The Online Library of Liberty

A project of Liberty Fund, Inc.

• Introduction
• Part 1: Rights, Property, and Markets
• Property Or “property Rights”? *
• “design Faults” In Locke’s Theory of Property Taint Ownership With Guilt *
• Is Ownership a Myth? *
• How to Get a Free Lunch? Just Apply For It *
• The Problem of Contract Enforcement *
• The Public Goods Dilemma *
• Trying the Free Market *
• The Statist Legacy *
• Part 2: The Common Sense of Non-economics
• The Yakoubovich Syndrome, Or Lies, Damn Lies, and Economic Policy *
• Winning Policy Battles But Losing the War Against Economic Realities *
• Paying Ourselves More of Their Money *
• The Doctrine of “unequal Exchange” the Last Refuge of Modern Socialism? *
• Corporate Managers Are They Going to Kill Capitalism? *
• When the Economy Needs Morals *
• The Political Economy of Force-feeding *
• Hostile to Whom? *
• Mannesmann’s Courtesy Could Prove Rare *
• Part 3: French and Russian Tragicomedies
• Can Putin Build a Real Economy From Oil and Rigor? *
• Russia and the New Europe Growing Apart *
• Russia Hopping Along On Clay Feet *
• The French Tragicomedy *
• How the French “social Model” Could Self-destruct *
• A Little Bit of History Repeating *
• There Is No French Exception *
• The Hobbling of Private France *
• Part 4: The Capitalism They Hate
• The Capitalism They Hate *
• Striving to Get Richer and Poorer *
• “bread and Circuses” In the Modern Welfare State *
• Who Minds the Gap? *
• Float Or Sink? the Millstone of the “social Market” In Germany *
• How Germany and France, the Sick Men of Europe, Torture Themselves *
• Shall We Borrow From the Children? *
• Low Pay *
• Freedom to Strike Or Right to Strike? *
• Part 5: Creating Unemployment
• Stamp Your Feet and Demand a Fair Deal *
• Paternalism and Employment *
• The Things Labor Unions Are Up to *
• The Instability of the Welfare State *
• Some Bad News Could Be Good News *
• Built-in Unemployment Social Protection Costs More Than It Is Worth *
• Let ’s Throw This Model Away *
• How to Stifle Employment By “social Protection” *
• Workable Alternatives *
• A Tale of Two Models *
• A Vicious Circle of Social Kindness *
• Part 6: The Future of Europe
• The Economic Consequences of a United States of Europe *
• A Giant Free-trade Area Or a Political Counterweight to America? *
• European Crosscurrents and the Federalist Drift *
• How Confederacy Could Turn Into a Federal Superstate *
• Majority Rule By Any Other Name *
• What Now For “europe”? Why the People Failed Their Masters *
• Free-riding On the Euro *
• Some Democratic Economics *
• The Soviet Legacy *
• A War of Attrition Between Economic Reality and Political Dreams *
• A Brightening of the Economic Skies Over Brussels? *
• Turkey Knocking On Europe’s Door *
• Turkey and the Eu Club *
• Europe More Secular and More Islamist *
• A Bill of Rights Europe Did Not Need *
• Europe’s Social-democratic “government” *
• Power Corrupts, So Let ’s Make It Less Absolute *
• Part 7: Economics, True and False
• On the Economics of Protecting Employment *
• The Costly Mistake of Ignoring Opportunity Costs *
• “globalization” and Its Critics Mutual Gain Vs. Cloud-cuckoo Land *
• Are High Oil Prices a Form of Exploitation? *
• Immigration What Is the Liberal Stand? *
• More Nonsense On Stilts Mr. Bentham Is At It Again *
• Risk, Value, and Externality *

PART 3

French and Russian Tragicomedies

CAN PUTIN BUILD A REAL ECONOMY FROM OIL AND RIGOR?*

Vladimir Putin is embarking on his second presidential term with a new prime minister whose profile may be telling us something about what he means to do in the next four years for Russia—as well as to it. Mr. Fradkov looks and acts as if he were a rather ungainly and somber early-model robot programmed to perform standard tasks reliably enough but with neither capacity nor intention to pursue ideas of his own. He leaves thinking and deciding strictly to his master, whoever the master happens to be. His career of safe mediocrity included the foreign trade ministry, an economic post at the Russian embassy in New Delhi, the direction of the tax police and the post of Russian representative at the European Union’s Commission in Brussels. As an international negotiator, he distinguished himself by never answering a question of substance off the cuff, but instead searching in his files for the right cue card and reading off a prepared reply. He can be expected to carry out Mr. Putin’s every wish with exemplary loyalty and rigor.

What is Mr. Putin planning to do? He has an approval rating that is exceptional even by Russian standards, and he is riding on a tide of oil and gas revenues that make his dirt-poor country suddenly look affluent and eager to turn its back on the humiliation of the Soviet fiasco. The national mood lends itself more than it ever did to a make-or-break try to lift the Russian economy out of its old rut and make it function like the much-envied economies of the Western bourgeois world.

For the moment, the numbers say that Russia resembles an oil sheikdom rather than a developed Western economy. With a population of 142 million, it is about one-eighth the size of the German and one-fifth of the French economy, and as far as the USA is concerned, it is best to look the other way. Since the financial catastrophe of 1998, national income has admittedly grown quite briskly, the growth rate last year reaching 5.7 percent and in the latest quarter 7 percent. However, if the numbers can be trusted, more than the whole of recent growth was due to sharply higher oil prices and the 10 percent output rise these prices have called forth. Valuing their often heavy and high-sulphur oil at $20 a barrel f.o.b., one reaches the startling conclusion that as much as one-third of Russian national income is accounted for by hydro-carbons.1 (Valuing Russian hydrocarbon output, including home consumption, at world prices admittedly overstates their contribution to national income; but even a much-reduced figure should worry their economic policy-makers.)

The broad result is that Russia today is suffering from what has become known as the Dutch disease. In the 1970s, Holland was a very large exporter of natural gas. Export receipts pushed up domestic incomes and costs, and brought in a flood of imports with which Dutch industry could not compete. Likewise, today’s visitor to Moscow or Saint Petersburg sees hardly any Made in Russia goods in the shops; imports are everywhere, from cars, furniture, and clothes down to such humble items as bread and milk. Oil is generating plenty of income, while productivity is often abysmal and the quality of local products repellent. The major cities look prosperous, though the countryside is just as stagnant and miserable as it has always been; 38 percent of farmland is still state or municipal property.

Should the world price of crude slump in the near future, Russia would be in deep trouble. For the time being, she has a lease on life by courtesy of Saudi Arabia’s price leadership at the head of the oil cartel. Mr. Putin must use the good times and the easy money to re-equip industry, rebuild the railways, and renew the country’s decrepit infrastructure. Above all, he must create confidence in the rule of law, whose lack, combined with an autocratic state, has always been the fatal obstacle to organic economic development.

