10 accounts on which City A.M. has got it wrong on France
London, 09 January 2013
Allister Heath’s piece on France (France’s failed socialist experiment is turning into a tragedy, City A.M., 7 January 2014) is an ideological mix of prejudice and error. It misreads both the actual situation in France – which remains the world’s fifth biggest economy and number two in Europe, behind Germany – and the seriousness with which the French government has set about reforming the country.
Of a much longer list, here are ten statements that either miss the point altogether or need correcting:
1/ “While many other countries are recovering strongly, France is sinking again, its economy shrinking at an accelerating rate”:
The European Commission’s growth forecast for France stands at 0.2% for 2013 and 0.9% for 2014. Real GDP growth is expected to reach 1.7% in 2015. Even if one might hope to see faster growth, a little homework would have revealed that France’s economy is not in fact “shrinking at an accelerating rate”.
2/ “Its composite purchasing managers’ index (PMI) fell from 48.0 in November to just 47.3 in December (a number below 50 signals contraction; above that expansion)…”:
PMI surveys have been very unreliable in predicting France’s GDP growth over the last few quarters. Business surveys conducted by Insee, the national statistical agency, and Banque de France have had a better track record and both point to an economic rebound in the last quarter of 2013: +0.4 % for Insee and +0.5 % for Banque de France.
3/ “France’s economic sickness is primarily due to its overbearing state, horrendously high tax levels…”:
The French and UK tax systems are based on different traditions. For one thing, the French tax system is fundamentally more redistributive:
In the 2014 finance bill, the government has given specific, significant support to low incomes by increasing low-income relief and the bands of taxable income. This provides a total of €900 million of relief and will benefit seven million households, of which roughly 200,000 currently paying income tax will no longer be required to do so in 2014 (source: Ministry of the Economy and Finance, page 111).
Currently, anyone making less than €6,011 a year will pay 0% tax in France, while those earning between €6,011 and €26,631 pay less than 15% as a marginal rate (the lower rate is 5.5%). In the UK, equivalent earnings are directly taxed at the rate of 20%, unless incomes are lower than the personal allowance (£9,440).
A tax rate of 40% applies in the UK as soon as income reaches £32,011, whilst in France people benefit from a 30% tax rate until income reaches €71,397 (around £59,000).
High earners in France, with an annual salary upwards of €250,000 (around £210,000), actually pay the same rate of tax on their earnings as UK workers earning £150,000 and more, who are taxed at 45% (source: HM Revenue & Customs; Ministry of the Economy and Finance).
France’s redistributive system is a political and social choice and one for which the French government takes full responsibility. Moreover, France has shown it is willing to reduce taxation and rebalance public finances through reductions in spending, as President Hollande pledged in his New Year’s message to the French people (source : France in the United Kingdom).
4/ “…insane regulations”:
In his New Year’s address, the French President reaffirmed his commitment to simplifying administrative procedures, including those for creating companies (source : France in the United Kingdom). A full English translation of this speech is widely available on the Internet and makes good suggested reading.
5/ “absurd levels of inefficient public spending”:
France’s public spending is again based on a different tradition of public services. Take health as an example. Years of under-investment forced the Blair government to allocate large sums of money to the NHS, and the current government has had to ring-fence funding for this ailing institution. Despite all of this, difficulties remain; the Mid-Staffordshire, Morecambe Bay and Colchester scandals illustrate just how widespread problems in the NHS are. The French system, by comparison, which is also almost entirely free of charge, came top of 191 countries in the World Health Organization’s rankings for overall healthcare (source: World Health Organization); France also provides twice as many hospital beds per citizen as the UK. Similar success exists in infrastructure, from high-speed rail to energy.
France has always sought to achieve greater efficiency and will continue to do so in spite of future budget cuts. Clearly, however, when you live in France – from health to infrastructure and from energy costs to transport – you get bang for your euro.
6/ “...and generalised hatred of commerce”:
France’s trade surplus with the UK rose by 15.9% in 2012 and is France’s most significant bilateral trade surplus for the seventh year running (source: DG Tresor (Treasury)). This positive balance of trade is a sure sign that commerce and trade between our two countries, to name just one example, remains dynamic and unaffected by “generalised hatred”.
7/ “…. capitalism, success”:
It is difficult to argue that France shuns capitalism when it is the top European country in the Fortune Global 500, with 35 French companies featuring on the list.
Did you know that no fewer than 90 French companies appeared on Deloitte’s 2013 list of fastest growing start-ups in Europe, Africa and the Middle East? The top spot even went to a French company.
France clearly must not “hate” capitalism or capitalists, otherwise Xavier Niel, the French telecoms billionaire and media tycoon – to cite just one example – might never have had a chance to accumulate a fortune that exceeds Richard Branson’s. A teenage entrepreneur, M. Niel went on to launch France’s first Internet service provider. This ultimate self-made man is now the sixth richest in France. Success is clearly not a foreign concept to France.
8/ “and hard work”:
A very simple data search reveals that France’s labour productivity stands at a healthy €45.4 per hour worked according to Eurostat. This is well ahead of the EU-27 average of €32.1 (source: Eurostat 2012). Furthermore, the OECD reports that the average usual number of hours per week worked in France stood at 38 hours for 2011, compared to 36.4 in the UK and 35.5 in Germany (source: OECD 2011). Hard work indeed!
9/ “Why would any investor with any sense want to purchase assets and employ people in France? It is insanity – and a catastrophe for ordinary, law-abiding French workers condemned to sky-high levels of unemployment. Companies should not bother opening offices in France; there are plenty of better places for them to allocate their cash in today’s global economy”:
It would appear than an ever-growing number of multinational companies do not share Mr Heath’s view.
France is ranked sixth in the world for receiving Foreign Direct Investment, with $59 billion-worth of inflows in 2012 alone. In the same year a total of 693 investment decisions made by foreign companies resulted in nearly 26,000 jobs across France (source: Invest in France Agency).
Of course, French borrowing rates are renowned amongst foreign investors for their attractiveness, and even reached a historical low of 1.54% in 2013.
The 20,000 foreign company owners (source: French National Institute for Statistics and Economic Studies, 2012) doing business in France today and employing nearly two million people must clearly be suffering from insanity too!
10/ “The only solution would be a revolutionary change of tack, a complete rhetorical U-turn, a rejection of Marxist terminology and culture, massive cuts to public spending, drastically lower taxes and a long-term commitment to supply-side policies that increase the private sector’s incentives to hire, invest, save and work”:
Mr Heath may be unaware that France has embarked on a serious reform programme which addresses precisely the elements he mentions: spending cuts (public savings worth €50 billion are planned for the next four years), incentives to hire (an annual €20 billion in tax breaks given to employers to cut labour costs) and a general reform of taxation. Instead of taking spectacular and brutal measures, the French government has opted for serious, sustainable and socially fair policies in a very clear road map (source: Ministry of the Economy and Finance).