In the August 26th issue of the Economist appeared an article about Emmanuel Macron with the title “Macron stumbles”. It tried to explain that how and why his popularity plunged in the recent months. The writer raises three arguments of which two are completely dealing with the French president’s communication and political strategies (inviting Trump to the Bastille Day parade and giggling with Rihanna at the Elysée Palace). Perhaps the third argument has my interest from the perspective of political economy.
Mr. Macron’s strategy to stick to the budget deficit rules of the EU is not to raise taxes but to cut spending. This means curbing the famously elaborate French bureaucracy by freezing public-sector pay. On the other hand he aims to cut taxes, levy less on work and business to create more jobs. It can be interpreted that he plans to go in the direction of some kind of laissez fair economic governance. Less government, more free market, a rather unusual stance in the contemporary France, which is used to a more paternalistic state.
Let’s examine how the president’s recent measures fit into the picture of classical economic theory. If we take List, we can say that Mr. Macron evaluated his country’s position well. France is a developed economy with strong, mature industry operating in a fairly well-functioning political (and therefore commercial) union, the EU. In this sense, according to List, more free market indeed makes France wealthier. The president’s steps in order to strengthen the EU and take leadership also fit the picture. A better functioning political and commercial union (or one, which is not falling apart) is inarguably more favorable for France in its current position.
We can also find parts in Adam Smith’s Wealth of Nation, which reinforce Mr. Macron’s actions. Smith argued that productivity is the sole source of wealth. More simply stated the ability and the efficiency of making products is what determines the wealth of nations and not the gold/foreign reserves/etc… they currently have. Smith also argues that the sovereign is clearly an unproductive part of the economy, its only role should be regulating the productive forces. Mr. Macron’s steps can be interpreted as pointing to the direction of Smith’s theory. By taxing work and business more and freezing the pay in the public sector he aims incentivize the labor force to shift from an unproductive to a productive activity.
On the other hand the new labor laws also fit into the picture. The president aims to break the power of trade unions by introducing new laws, which make it easier for small- and medium sized enterprises to hire and fire, therefore catalyzing the division of labor. Till this SMEs could not negotiate with workers directly on terms and conditions of contracts just indirectly through a labor union. Needless to say this practice substantially slowed down the agility of the workforce (and the firms also). By increasing the speed of the circulation of laborers can increase the degree of division of labor in the economy since workers wouldn’t be stuck in bad positions for long and will faster find a new place, maybe a new specialization. As increasing the degree of division of labor it also should increase productivity (if we take Adam Smith’s theory).
All these measures look beautiful in the light of classical economic theory, but not as stellar in today’s France, which is used to heavy unionization, large government and traditions in the labor arena. So if we accept that Mr. Macron is doing the right thing (in the light of classical economic theory), then he’s punished for doing that in terms of plunging popularity figures. Should Mr. Macron change his mind or go on with his ambitious project to change France from the large state based to a more free market oriented economy? Or on the other hand the French people should remember that they voted for change and should not be surprised when they get it?
- Economist, August 26th 2017, “Macron stumbles“
- Friedrich List – National system of political economy, 1841
- Adam Smith – Wealth of Nations, 1776
- Guardian, August 26th 2017, “Macron government launches overhaul of France’s labor laws“