This will be the third attempt in Russian history to reform society and allow a real, self-equilibrating economy to grow up. The first two, that we may ascribe to Piotr Stolypin and Boris Yeltsin, have largely failed. The current Putin attempt may be a case of third time lucky, though the chances are probably no better than even.

The first attempt goes back to the liberation of the serfs in 1861, a measure that for complex reasons has generated more resentment than satisfaction. The social climate was becoming tense, the state poured resources into its repressive apparatus, but the more the political police spied on them, the more the radicals and nihilists flourished. Grudging concessions by the court were taken as signs of failing strength. After the minirevolution of 1905, Stolypin was put at the head of the government and embarked on thoroughly intelligent liberal reforms. Grass-roots development took off, an independent peasant class rose out of serfdom, and in the cities the beginnings of an entrepreneurial middle class started to show. The nihilists began to panic that the Stolypin reforms might succeed too well and make their movement irrelevant. They assassinated him in 1911. A bellicose turn in foreign policy, the outbreak of World War I, and the Bolshevik takeover in 1917 finally put Russian society back in the Stone Age.

The second great try was made under Boris Yeltsin’s presidency after 1991. Its core was the handiwork of Anatoly Chubais, who wanted to get as much state property into private hands as possible as fast as possible before either the Communists could rally and stop him or some other of those nasty turns occur that Russia specializes in. The ensuing fire sale, in which insiders, bazaar traders, and mafiosi bought up the country’s natural resources for a song, created immense fortunes of murky or worse origin, established the class of “oligarchs,” and made “privatization” and “Chubais” the bitterest hate words in the language.

The putrefying carcass of the state was the ideal food for corruption of all kinds. The regulated ruble price of oil was about $2 a barrel and an export permit turned that into $20 or so; no prizes for guessing how export permits came to be procured. Because all this was too good to last, extreme short-termism became the rule of prudence, investing in long-lived assets would have been foolhardy, and profits were simply smuggled out. In a peak year, illegal capital flight reached $30 billion, a drain Russia could not really afford. Playing at capitalism without capital, or more precisely without the least assurance of secure ownership, could not achieve the decisive transformation the liberals of the Yeltsin era were hoping for.

Putin is putting heavy reliance on the siloviki, like himself middle-level graduates of the KGB and other security services who are ruthless but not arbitrary, rigorous, rule-bound, and not corrupt. If they manage to reduce theft, graft, and tax fraud, popular hatred and rejection of property and profit might be mitigated and capitalism might gain a degree of social respectability and acceptance. Such a regime of rigor will not foster democracy; Putin’s Russia will be more like a police state than that of Yeltsin, let alone the ideal Western-style state the best intellectuals of the post-Soviet era are dreaming of. However, first things first: let capitalism truly take root, and then perhaps we shall see.

RUSSIA AND THE NEW EUROPE

GROWING APART*

In 2005, Russia’s GDP increased by an impressive 6.1 percent. It sounds churlish, but it happens to be perfectly reasonable to say that this performance was on the poor side. Oil, natural gas, and primary metals prices were all at or near unprecedented highs, and Russia’s economy is now much like that of some underdeveloped one-crop country that is swinging wildly up or down with the prices of a couple of commodities. With oil brushing the $70 level, Russia should have been getting rich at a double-digit rate, and has not done so. The three Baltic states that regained independence from Soviet backwardness in 1991 have all hit double-digit rates, with Latvia in the lead at 13.1 percent p.a. in the first quarter of 2006, and none of these states produces any oil or gas, nor mines any metal ore worth speaking of. The rest of what Donald Rumsfeld, treating history in a somewhat cavalier fashion, named the “New Europe” is not doing quite as well as the Baltic countries, but its performance is respectable—and owes nothing to any commodity boom.

Despite appearances, Russia is proving to be a huge disappointment to those who believed that having shaken off socialism, it will restart the diversified, capitalist, and bourgeois development that was twice aborted, in the 1860s and in 1905. The Yeltsin years, especially after the loans-for-shares privatization wave of 1995, notwithstanding the mind-boggling corruption and thieving that accompanied them, were marked by a retreat of the state, decentralization of power, and the rise of a “robber baron” class that bore some resemblance to its American counterpart between 1890 and 1914. Despite its ugly features, this could have been the foundation of a viable, self-sustaining capitalist evolution.

The Putin era started off in 2000 as if it were a more orderly and less undignified continuation of this trend, but soon veered off in a new direction. Autocracy was restored, all political power was again concentrated in the Kremlin, the autonomy of regions was abolished and the big-money oligarchs cowed, driven to exile in London or put in prison in Siberia. Their places were mostly taken by Putin loyalists, recruited from the last generation of security service or army officers, grim men in their 40s and 50s who regard running a business as a kind of patriotic service to promote the greatness of Russia. In the last three years of the Putin regime, privatization was put in reverse gear and the state’s share in the economy has started to rise again, moving from 30 to 35 percent, though of course still much below the Soviet-era level.

German Gref, the liberal-minded economy minister who now seems to be bereft of any influence, once said that the scarcest factor of production in Russia was the rule of law. It looks like it’s getting scarcer. To the extent that they bestir themselves at all, the Russian courts are following in the footsteps of Justices Brandeis, Frankfurter, and the Warren Court in subordinating the force and freedom of contract to the “public interest” except that the Russian judges call it the “interest of the state,” which is defined by Mr. Putin and his few dozen ex-secret-police colleagues and friends. The result is arbitrary resource allocation and declining productivity. For what such forecasts are worth, the government has abandoned its 7 percent medium-term growth target and is now expecting a declining growth rate.

Meanwhile, the “New” Europe is briskly catching up with the “Old,” thanks to a growth rate that is roughly twice as high in Poland, Hungary, and the Czech Republic and three times as high in the Baltic states as in Western Europe. Moreover, Western Europe is also doing better than in recent years thanks above all to the painful purge to which German business has subjected itself in the last couple of years and that is now bearing fruit.

Yet both the “Old” and the “New” Europe are getting more and more anxious about what is politely called “energy security” and what in ordinary speech translates into “will the Russians blackmail us?”

Currently, about 40 percent of Europe’s natural gas imports come from Russia. The two other main suppliers are Algeria and Norway. On present trends, their share will decline and Russia’s will expand in the next five years, increasing Europe’s dependence on a single seller who is not primarily motivated by market considerations, but by an obsessive craving for political status and influence. To date, Russian gas has been pumped westward through pipelines crossing the Ukraine or Poland. Their dependence on Russian gas is nearly total, but if they are blackmailed, they can retaliate by interfering with the flow of gas across their territory to the Western European markets. The equilibrium between Russia and the transit countries is precarious, but it is an equilibrium all the same.

