Hollande and the French economy (part 1)

republished from Left Futures


Enthusiasm for François Hollande’s new government in France is understandable, as it provides a popular mandate for an economic alternative to austerity, and a programme for economic growth. As Trevor Martin exhorts in his recent Tribune article “Let us follow where Hollande leads”.

Michael Meacher sketches an outline of what Hollande’s policies would mean translated into British terms:

...it requires a National Infrastructure Bank to launch a big increase in capital investment including for house-building, a revival of the role of the State in reversing the vicious spiral of economic decline, and a major rebalancing of the economy from an over-cossetted banking system to a lean and hungry manufacturing industry.

However, it is important to understand that Hollande’s project is also to restructure the French economy.

Jeremy Cliffe explains:

...international commentators have largely overlooked his longer-term vision for the French economy. Thus it may surprise many to learn that the Socialist programme pledges to both decentralise and shrink state spending year-on-year, cut corporate taxation for companies that reinvest profits, establish both a national investment bank and an industrial savings bank devoted to small and medium sized enterprises (SMEs), establish a ‘pact of trust’ binding employers, unions, banks and local authorities in a consensus-based system of co-production, lower VAT and introduce full proportional representation in time for the 2017 election.

What is more, Hollande was as good as endorsed by the national association of SMEs (CGPME), which praised his commitment to enterprise, explicitly noting the contrast to 1981. Unlike the 2007 Socialist candidate, Ségolène Royal, he met repeatedly with the national employers association (AFEP). He promises to put employees (or their representatives) on the boards of directors and supervisory boards of all companies with over 1,000 workers, and to write into the constitution an obligation to consult all relevant social partners before a given government or private bill goes through the legislature.

To understand this programme we need to understand the specifically French context, and how social-democracy in France has experienced a distinctively different history from British labourism.

While it is appropriate and necessary for the Labour Party to develop a credible anti-austerity policy for jobs and growth, this must reflect our own British conditions, and we should not be distracted by particularities of Hollande’s government that do not apply to us.

The state plays, and has played a much greater role in the French economy than in Britain. Charles de Gaulle’s 1945 government, which included the socialist and communist parties, not only nationalized the banks, coal mines, insurance companies, electrical and gas companies, Air France, and Renault Auto but they also instituted a regime of government planning.

Jean Monnet drew up a set of goals in 1945 of what the French economy should accomplish by 1950. In addition to achieving target outputs Monnet called for the modernization of French industry. Monnet noted that the French Government did not have the resources to reconstruct all of the French economy so he called for the public investment in key economic sectors. These key sectors included the transportation system, coal, electricity, steel and agricultural mechanization. Later fuel and fertilizers were added to the list. Monnet’s formulation, extended to 1952, became known at the Monnet Plan.

In each key sector under the Plan the details of the planning were left to the modernization committees made up of representatives of the Planning Commission, the major firms in the sectors, public enterprises and unions, and technical experts.

These committees did not have the power to enforce their decisions, compliance was voluntary. This process came to be known as indicative planning. A series of five plans were implemented successfully through to 1970. In his 1975 book, the Socialist Challenge, Stuart Holland described the necessary conditions which allowed the French planning system to succeed.

Significantly, it emerged from a long standing French tradition of state involvement in the economy; but also the immediate post-war period the economy was constrained by supply side problems, not demand; which gave enormous confidence to investors anticipating growth. Government departments also had real powers of disposal of capital and technological resources, which made the private sector very responsive to government priorities. Reconstruction also meant that planning could occur based upon highly incomplete data, as various industrial sectors intuitively restored their pre-war capacity.

In addition, the purge of Vichy collaborators opened up the civil service for a wave of new blood, the most talented of whom were cherry picked for the elite Ecole Normal d’Administration, where the ideology and methods of planning were taught. These young men achieved high civil service office very early in their careers, and a high proportion were then recruited by industry. This meant that there was a horizontal layer of networked civil servants and senior managers in industry committed to shared objectives. Furthermore, the rivalry between government departments was minimised through centralisation, in British terms this would be equivalent of the Department of Business Innovation and Skills being part of the Treasury.

(A descriptive account of analogous processes of indicative planning in South Korea and Taiwan is included in Nigel Harris’s The End of the Third World)

In contrast, the brief flirtation with indicative planning by the British Labour Party inspired by the economist Thomas Balogh, special advisor to Harold Wilson, was abandoned after 1964 when it became clear that the economic preconditions for success were absent. Indicative planning can succeed in conditions of economic confidence, which of course it can help to sustain, but it cannot reverse an unwillingness of the private sector to invest.
Generally the French post-war experience created a specific state-capitalist mode of capitalist development, distinct from the Anglo-Saxon or Teutonic models.

Vivien Schmidt describes the three models as follows:

Government policies differed widely among European countries in the post-war period.
Market capitalist Britain’s liberal or ‘spectator’ state generally had arm’s length relations with business (Grant 1995). It sought to limit its role to arbitrating among economic actors while leaving the administration of the rules to self-governing bodies, although this did not stop it from providing aid to industry on an ad hoc basis and intermittently intervening through planning experiments, nationalized industries or government sanctioned, privately regulated cartels (Shonfield 1965).

Managed capitalist Germany’s ‘enabling’ state was instead focused on facilitating business activities through more targeted aid to industry by way of regionally provided subsidies and loans, support for research and development, as well as education, apprenticeship and training programmes, while often leaving the rules to be jointly administered by economic actors (Katzenstein 1989).

State capitalist France’s dirigiste or interventionist state, by contrast, sought to direct economic activities through planning, industrial policy and state-owned enterprises, in addition to all the ways the other states promoted business, while it administered the rules itself, as often as not through the derogation of the rules in favour of business (Hayward 1973; Hall 1986; Schmidt 1996).

Furthermore, state intervention in the economy has generally been a much less politically polarised issue in France, enjoying support not only from the left, but also parts of the traditional Gaullist right, and indeed from the far-right.

So Hollande’s government is dealing with a distinct national context of capitalist development, but to understand his programme it is also necessary to understand the specifically French experience of social democracy.

The second part of this article (which first appeared at Socialist Unity) will deal with the experience and legacy of the Mitterand government, and the different strategic tasks facing French and British social-democracy, which provide the limits to which the Labour Party can emulate Hollande’s programme.

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