the French social model have already passed. In subsequent years its scope  will be limited, according to the budget requirements, and trend to restrict welfare spending approaching everywhere in Europe, and the advancing privatisation of public services. The future electoral campaign will determine the pace, but not the direction of the changes.

Translation: Katarzyna Laprus

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About Wojciech Bialozyt

Graduate of Ecole Internationale des Sciences Politiques. He was an intern in the office of the European Parliament member Miquel Mayol and Raynal (ERC) and a consultant of the Regional Centre of European Information in Katowice. He took part in the observatory mission of the OSCE during the presidential elections in Ukraine in 2004, in 2006 he represented Poland on the UN conference ‘European youth Leadership Summit’. He works in the consulting company in Warsaw.

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