This balance of unspoken mutual threat will be upset by the building of the big undersea pipeline from Russia to Germany that will bypass transit countries. Once at full capacity, it will increase potential Russian gas deliveries by a half. Projected to cost $10 billion, it will be between three and five times more expensive to lay than a land line through the Baltic countries and Poland. It is obvious, though, that Russia’s main concern is not cost, but mastery over the flow of supplies. Evidence of this ambition was provided by the law voted in June 2006 by the Russian Duma, that transforms Gazprom’s de facto sole right to export gas into a de jure monopoly—a sharp reply to the pious wish expressed by the European Union that Russian gas exports should be liberalized. Government-to-government agreements will now give Gazprom access to the German and Italian retail gas market in exchange for letting BASF and ENI take minority interests in certain Russian natural gas fields. Gazprom is also seeking to gain a share of the British retail gas market. Hinting that it would provide a counterweight to the domination of the European gas market (and the blackmailing potential it implies) by Gazprom, an instrument of the new Russian imperialism, it has been pointed out that in some Baltic areas the subsoil has a vast potential for gas storage and that for an outlay of 3 billion euros, 70 billion cubic meters of storage capacity could be constructed. The stored gas would cover more than one year’s European consumption and offer insurance against blackmail.

Going ahead with such a project would be received very badly in the Kremlin. The mid-July G8 heads-of-government meeting in Saint Petersburg will resound with Russian protestations of reliability as a supplier and its readiness to enter into “energy cooperation” with Europe. The EU’s energy commissioner Andris Piebalgis is confident that the meeting will ratify an “energy charter” securing the interests of both parties. He could hardly permit himself to say the contrary. Most seasoned observers would feel much safer if instead of Russian guarantees of good faith, they could rely on competitive market forces to ensure “energy security.”

RUSSIA HOPPING ALONG ON CLAY FEET*

The first half or so of Vladimir Putin’s presidency started to look as if Russia were embarking on its history’s third great attempt at becoming a “normal country” with a middle class filling the vacuum between her thin ruling elite (if “elite” is the fitting word) and her mostly miserable, passive masses, and with the benign consequences of such a structure for the country’s stability, prosperity, and good-neighborly conduct. In 2004 one could still hope that after the liberation of the serfs in the 1860s and the Stolypin reforms of the 1900s, both of which ended in miscarriages that seem so typical of Russia, the Putin experiment might turn out to be the one that defies and lifts the old curse that sits on the country. Privatization of more than 60 percent of nonfarm production seemed to have passed the point of no return that would be followed by an irreversible loosening of the government’s grip on the economy, on people’s livelihoods, and hence also on their political obedience. It is now clear that this was a false hope.

Anatoly Chubais, the privatization tsar under Boris Yeltsin, held that it did not much matter who got hold of state assets and by what corrupt maneuvers. The important thing was to get the greatest possible volume of state property into private hands as fast as possible before the political climate changed and further privatization was stopped. He thought that there might be no time to arrange for a wide distribution of state property and for thus laying the foundations of a property-owning middle class of small shareholders and small entrepreneurs. The result was that many, probably a majority, of state enterprises were simply stolen by their previous “red directors” and wheeler-dealer insiders, creating some astronomical fortunes out of thin air. But unlike Schumpeter’s “private fortresses” (the great business empires that acted as counterweights to the state), these concentrations of wealth depended to no small extent on the Kremlin’s grace and favor, if only because their illegitimate origin gave the authorities some hold over them. The fate of Mr. Khodorkovsky, now in an obscure Siberian prison, and his giant oil company Yukos, driven into bankruptcy by bizarre tax claims, was a shrill warning signal to the other “oligarchs” to very closely heed Mr. Putin’s wishes. By all accounts, they now do. And are repaid with favors.

AMBITION AND SQUALOR

Mr. Putin rose from middle-level provincial KGB officer in occupied East Germany to all-powerful president, reputedly as part of a complex and secret deal between his secret service and military backers and the Yeltsin family. The deal has supposedly secured immunity for Mr. Yeltsin’s daughter Tatiana for amassing a fortune by unorthodox means. His elevated role fitted President Putin like a glove. He soon perceived that the common Russian’s and his wife’s desire for normalcy, an end to queuing, more variety, less drabness, a modicum of free speech and foreign travel was really not their first priority. He did satisfy it to a limited extent, though in time-honored Potemkin for-show fashion the effect was mainly confined to central Moscow shop windows, with the provinces and in particular the villages getting little uplift from their Soviet-era squalor.

However, the real priority of the Russian people has proved to be the restoration of their pride in holy Russia, her greatness and virtue. They did not want it to be like “any normal country”; they wanted it to be unlike any other, once again a colossus feared by its adversaries and admired by the rest. The deep humiliation of the failed Soviet experiment, the bitter insult of the Baltic states, the Ukraine, Georgia, Azerbaijan, Kazakhstan, and some smaller fry all rushing to shake off Moscow’s rule, the weakness of the Yeltsin years, the shame of the 1998 financial collapse, left deep wounds in Russian self-respect. The first priority of politics became to reassert Russian might. It is proving a stretch to do it with inadequate means.

In the service of this ambition, incipient democracy is now giving way to barely veiled dictatorship and covert renationalization of what they call “strategic” resources. Such liberal economists as Gref and Ilianorov, who had directed much of economic policy until recently, have little or no influence left and the winner of the 2008 presidential elections, reputedly already chosen by Mr. Putin, is likely to be an army marshal.

CLAY FEET SHOWING

The perception in the West is that Russia is advancing by leaps and bounds. To a critical eye, the advance is more like hopping along on clay feet. Admittedly, economic growth is proceeding fast at about 6 percent p.a. and has done so since 2000. However, some of this growth is clearly a catching-up after the shrinking during the 1990s. More sobering, though, is that once past the catching-up phase, little or no growth might have occurred if the oil price had stayed at its turn-of-the-century levels. Now, with $60 a barrel, oil money is pouring in and sloshing around the economy, forcing up prices and wages (the latter at a hardly sustainable rate of the order of 15 percent p.a. for industrial wages), sucking in imports, and making nonoil exports un-competitive. Oil slipping back to $40 or less a barrel would be a nightmare scenario for Russia.

Another weakness, this time actual and not just potential, is the severely strained power generating capacity. Present capacity is 150 gigawatts, still below its Soviet-era peak. This is wholly inadequate. Many industrial companies are now rationed, and in Moscow no new consumer may be connected to the power grid, which has led to new housing being connected in exchange for fabulous bribes.

