Why have Macron’s reforms stalled? Is it just a problem of communication or are there other underlying issues?
Even though slightly improving in recent polls, the popularity of the French president is still extremely low, and scarcely two years have passed since the start of his mandate. If the yellow vest movement has (at least initially) contributed to this loss of consensus, the trend was there much earlier, in the autumn of 2017. Why have these difficulties arisen? Is it just a communication problem pertaining to a president who is chronically incapable of feeling and understanding for the ‘French at the bottom of the pile'”? Or are there more structural reasons, that perhaps go beyond the actions of the Macron government (which after all has been in power for less than two years)?
There’s no simple answer, because over the last ten years the economic policy measures of the various governments have compouded the effects of the crisis and the rise in unemployment, making the picture much murkier. So let’s try and set the record straight.
The period between 2008 and 2016, presided over by Nicolas Sarkozy first and François Hollande (from 2012 onwards) second, saw families experience a considerable drop in their spending power, severely trimmed by the repercussions of the crisis on employment and wages, which were subsequently compounded by the fierce austerity measures implemented in France starting in 2013. A report by OFCE (Science Po’s French Economic Observatory) carried out in December 2018 worked out that the annual drop in average spending power for French families amounted to 450 euro. The same report also noted that that drop mainly affected the upper deciles (the families in the top half of the earnings bracket), while the social security reforms had generally benefitted the poorer sections of the population. Inequality had therefore been reduced.
Under pressure as a result of French industry losing its competitive edge, François Hollande added a further twist to France’s economic policy by concentrating on so called supply-side policies. The tax relief granted to companies and corporations (mainly through tax credits linked to job creation or investment), and the liberalisation of the labour market (thanks to the El Khomry law, which takes its cue for a large part from Matteo Renzi’s Jobs Act), in the president’s intentions were meant to improve competitiveness, growth and employment. Many, including the author, noted at the time that opting for supply-side policies at a time when the economy was weighed down by a strong lack of demand, was a dangerous ploy (which after all cost the Socialist president his re-election). But this is not the space where one might assess Hollande’s budgetary policies. What has to be emphasised here is that during his mandate a large amount of resources were transferred from families to businesses (and to the State, in an attempt to keep public finances under control). However, this was done primarily by targeting higher earners and reducing inequalities; this explains why, despite the harshness of the economic downturn, ‘tax compliance’ did not fall off and the social contract withstood the brunt of the crisis.
So what changed with the election of Emmanuel Macron in May 2017? Not much from the point of view of fundamental tendencies, but a great deal in the philosophy underlying its economic policies. The first budget, voted through in the autumn of 2017, can probably be termed the Macron presidency’s “original sin”. The priority was the reform of taxation on capital, with the institution of a 30% flat tax on capital revenue (which is also not included in the calculation of property tax). This entailed breaching what for the French was a sacred principle, capital and labour should always be on an equal footing in the eye of the taxman. Macron then followed in Hollande’s footsteps nd introduced measures to improve competitiveness. He reduced corporate taxation and increased the level of tax relief first introduced by his predecessor. To avoid an excessive increase in the state deficit, the government also tweaked public spending by reducing public wage packets and cutting a few welfare measures (and rent subsidies in particular).
As a result the 2018 budget had an impact on redistribution which was clearly in favour of higher incomes (the richest 2%), while for all the other distribution centiles incomes were unaffected, except for the exceedingly poor (the first ventile) and the upper middle classes which lost out significantly. And this is where the trust relationship between Macron and the lower classes came unstuck: after ten years of sacrifices, the first move by the new president had ended up rewarding the usual suspects, and he therefore became the ‘president of the rich’, who was not to be forgiven for a few unnecessary statements which were immediately understood as being indications of contempt toward the French who get out of bed early.
At the start of the Nineties one of Bill Clinton‘s strategists came up with the slogan “it’s the economy stupid”, which proved to be a lethal weapon against George Bush, to the point that it branded the outlook of an entire generation. Perhaps one Emmanuel Macron’s rivals could coin a new version as: “it’s social justice, stupid”.
One needs to add that Macron, like Matteo Renzi before him, pays the price for basing his power on a communion between the leader and the crowd, a form of imperial populism that is detrimental to the modern liberal democracy’s intermediate bodies which are supposed to mediate and work towards compromise. An approach which, when the tide changes, leaves the leader, the Jupiterian President, naked in the face of the raging crowd.
Will Macron manage to reverse the trend? The 2019 budget, and the measures approved in December following the yellow vest revolt even more so, are trying to soothe the discontent, increasing overall spending power for families by approximately 11 billion euro; a sum that mainly benefits the lower middle classes, and partially balances out the measures introduced in 2018. But these measures, brought in on the back of the popular protests, risk being one offs, because they don’t seem to stem from a change in conceptual outlook. Macron cannot relinquish the idea that the best way of improving growth is by freeing the most productive forces, which he identifies as the large capital holdings and the higher wage brackets. It matters little that the “trickle down” theory (give to the rich and the generated growth will bring reward to all) has been disowned by all recent studies, with  Thomas Pikkety and the recent works published by the World Monetary Fund and the OECD all concurring. The empirical evidence shows without a shadow of a doubt that the rise in inequality that began in the Eighties is not the result of increased productivity of the elite, but is instead due to their greater capacity to extract rent from a society in which social safeguards are being removed and competition from the middle classes in emerging countries is on the increase. In spite of this, the trickle-down theory constitutes a pillar of Emmanuel Macron’s plan, and explains his stubborn refusal to review the abolition of the wealth tax, a symbolic move, the reintroduction of which would however require him to disavow his entire political history and his world vision. It’s worth mentioning that despite the recent tinkering, the net winners of the first two years of Macron’s presidency are still the rich and the extremely rich.
And this is the dramatic plight in which France finds itself today: it is caught between a young president who believes in an antiquated social project, and a diverse, unstructured protest movement incapable of coming up with an alternative political standpoint. The risk is that in the end the only one who will benefit from this stalemate will be Marine Le Pen.
@fsaraceno
This article is also published in the March/April issue of eastwest.
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Why have Macron’s reforms stalled? Is it just a problem of communication or are there other underlying issues?
