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By Philippe Legrain 1 COMMENT

Many French people rejected the constitution because they regard Brussels as the handmaiden of "ultra-liberal" Anglo-Saxon capitalism, intent on deregulating markets and opening up the French economy to competition. Just look, they say, at the EU’s proposed services directive, which would tear down barriers to trade in services, or at the eastward enlargement of the EU, which has exposed French workers to competition from low-wage, low-tax economies such as Poland. The upshot, they claim, is that the EU is driving social standards down and pushing unemployment up.

This is mostly nonsense. Start with the blindingly obvious: an organisation whose biggest budget item is the common agricultural policy, which shovels vast subsidies to European farmers (many of them French) and imposes swingeing taxes on foreign food, is not "ultra-liberal" by any stretch of the imagination. Europe is not even a free trade zone. Although most barriers to trade in manufactured goods have been abolished, vast swathes of the European economy remain segmented along national lines. Europe’s single market does not encompass its many service sectors—such as finance, media, law, construction, health, education and energy—which account for 70 per cent of the European economy and a similar proportion of its jobs. Far from being ultra-liberal, the EU is only semi-liberal.

But the French were right that Europe was edging in a liberal direction. The admission last year of ten new member states, most of which are less interventionist than France, has boosted competition somewhat, although since they account for less than 5 per cent of the total EU economy their impact on France has not been huge. And had Jacques Chirac not blocked it back in March, the EU’s services directive would have exposed the French economy to more competition. Workers in uncompetitive sectors would have suffered, but consumers, exporters and the economy as a whole would have gained.

Yet even the completion of a true single European market stretching from Lisbon to Latvia would not imply a "race to the bottom" of taxes and standards. It is simply not true that factories and jobs are inevitably lured to countries with the lowest taxes and regulations, pressing down on standards in France. For a start, many services—such as haircuts, childcare and nursing—can only be provided locally. Moreover, taxes and regulations are only one factor among many that determine where people work and companies establish themselves. Although France’s high taxes and regulations may deter some, its well-educated workforce, excellent infrastructure, geographical position, quality of life and membership of the euro will attract others.

International competition does not necessarily drive taxes and standards down. France’s tax revenue accounts for around half of its economy—just as it did ten years ago. Indeed, in some European countries, taxes are rising. Over the past three years in supposedly ultra-liberal Britain the government’s tax take as a share of the economy has risen by two percentage points—and is set to rise by a further point over the next two years.

Nor can Europe, still less EU enlargement, be blamed for France’s high unemployment. France’s jobless rate has been high for over 20 years, long before even the creation of the single market in 1993, much less last year’s EU enlargement. Moreover, within that European single market, jobless rates vary from 4.6 per cent in Austria to 12.3 per cent in Belgium, so there is nothing inherent in the single market that prevents France from creating jobs.

The truth is that the main fault for France’s enduring high unemployment lies at home: its outdated product and labour market regulations discourage companies from hiring workers and make it costly for them to adjust to changing tastes and technologies. Does this mean that France has to deregulate its economy, and embrace ultra-liberal Anglo-Saxon ways, in order to get unemployment down? No. Far from blaming Europe for its travails, France ought to be looking to successful European social democracies, such as Denmark and Sweden, to solve its problems. The Nordic countries have thriving economies that combine high standards for working conditions with low unemployment. Without too much pain France could enjoy similar success.

Posted 01 Jun 2005 in Published articles
  1. Pooch says:

    Sweden and Denmark don’t have thriving economies. Sweden’s GDP/Capita is not that high. Indeed, lower than Britain’s.

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