The root cause is not so much the typical Russian vice of careless, slothful maintenance, but rather the equally typical waste of power brought about by low state-controlled tariffs. The giant state-owned power utility UES, which controls 70 percent of all generating capacity, needs to install 23 gigawatts of new generating capacity by 2010 to meet demand and needs $83 billion to do it. It has neither the money nor the extra supply of natural gas to fuel the new power stations if it contrives to build them. Ironically, it is money and natural gas that Russia is supposed to have most of. The key reason is price control. Controlled prices in most provinces are either just below or just above break-even for “social reasons.” Decontrol is promised, but comes slowly. In 2007, only an extra 5 percent of power consumption will be decontrolled. Meanwhile, UES is seeking investment from abroad. In 2007, it plans to float between five and ten of its constituent companies on the admirably patient and tolerant London Stock Exchange, raising $10 billion. Even that much would not begin to ward off the looming power shortage.

A word needs also to be said about the clay feet of the much-feared giant Gazprom. It is alternating between assurances to Western Europe about how reliable it will be as its principal supplier of natural gas, and flexing its muscles and threatening to restrict supplies if it gets no direct access to the retail market that is more remunerative than bulk contracts. At home, however, it must sell gas at small fractions of export prices, starving itself of investment funds. Consumption at these controlled prices is appallingly wasteful and rising fast. Pipelines are decrepit, poorly maintained, and leaking badly (as do most of the oil pipelines). Gazprom has a monopoly of gas pipelines and exports from Russia, and is categorically refusing European demands to relax it.

Perhaps even more ominous than the rickety economic infrastructure is the biological future of the Russian people itself. Life expectancy, rising virtually everywhere else in the world, has fallen drastically in Russia. The population is already decreasing and a further and faster decline in the next two decades is written into the demographic statistics. Moreover, public health outside select spots is worthy of some poor third-world country.

In this as in so much else, Russia conceals what the now happily defunct Marxist language used to call “internal contradictions” behind a bold front of sham greatness.

THE FRENCH TRAGICOMEDY*

The top slice of the French intellectual pyramid is hardly the Mont Blanc in the landscape of the mind. Its own estimation does not quite tally with its real height. But below the self-proclaimed peak, the ordinary Frenchman is surely among the very brightest of fellow Europeans and she no less so. He is quick-witted, sober in judgment, articulate, and both capable and ready to resort to his critical faculty. Yet while the individual Frenchman is mostly well up to the best European standard, the collective intelligence of political France works much like that of a mentally retarded child.

This strange discrepancy has many symptoms. Some of them spring to the foreground on the occasion of the current presidential election campaign. Despite their divergences the lead candidates have one common theme, namely that the indebtedness of the country at 64 percent of the national product is intolerable and must absolutely be reduced. Though above the 60 percent solemnly agreed to at Maastricht, this percentage is not catastrophic. It is its sharp upward trend that should worry families who have children. Despite its natural advantages, the French economy now looks wedded to slow growth—last year’s 2 percent compares poorly with the European average of 2.9 and the OECD average of over 4—and it would take great future fiscal rigor to stop indebtedness as a proportion of national product from continuing to rise. Yet while all agree that this trend must be reversed, each candidate is merrily putting forward new spending proposals that would further worsen the deficit by 1.5 to 3 percent of GDP. By way of deficit reduction, they predictably undertake to eliminate “waste,” while the lead candidate of the Left enigmatically plans “European solutions” for defense expenditure.

None of this bothers the electorate. The opinion polls testify that it responds favorably both to the vows of fiscal rectitude and the profusion of fresh spending proposals.

Of the two front runners, the candidate of the Left swears that she will not raise the share of taxes in GDP above the present 44 percent level. She will offset rebates to the poor by taxing “capital” (an entity that casts no votes). The candidate of the Right would actually try to reduce the share of taxes from 44 to 40 percent over two five-year terms. Both claim that they can pay for their programs by stimulating economic growth. The Right expects to achieve this by inciting everyone to work harder—which would make good sense if the economy were first reformed and the “social” burden weighing it down were at least partly lifted. Proposing that, alas, would be electoral suicide. Instead, fresh spending is the way to go.

The Left explains that by guaranteeing employment to the young, increasing the minimum wage to 1,500 euros ($1,960) a month, and raising the lowest pensions, they will increase consumption and more consumption will bring more growth. Do not we all know that growth can best be stimulated by piling on deadweight costs?

These absurdities, one must say, are not specifically French, but are part and parcel of any political system that lives by “one man, one vote” and has empowered itself to carry out almost any decision the majority will vote for. We call this democracy, and regard it as a good thing. Its capacity for harm is mitigated by the push and pull of rival groups, capital and labor, rich campaign contributors and poor health-care patients cancelling each other out.

However, the French reality is both more tragic and more comic than common garden-variety democracy. It is this tragicomic peculiarity that provides the ground for the present article.

For fourteen years under Mitterrand and twelve under Chirac, all governments leaned left in constructing, completing, and embellishing with bells and whistles the proud “French social model,” reputedly the envy of other nations. It had two mainsprings. One was an almost laughably elaborate labor law, a code of over 2,600 pages which came close to giving the worker a right to his job. By making it very difficult to fire, it has spread a fear of hiring.

The other, and probably more destructive, mainspring of the “model” was a comprehensive system of insurance against sickness, old age, and unemployment, financed mainly by paying workers only about 55 percent of their earnings in cash and (by legal fiat and with union complicity) withholding the remaining 45 percent, calling it “employers’ and employees’ contributions” to social insurance. This was a paternalistic reversal to the old and discredited system of paying wages in kind instead of cash, not with a real intention of defrauding anybody, but to impose “social” values by forcing employees to accept insurance in lieu of cash. As a result, labor the worker would have done for 80 or 90 cost the employer 100, with predictable effects on the demand for labor. French unemployment in 2006 was still close to 10 percent. This is the tragic side of the French tragicomedy.

The comic side is the length to which the rights of the unemployed have been pushed. For instance, genuine or self-styled actors, actresses, and other show-business personnel are entitled to year-long unemployment pay if they can prove just a few days of paid employment—a proof that can be procured for a little love or money. It should surely cause no surprise that over the thirteen years of the scheme, the show-business population drawing benefits from it grew from 41,000 to 104,000 and its cost rose fivefold.

Unemployment pay presupposes previous employment that has been lost. However, people who have never had a job had also to be looked after, and the “social model” was accordingly widened. Jobless over-twenty-fives gained an entitlement to “insertion pay.” Starting with 400,000, their number reached 1,100,000 in 2006, costing 5.9 billion euros—not a vast sum, but symptomatic of how a good intention can succeed a little too well.

Other countries whose “social model” was also mainly financed by compulsory payroll deductions, notably Sweden and Germany, have woken up to where it all led and have pushed through politically difficult reforms to good effect. In France, this was not done, in part because M. Chirac declared the “social model” sacrosanct, “Anglo-Saxon” liberalism as bad as communism, and always dreaded confronting the unions. A deeper reason, though, was the “retarded child” mentality of French collective opinion.

