In OECD countries only Finland has higher government spending than France, which spends a whacking 57% of GDP. The UK figure (43%) is pretty well in the middle of the range. Ireland, having gone for austerity big time and seen benefits in economic performance is the lowest at 29%. (All this is 2015 data from the OECD).
Of course, the main reason why France's public sector spending is higher than ours is because they have a very different balance to their mixed economy, with much more state ownership of industry. Their main railway company, SNCF, is state owned. The main electricity company, EDF, is 85% state owned and was a monopoly until Brussels forced France to open up 20% of its electricity market to competition nearly 20 years ago. The French state owns all or part of at least 81 companies, from Alstom to Orange, Air France-KLM and Peugeot. So, with all the costs and revenues of those enterprises swilling through the books of the French state, naturally their total state spending is higher than ours. It's not a like for like comparison. Nevertheless, with Labour's proposals to take back control of activities from Royal Mail to the railways, water companies (and beyond?) it's interesting to look at what is happening in France. Should we be more like them?
How are they doing? Well, I recall French GDP used to be higher than ours. It's now about 6% lower, with a very similar population, 66.9 million compared with our 65.6M (2016 data). And France does have very high unemployment - at 10% of the workforce and a scarily high 24% of under 25s, both figures around double Britain's. France's deficit is actually lower than ours (3.4% v 4.1% of GDP in 2016) but, of course, you pay interest on the debt not the deficit and France's debt is higher (98% of GDP v our 87%). Maastricht rules required eurozone states to be below 60% or at least converging on that number at a satisfactory pace (great weasel words!) but Gordon Brown's target, at the time, was 40%. In the late 1990s, before Brown's spending mushroomed, France's debt was 50% of GDP, ours was on target at 40%. But when the credit crunched our deficit was ginormous at 11%, France's only a worrying 7%. So how come we are now in better nick, albeit not out of the wood? The answer is that the UK has grown, albeit modestly, since the financial crisis: 4.5% to France's 2.2% between 2008 and 2015. Also we've had slightly higher inflation. While not always a good thing, that has eroded our debt mountain (by paying savers and government bond holders sub inflation interest rates, but never mind). Contrasting the French and British positions economist Roger Bootle noted that France's economy is "more sclerotic" than ours but also that Britain had been able to pursue its own monetary policy which France, tied to the eurozone, could not.
Our bete noire, EU Commission president Juncker, noting that the French deficit was deteriorating again having only just got back to the 3% eurozone target, said that "the French spend too much money and spend it on the wrong things".
So we've done a lot better than France, because of this small but significantly better growth performance. And yet....
David Smith, writing in the Sunday Times a while ago, noted that France has a better balanced economy than we do and is less reliant on consumer spending. French productivity is "embarrassingly" higher than Britain, producing their GDP from fewer workers who work shorter hours. There is a theory that their 35 hour week, hated by most businesses, may have the effect of making workers more productive in the hours available. So they have higher productivity but we have more people in work. My own theory is that businesses will look more positively on investment to reduce labour requirements in France because they don't want to take on more bolshie workers than they have to, especially since they can't get rid of them easily if they aren't any good.
Smith concludes that the French economy is fundamentally strong and demonstrates that you can throw a lot of bad policy at an economy and do less damage than you might expect: France has had "more than its share of terrible policy in recent years but continues to have a lot of strengths". (This isn't something I'd want to see tested here by J. Corbyn).
Nevertheless, Smith also concludes that the French state is too large and the labour market too tied up in red tape. But it's not just red tape: governments have a predilection to take stupid decisions, often influenced by producer lobby groups. As an example, the FT article referenced below on state ownership noted that France had bought €500M of high speed trains it didn't need from Alstom in 2016 in order to save an engineering plant. The state of the art TGV trains, which can run at 320 kph, will be used on regional tracks with a maximum speed of 200 kph. Now it can make sense for governments to bring forward orders if a company is facing a temporary shortfall. Older high speed trains could be redeployed onto the lower speed routes, for example, extending their life. Such a decision could make economic sense. But, judging from the ribald response from French industry ("use fighter jets as buses", "replace tap water with milk" etc) this wasn't one of those - it was just as riduclous as it seems at face value. But it was in a pre-election period.Which is why these decisions aren't safe left to politicians. Consider the very different and comparatively mature response to this week's news here about job losses at BAE Systems as their order book for Typhoon Eurofighter jets isn't being replenished quickly enough.
