Does France Need A 21st Century Revolution?…” Dirigisme, the French version of socialist capitalism, has failed.”
by Saxobank’s Steen Jakobsen
ZeroHedge.com
08/31/2014
French President François Hollande unveiled his new government under Prime Minister Manuel Valls on August 26, and there have been a few changes. While most senior ministers have retained their positions, economic minister Arnaud Montebourg was replaced by Emmanuel Macron, a former investment banker and economic adviser at the Elysée.
Hollande is already the most unpopular president in French history so he is not risking much by removing a political opponent like Montebourg (who should never have been part of a so-called reform program to begin with). Montebourg is a man of the old school and of old ideas: Among other things, he titled himself “Minister of Industrial Resurrection.” His ideas included threatening to fine businesses for each job they failed to create and speaking against globalisation.
The problem for President Hollande and any reform efforts is that, as much as removing Montebourg was a victory for his economic strategy, it was also a loss in terms of his political ability to rule both his party and the French state. We often forget that economic policy without political backing is like skiing without snow: Policy needs political anchoring.
The supply-side economics and ideas of Prime Minister Valls are good, but they are not sufficient to stop the “rotting of France”. More and more observers argue that what France needs is either an European Central Bank that goes into full Quantitative Easing mode, a France that pushes for fiscal expansion, or even both. Not only is that short-sighted, it´s also wrong: France needs a new political system, a new tax regime, a less bloated government sector, and fewer subsidies. France is not lost, it´s just disorientated and lacks purpose.
France is its own worst enemy. It believes in old virtues and ideas from a time gone by. Dirigisme, the French version of socialist capitalism, has failed. In its place there needs to appear a a robust commitment to its strong and well-educated workforce. France has the ability to innovate and its early stage small- and medium-enterprise support ranks among the best in the world. Unfortunately, its tax policy, its inability to attract capital and — more importantly — its dismal return on capital are significant impediments to new growth or any reforms.
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