There is a subconscious belief in France that the state does not pay Paul by taking the money from Peter. It just gives it to Paul, and Peter is not made worse off. This is so because the money sits in an imaginary reservoir and the state can “unblock” it (débloquér is the French word used to describe this happy event). Consequently, when a group gets a costly favor, when “generosity” prevails toward the needy, and when 35,000 young people are hired to oversee schoolchildren and dissuade them from running riot, some gain and nobody loses. The money needed has been “unblocked” and that, surely, is what public money was for. There is always enough left in the reservoir, waiting to be débloqué.

This amazing failure to understand the realities of public finance—indeed, to understand reality—explains why in France the move of one pressure group to grab resources or “rights” is hardly ever countered by the resistance of other pressure groups that would have to bear the cost. Polls say that endlessly recurring rail strikes are approved by the majority of commuters who suffer great inconvenience from them. When tobacconists claim, and get, compensation for falling cigarette sales, everyone thinks that this is the least the state can do, and when imports make food too cheap, it is thought only fair to French farmers for the state to make it dear again. In the process, France, potentially so rich, is becoming a poor country “trying to travel first class on a second-class ticket” and feeling bewildered that the attempt does not quite work.

HOW THE FRENCH “SOCIAL MODEL” COULD SELF-DESTRUCT*

Nearly everyone in France is proud of the “French social model,” if only because it is so different from the hated and feared “ultraliberal Anglo-American” ways. For a people of high average intelligence, the French ignorance and credulity about the outside world is often staggering. Lurid tales about the misery of working people in Britain and the cruel lack of health care and poverty relief in America are avidly lapped up and much satisfaction is felt that such horrors are safely warded off by the pride of progressive France, the most caring and universal “social model” ever realized.

The principal achievement of this “model” is that it has maintained unemployment at about 10 percent since it was fully unfolded in the 1980s and looks like maintaining it around this level in the years to come. To this somewhat doctored figure should be added another 1-1.5 percent in make-believe employment funded with public subventions, and 1.2 million mostly young people not eligible for unemployment who receive a minimum income of about $400 a month. Regular visitors to France testify that they see more beggars on the streets than ever. However, French opinion from the presidential and ministerial level downward is convinced that unemployment and poverty are the result of “the Crisis” (there is always some undefined crisis going on in the outside world, and France is always its victim). The “social model” is not its cause; rather, it serves as the bulwark against it.

THE REVOLT OF THE IDLE

With the model at cruising speed, an average of a mere 80 parked vehicles a night are burnt by small street gangs in search of a kick. At 30,000 vehicles per annum, the loss is hardly remarked. When last November the nightly burnings hit a peak of 1,400 vehicles, not to speak of the (partial) burning of 255 schools and kindergartens, 233 town halls and other public buildings, and even a church as the gangs competed with each other for reputation and television coverage, stoning firemen and battling the police, the “social model” was manifestly running in top gear. The police made 4,700 arrests, though they could secure only six hundred prison sentences from notoriously left-leaning magistrates who would “see no evil, hear no evil” and let the rest go for lack of evidence.

After the mutual exhaustion of rioters and the police brought things back to dismal normalcy, frenzied efforts got under way to explain, and explain away, what had happened. The intelligentsia of the Left Bank concluded that the riots were a very understandable protest against “social exclusion” in the high-rise ghettoes on the outskirts of Paris and other big cities where mostly second-generation descendants of Arab and black immigrants are cooped up, crushed by inequality and racial discrimination. The trigger of the broad revolt was allegedly pulled by the maverick minister of the interior, a suspected “ultraliberal,” who unforgivably called some of the rampaging youths “riff-raff ” and “scum.”

This version of the story is mostly arrant nonsense, highfalutin rhetoric, and axe-grinding. The obvious reason for the flare-up is that a mass of closely packed young males living in almost total idleness, with their most likely prospect being continued idleness as far in the future as they can look, is as unstable as some kinds of high explosive. To be made to get up in the morning, wear clean clothes, do work involving reasonable physical exertion, forced to speak articulate French instead of the slurred argot they use to demarcate themselves, would liberate them from their deadly boredom and make them employable. However, putting them through such a cure would involve coercion, would “degrade and stigmatize them,” and is politically unthinkable.

THE CURSE OF FUTILE EDUCATION

There is one sacred purpose, though, for which coercion is not only permissible, but an actual virtue, and that is compulsory education to the age of sixteen in what is arguably the world’s most rigid, standardized, self-willed, exacting, yet ineffective system of public education. Dozens of books have been written about the decline and degradation of the once-glorious French state schools due to a mixture of political cowardice, egalitarian dreams, union tyranny, and silly dogmas. The single-minded aim of the French public school is to push 80 percent of final-year students through the baccalauréat, an examination in abstract subjects. Every graduate of the “bac” is entitled to a place at a university, and those who do not get some kind of diploma or degree are seen as failures or dropouts. Stooping to a blue-collar job is considered humiliating and a waste of precious education.

The net effect is a flood of unemployable psychologists, sociologists, law and arts graduates whose learning, such as it is, is of no use to anyone and most of whom are destined to live on unemployment benefits and in permanent boredom. Children of colored immigrants have even worse chances for reasons I will come to presently.

At the same time, there is all over the country a chronic shortage of plumbers, electricians, masons, carpenters, gardeners, repairmen, and handymen. Master artisans will not employ help because of the fear of paperwork and the fear of not being able to lay off the employee if need be.

The bane of an ambitious but deeply misguided education has been tragicomically illustrated after the November riots by what is not an apocryphal anecdote but a true story. Faced with 25 percent youth unemployment (reaching 50 percent in the “sensitive” suburbs that have rioted), and with a great shortage of blue-collar skills, the premier Mr. de Villepin announced that henceforth fourteen-year-olds would be allowed to become apprentices and not be forced to attend school until they turned sixteen. The teachers’ unions produced the expected sound and fury about equality of opportunity and the socialist parties the expected condemnation of humiliation and leaving children to fend for themselves. What was shockingly unexpected was the reaction of the employers. One of their spokesmen apologetically explained that it is really quite important for apprentices to be able to read and write, and therefore it might be a little unwise to let them leave school at fourteen. A glowing tribute, this, to the results achieved by French state education that, incidentally, consumes one-quarter of the budget of central and local government and is perpetually and stridently asking for more as the number of school-age children is falling.

DO THE RIOTS PREDICT DECLINE OR BREAKDOWN?

The failure of “antielitist” universal education to teach pupils to read and write, let alone to spell and do sums—and above all to behave—is shared by many nations. The bias against blue-collar occupations shown by the educational establishment and the “culture” that surrounds it, and its overproduction of hopeless aspirants for white-collar careers that society cannot offer, is more particularly French and is an obvious source of bitterness and instability. Second-generation Arab and black youths are the worst affected by it. This looks like discrimination on grounds of race. The government rejects affirmative action as contrary to the precepts of equality. Instead, it is throwing money it has not got at “social housing” to thin out the ghettoes, it promises to double the teaching staff at the worst schools, and it will recruit for state jobs preferentially from the rebellious suburbs.