At least one Frenchman seems to agree with Smith: President Macron, who is seeking to cap redundancy payments, streamline collective bargaining and curb union power, in a kind of Thatcher-lite, rather than Thatcherite, package of reforms. Although only 8% of French employees belong to a union (it's more than 20% in Britain), the 3,000 page labour code, whose origins date back decades, handed unions a voice in the day to day running of business, something Macron wants to start to roll back. He has also upset the grey vote, with proposals to reform state pensions.
Smith reckons France has been a strong competitor even when held back by misguided policies: "with some right ones it could become a stronger one".
My instinct is that Macron will need to be much more radical in cutting back the state to get France going properly. Which, even with his big majority, he may struggle to do, even if he has the inclination.
In the meantime it's to the barricades, mon ami! France isn't a basket case yet but is steadily heading there unless Macron can turn back the tide and either make the state smaller or get it to take better decisions - neither of which will be easy.
The other point I take from this is that George Osborne, who I have been very critical of for not achieving his target set in 2010 of eliminating the deficit by 2015, might actually have pragmatically got it about right. All the time Ed Balls was talking about double and triple dip recessions and doing that silly flat-lining gesture in the Commons (though maybe he was practising for Strictly) the economy was actually recovering. There never was a double dip. The opposition was demanding more spending when it wasn't necessary and would have meant debt stayed higher. Equally, deeper cuts might have caused a further recession.
Getting this balance right isn't easy, especially when the real time economic data is often inaccurate and is subsequently adjusted. Roger Bootle says the contrast between the Franco-British experience and Greece shows that "you cannot cut your way to prosperity". I'm not sure about that, as the Irish economy has grown quite strongly to deep cuts. But the Greek cuts imposed by the German economic establishment who, as Bootle says, haven't read or understood Keynes, were too deep, reducing the level of economic activity too far. But while you might or might not cut your way to prosperity, you can cripple an economy by overspending, leaving a debt hangover which takes years to ease.
While not advocating that we should have imposed Greek style austerity, we don't know whether it would have been better to go the Ireland route, as I worry that our debt is still too high going into the choppy waters of Brexit, even if we are, for the time being, in slightly better shape than France. Of course Osborne would say that Brexit was never in his plan and we'd be in good shape economically had we voted Remain. I would find it hard to argue with that. Osborne couldn't have been expected to plan for Brexit when setting his economic policy in the last but one Parliament. Unlike Phil Hammond, who is reluctant to spend money now preparing for a no-deal Brexit which is entirely forseeable, though not desireable. Hammond doesn't seem to understand that preparing now will make the outcome he doesn't want less, rather than more, likely.
I think we should be trying to improve productivity so we can pay people more for doing fewer hours. Other than that, I don't think we should be more like France, at least in terms of economic policy.
Sources:
OECD data is at https://data.oecd.org/gga/general-government-spending.htm
David Smith's column Vive la France - and an economy on the up at last, was published in the Sunday Times on 30 April 2017
Michael Sheridan, 'Hot Autumn' looms as militants fight Macron's union reforms, Sunday Times 3 September 2017
France - the politics of state ownership, FT 13 Nov 2016 is at https://www.ft.com/content/9be75d5c-a72e-11e6-8898-79a99e2a4de
EU Commission lays out the scale of Macron's French budget woes, FT 11 May 2017
Roger Bootle: France's staggering debt levels are far more worrying than ours, Telegraph 19 July 2017
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