Some of the devices it is grasping at border on the pathetic. A prize example is the attempt to promote, and perhaps to make mandatory, the anonymous job application. The CV must not contain the name, age, sex, and address of the applicant to stop employers discriminating against Arabs, blacks, and also whites living in the suburbs that are politely called “sensitive.” Employers are very unlikely to recruit anonymous applicants and would certainly find ways to get round such a measure, but the government can at least say that it is trying.

When unemployment is as high as the “social model” makes it, thanks to its top-heavy social insurance premiums which raise wage costs to the employer way above the take-home pay employees must get, many things start going awry in a society. One of them is discrimination: employers will recruit, if they recruit at all, among candidates about whom they know the most, who have credible sponsors and are within easy reach. Discrimination against Arabs and blacks will stop when unemployment decreases and the labor market reaches equilibrium—an outcome blocked by the elaborate barrier of the much-touted “French model.”

The three weeks of mayhem in November 2005 had little or nothing to do with Islam, ethnicity, misery, and not much with the drug trade, except insofar as such things will thrive better when unemployment breeds hopelessness and boredom. The rebellion had no leaders, was spontaneous and chaotic.

It did damage France’s reputation as a civilized tourist destination, but its direct material cost was a fleabite. It was, however, a warning signal that all is far from well with the French “social model.” The chances are that the smallish explosion of November 2005 will not be followed by a much bigger breakdown within a few years. The most likely scenario is still that the country will continue to decline relatively smoothly. The remaining, smaller probability that the “model” will self-destruct, however, has become distinctly more visible since the riots.

A LITTLE BIT OF HISTORY REPEATING*

Happy days are here again! Eager commentators hopefully speculate that, after a trial run last November confined to big-city outskirts, a nationwide replay of May 1968 is unfolding in France. You have to hand it to the young, to labor union officialdom, and to the left-leaning media: They are trying hard enough to make it happen.

The background story is quickly told. French unemployment has been rising for thirty years in uncanny lockstep with the building of the welfare state. At a shade under 10 percent—though that figure is doctored with a succession of state-assisted employment schemes—it is the second-highest rate in Europe. For people under twenty-five it is at 23 percent, Europe’s highest rate. Net job creation in 2004 was zero and in 2005 between 50,000 and 145,000, depending on the method of computation. A healthy economy of France’s size should generate over 300,000 net new jobs a year. But that is just a distant dream.

As rising unemployment menaced existing jobs, there was a rising clamor for ever tighter job protection. French society was unanimous in its belief that more “workers’ rights” are always better than less, and after a spurt during the 1930s Popular Front and another after World War II, the legislative machine in the Mitterrand and Chirac years has again been churning out endless reams of job-protection laws. The French labor code is now 2,632 pages long and is an object of socialist pride. Public opinion—even right of center, let alone to the left of it—seems strangely unable to grasp what these 2,632 pages are really doing to French society.

Chronic unemployment in the euro-zone has two main causes, the “wedge” and job protection. The wedge is the excess cost of labor that the employer pays over to various social-insurance schemes, over the pretax pay he pays to his employee. This wedge, providing some security against “social” risks, acts as a payment in kind to the employee. But payment in kind is typically valued less than payment in cash. In other words, the cash cost to the employer is always greater than its worth to the employee. This dead weight depresses employment.

Job protection acts differently but no less viciously. It accords ownership rights to the worker in his job, which the employer can only redeem or undo at a cost and by providing justification. The justification may or may not be accepted by the special labor courts (prud’hommes) where union representatives sit on the bench. Even if the grounds for laying off an employee are accepted, an expensive “social plan” may be imposed on the employer. Resolving the case may take many months of litigation by platoons of labor lawyers. As common sense could have predicted, the upshot is that prudent managers do not fill vacant jobs and do not stick their necks out to create new ones.

FIRST JOBS

It was to tear a rent in this straitjacket paralyzing the job market that French prime minister Dominique de Villepin proposed the “first-job contract.” The contract would allow an employer to dismiss a worker who was under twenty-five and had never been employed at the time of his hiring, without providing grounds, during the first two years of the contract. The indignation was furious, the stamping of feet earsplitting, and the arguments against the new law simply wondrous. No one said that half a loaf might be better than no bread. Instead, it was hammered home that the government was taking away the bread that French youth deserved and offering them a precarious and paltry half loaf in exchange. Surely, most commentators argue with a serious face, an insecure two years is not much of a future for the young, and it is wicked to deny them the safe, permanent jobs they ought to be offered.

As I write this, French students, egged on by the main teachers’ unions, are shrieking defiance and taking to the streets like ducks to water. Many university campuses are blockaded and some damaged. The two most radical general labor unions, CGT and FO, darkly mutter about a “general strike.” Politicians on the left issue solemn warnings, while some on the right are clearly frightened and propose tame compromises. Knowingly or unwittingly, all are doing their bit to bring on May 1968 all over again.

The 2,632 pages of the French labor code suit admirably the 90 percent of the working population whose jobs are made supposedly safe by it, though no one can say how long those jobs will remain safe. There is a conspiracy theory that holds that the 90 percent of employed “insiders” cynically sacrifice the 10 percent of unemployed “outsiders” on the altar of their own job security, while loudly lamenting the sad and hopeless fate of the young. Plausible as this may sound, I believe it is false, as conspiracy theories usually are. Anecdotal evidence suggests that the “insiders” are just as incapable of grasping the elementary laws of economics as the youngest and greenest “outsiders.” They really believe that if the government wants to, it can provide nice permanent jobs to the young instead of trashy temporary ones.

FRENCH FURY

There is a legend, dating from the Napoleonic Wars, about “French fury” that may have had a grain of truth in it. However, in time it has become political gospel on the right, and this is having grave consequences. President Jacques Chirac, in particular, is deeply convinced that in France violence must not be deterred and punished by violence, for that would bring the whole political house crashing down. Reform can only be attempted by dialogue, and if that does not work it must be deferred.

Having learned that the stamping of feet is soon enough met with capitulation, the French have become increasingly intractable, violent, and uncompromising. French fury is now a reality and could only be educated out of public mores with harsh and prolonged retaliation, for which nobody has the stomach. Other nations muddle on; the French shriek and gesticulate and end up staying in the same place.

THERE IS NO FRENCH EXCEPTION*

For a country whose political elite is singularly impervious to economics, and much of whose public viscerally loathes capitalism and liberalism as “Anglo-Saxon” perversions, France has made uncharacteristic progress these past few years toward accepting the way the world works. But for all this progress, certain fundamentals remain intact. Intact above all is the compulsion to believe and assert that France is different, a brilliant exception.

Such convictions were evident in Prime Minister Lionel Jospin’s address last week to the congress of world socialist leaders. Mr. Jospin distanced himself from his British and German colleagues who would dilute socialism by modernizing it. He conceded that the “market economy” is a superior instrument of wealth creation. But, he said, the market is mindless, blind, it lurches along without knowing where it is going. Politics must regulate it, give it a firm direction for the common good. Such ideas reflect the fallacy, so alluring to the economically semiliterate, that the production and distribution of wealth are separate and independent of each other.

FORTUITOUS TRENDS

Recent economic trends—growth along with a rapid expansion of the welfare state—are only reinforcing the belief in French exceptionalism. During the presidencies of Valéry Giscard d’Estaing and François Mitterrand, the headlong extension of the French welfare state went hand in hand with ever more sluggish economic growth. France moved near the head of the European unemployment and taxation leagues. Some socialist intellectuals even began openly to say that unemployment is the price the country had to pay for social justice, a price it mitigated by looking after its jobless. The “Anglo-Saxon,” “neo” or “ultra” liberal model, by contrast, buys higher growth and lower unemployment at the price of latent inequality and insecurity.

But coinciding with the advent of Lionel Jospin’s coalition government of Socialists, Communists, and Greens, the tide started to turn in 1997. Though the share of national product preempted by public spending stayed at about one-half—one of the highest levels in the world—economic growth accelerated to about 2.5 percent per year from near zero, and the jobless rate, as measured in the official statistics, declined slightly to 11.2 percent from 12.6 percent. This took place while the welfare state was further extended by such measures as the guaranteed minimum income—in sharp contrast to the attempts of Britain, Germany, and Italy to curb the excesses in welfare provision that accumulated over the past three decades. Perhaps, it seemed, the exception Française would turn out to be more than just self-flattery.

Privately, even some left-leaning French experts recognize that a rising tide lifts every boat. But as the French economy rides a general upswing in Europe, the government is piling ever more ballast onto French enterprise. The heaviest ballast is undoubtedly the reduction of the workweek to 35 from 39 hours, tantamount to an increase of some 11 percent in wage costs. Though partly offset by side-agreements allowing more flexibility in the workplace, and partly financed by government assistance, this increase can only reduce employment below what it would otherwise be. Only in France can it seriously be argued that it would actually increase employment.

Perhaps less headline-catching than the 35-hour week is the rising pitch of anticapitalist discourse in both government circles and the media, excited by the spectacle of large stock-market gains and Anglo-American style takeover battles. The market can be suffered to create wealth, but only tamely, without the gainers gaining too much and without anyone being the loser. This schoolmasterly stance reaches beyond mere words into the regulation of the daily business of life, sometimes in grotesque forms.

Recently a large dairy farmers’ cooperative in northern France applied for permission to lay off seventy-eight workers in one of its processing units. From the government inspector of labor relations, the matter went to the industrial court of Amiens, which refused permission on the ground that the layoffs were designed not just to safeguard competitiveness, but actually to enhance it—improving financial performance at the expense of employment. The judgment has been appealed, but whichever way the case eventually goes, it and similar judgments reflect the deeply ingrained French conviction that enterprises exist for their employees and letting enterprises make profits is at best a grudging concession to an ugly world that we must strive to change.

Firms are expected to hire but are not free to fire. Neighboring Spain realized a few years ago that if firing is made too difficult, firms will shy away from the risk of hiring, and even the Spanish labor unions supported the abolition of these controls—with gratifying results for all. France still seems to believe that the way to increase employment is to permit additions but prohibit subtractions, and that dividing the available amount of work among more people by having each work shorter hours is the mathematically surest recipe of all.

Yet France is being menaced by threats that look mundane, but against which there is ultimately no defense. They will, in due course, wrench the control of events from the Socialist leadership and prove that after all you cannot have it both ways.

One, simple and inexorable, is tax competition that is gradually depriving the government of means commensurate with its ambitions. At the present levels of taxation and regulation, there is already a serious drain of capital, brains, and enterprising spirit from France to other countries. Repeated French attempts to build a high-tax cartel by imposing tax harmonization within the European Union have so far largely failed, are likely to go on failing, and would not fully stop the flight of capital and talent from France even if they succeeded.

The other threat is posed by France’s increasingly untenable public-pension system. Like every other Western country and Japan, the French are sitting on a demographic time bomb due to a changing balance between the active and the retired population. By 2005, the squeeze will start in earnest, as there are fewer working citizens to support a burgeoning population of retirees. But the French pension system, which like Social Security in the U.S. is a pay-as-you-go scheme, is headed for insolvency. Worse still, France has virtually no supplementary funded retirement schemes that accumulate capital in pension funds.

The radical remedy is an initially painful switch from pay-as-you-go to funded pensions, a switch that Chile performed with resounding success a decade ago. In France, however, such a switch is as good as unthinkable. Pay-as-you-go is a French Socialist ideal, the expression of solidarity between generations and a liberation of the old from the servitudes of saving and scraping to avert misery. The French labor unions, too, have an unshakable vested interest in it, for they run the system and obtain great powers of patronage from it. The government knows that the time bomb is ticking. The Charpin report, which it commissioned, recently confirmed this. Mr. Jospin met the dilemma by confidently declaring that it was not as grave as all that.

ADDING INSULT TO INJURY

Ironically, the French socialist government is not only losing control over its “model” because the country does not have and does not want private pension funds. It is also losing control because other countries do want and have them. Between a third and two-fifths of the hundred largest listed French enterprises are owned by nonresident investors, primarily American, British, and other foreign pension funds. This is adding insult to injury. Not only are these investors the hated pension funds, but they are also “Anglo-Saxon.”

What’s more, many of them are abandoning their traditional passivity and are now starting to exert an influence on the management of the French companies whose stock they hold. French managers who used to run to the Ministry of Finance and Industry for approval of some major corporate move now run to Wall Street and the City of London to solicit the favor of investment institutions. This is both a blow to French pride and a serious obstacle to running the country the Socialist way. Yet France cannot afford to buy back its blue-chip corporations, cannot chase off foreign investors, and cannot expropriate them without making itself into a pariah state.

The question thus arises: Will anyone think, in a few years’ time, that the French can have it both ways?

THE HOBBLING OF PRIVATE FRANCE*

In the lengthening list of French scandals involving money and influence-peddling—whose perpetrators tend to come to little harm—the case of Jacques Attali is among the least grave but the truest to form.

Mr. Attali was, and remains, a leading “ideas man” of the Socialist Party, having authored some thirty or so books about every imaginable subject, but mainly about what passes for philosophy and economics in Paris. He’s also a most agile denizen of the corridors of power.

Fairly early in his career, he was found to have lifted large chunks from Ernst Juenger’s Hourglass and deposited them into his own 1982 work, History of Time, without the benefit of quotation marks or attribution. Anywhere else, plagiarism of such audacity would have earned him derision and dishonor first, obscurity afterward. In France, people just shrugged. His publishers went on publishing him. A confidant and close aide of then president François Mitterrand, Attali continued to enjoy an ever-growing role and influence.

When he got too close to Mitterrand for the latter’s comfort, he was kicked upstairs into one of the prize positions in the international bureaucracy. His alleged lavish spending of public money for private luxuries, serious questions about his expense account and about his reign in general, finally led to his resignation as head of the European Bank for Reconstruction and Development. Opinion outside France regarded him with outrage, within France with indulgent indifference. The scandals at the EBRD have done him no more harm than the earlier plagiarism. Though belonging to a Socialist Party clan that’s not exactly at the center of power at the moment, he is still part of the political establishment. Most recently, he has been advising the government on how to reform the country’s elite graduate schools.

COLLECTIVIST SUBMISSIVENESS

Mr. Attali’s invulnerability to discredit and dishonor is not untypical of the way France, in contrast to most other civilized countries, treats its public men. No illusions are harbored about their devotion to the common good, no high standards are set for their probity. It is well understood that sitting on the seats of power confers privileges, and believed that honesty in a politician changes things only marginally if at all. There is in France an astonishing readiness to treat the arrogance and corruption of the ruling elites with indulgence and the exorbitant weight and authority of the state with acquiescence and indeed with positive approval. This collectivist submissiveness of a people that likes to think of itself as individualist is odd. Why does the private France so willingly put up with the public one?

For private France is bright, has better than average skills, taste, and manners, and a civilized life style. It is sober, thrifty, and hardworking. Despite its limited understanding of the outside world, it is doing remarkably well in international competition. Labor relations are as good in the private sector as they are ghastly in the public one. The private France carries on its back a largely parasitic political authority that maintains its power by extensive redistribution, siphoning off and spending half of what the private France produces. Costly social provisions bring forth the national shame of chronic double-digit unemployment. The unemployed, living on the dole, swell the battalions of public France, securing a built-in majority for ever more social provision. All this private France must bear.

There are deep historical roots of the enduring relation between a burden-bearing and yet vital private, and a parasitic public, France. Power in France has been gravitating from the provinces to the center, from subject to king, at least since the thirteenth century. Cardinal Duprat, the Duke de Sully, Cardinal Richelieu, and Jean-Baptiste Colbert are but the outstanding names in an unbroken line of strong centralizing ministers. When the country was bled white and impoverished by the wars of Louis XIV, a potential turning point and a revolutionary situation was reached. State power under Louis XV and XVI began to weaken. It was at this point that the wrong turn was taken. While the English revolution of 1688 and the American one of 1775 shifted power from the king to the individual, the French Revolution of 1789, whether by accident or by “historical necessity,” did the exact opposite. With great violence, the revolution forced society back into the great and age-old centralizing, collectivist mold of the Valois and the previous Bourbons. There have since been no independent structures of countervailing private power in France; the monopoly of state power is undisputed.

History dealt one further blow to the chances of a freer society emerging in France. From the late seventeenth century to its final defeat at Waterloo in 1815, France fought a second Hundred Years’ War for supremacy in Europe (which at that time meant world supremacy). This autocratic design, pursued by a great administration and great armies, was cruelly frustrated by the ships and the money of prosaic England, the incipient liberal free-trader.

Craving greatness and admiration, the French have never forgiven the English and perhaps never will. For some obvious and some less obvious reasons, this resentment was soon extended to America. The need to rely on English and American help in two world wars has not helped matters either. Much of the antipathy against the “Anglo-Saxons” is reflexive, visceral, and hardly conscious. Its effect, however, is that “Anglo-Saxon” ways are automatically opposed as a matter of patriotic self-assertion, and “liberalism” has become a near-obscenity.

FOISTING FREE TRADE

With a straight face, Maurice Allais, the only French Nobel Prize-winning economist, has asserted in a recent series of articles that the cause of unemployment is the trade liberalization that he says has been foisted upon France since 1975. With an equally straight face, others (though, to give them credit, not all economists) assert that the compulsory shortening of the workweek will reduce unemployment. Liberal arguments and policy proposals are seldom understood, let alone accepted, in this environment.

The effect of having a huge, monopolistic state hovering above civil society, feeding on it, yet being accepted by it, is manifold and often veiled. Some aspects, though, stand out clearly enough. There is, as Marxists like to put it, an “internal contradiction” between the private and the public personality of the country. The private one would like to get on with its life, prosper as modern countries with reasonably free economies generally do, keep what it earns, be rid of the intellectual terrorism of political correctness, and send its children to decent schools of its own choice.

This same private France clings however to obsolete beliefs about the indispensable role of the state in protecting national independence from the evil forces of global caplitalism and wants the state to see to it that the weak are not “trampled under” by the strong. This mission is concocted from second-rate theories, but the first-rate ones do not go down well in France. Once the mission is entrusted to the state, up springs the public France, subjecting all to the priorities of dirigisme and its attempts at redistribution.

Swept along by the present worldwide upswing, France for the time being manages to eat its cake and have it too. It makes some inglorious U-turns but comes to no major grief. No law of nature tells us that this talented country cannot go on muddling through, “internal contradictions” notwithstanding. It is a fair conjecture, however, that anything better than muddling through can emerge only from a passage through the purgatory of failure, humiliation, and disgust. It was this type of experience that led to the rejection of dysfunctional political regimes in Britain in 1979, the United States in 1980, and the Soviet ex-satellites in 1989. Does one always have to put one’s hope on despair and calamity?

[* ]First published as “Third Time Lucky in Russia: Can Putin Build a Real Economy from Oil and Rigor?” by Liberty Fund, Inc., at www.econlib.org on April 5, 2004. Reprinted by permission.

[1. ]Oil production so far in 2004 is running at 9 million barrels a day with exports at 3.7 million barrels a day. Gas production is comparable in energy equivalent but somewhat lower in value. Oil, and in particular gas, are still underpriced on the internal market, which leads to wasteful consumption.

[* ]First published by Liberty Fund, Inc., at www.econlib.org on July 7, 2006. Reprinted by permission.

[* ]First published by Liberty Fund, Inc., at www.econlib.org on January 8, 2007. Reprinted by permission.

[* ]First published by Liberty Fund, Inc., at www.econlib.org on April 2, 2007. Reprinted by permission.

[* ]First published as “Urban Riots: How the French ‘Social Model’ Could Self-Destruct,” by Liberty Fund, Inc., at www.econlib.org on January 9, 2006. Reprinted by permission.

[* ]First published in the Wall Street Journal Europe, March 24-26, 2006. Reprinted by permission.

[* ]First published in the Wall Street Journal Europe, November 15, 1999. Reprinted by permission.

[* ]First published in the Wall Street Journal Europe, April 4, 2000. Reprinted by permission.