Sunday, 24 September 2017

The centre holds


It is now almost four months since Emmanuel Macron was elected President of France. On Friday of last week he signed the executive orders reforming the French labour code that he promised during his campaign and that his government has been preparing all summer. The opposition parties are still struggling to find their feet after their defeat at the presidential and parliamentary elections and events of the past week have only made their divisions more visible.



This Sunday, September 24th, as Germany goes to the polls to elect its new parliament, it is worth noting that the French government under Edouard Philippe, unusually for France, looks a lot like Angela Merkel’s grand coalition that has governed Germany for the past four years.  After splitting both the traditional left and right-wing parties and bringing together the moderates of both, Emmanuel Macron is governing from the centre in much the same way.



For the moment, the forces opposed to him are still reeling from their defeat in the elections. The Parti Socialiste, after failing miserably to make the run-off in the presidential election and losing a considerable number of MPs in the parliamentary elections, has been reduced to putting its now oversized headquarters up for sale and is ruled by a 16-person committee. It has said nothing of note about labour market reform. On the radical left, Jean-Luc Mélenchon has styled himself as the only real opposition to Macron and has been attracting media attention by gimmicky tactics in parliament and outlandish statements to the party faithful. Just four months after a hotly contested set of democratic elections, he rallied supporters in a street demonstration in Paris on Saturday and claimed, in all seriousness, that true democracy was only expressed in the street because if was protestors in the streets who had toppled the Kings of France and the Nazis! Until he can find something more credible to say, he is unlikely to mobilise many voters beyond his hard core of unquestioning supporters.



The Front National, that could have been expected to form an opposition from the far right, is also in disarray, unsure of if its future path and leadership and riven by ideological divisions. Florian Philippot, its number 2 until the end of last week and the architect of the party’s newly won respectability, but also its ill fated “ditch the Euro” platform at the presidential election, announced his departure from the party on Friday after being stripped of his powers as vice-president. A lot of the party’s rank and file was never happy with the ideological shift that he persuaded Marine le Pen to adopt and wants to revert to its former focus on identity and immigration. The fact that Philippot is gay never endeared him to many party activists either, whose xenophobic, homophobic and anti-elitist leanings were naturally antagonistic to a gay, ENA-educated and media-savvy vice-president.  Many activists and voters would like nothing more than for Marine Le Pen’s niece, Marion Maréchal le Pen, to lead the party into the next elections. However, having announced just three months ago that she is leaving politics altogether, it is doubtful she will oblige, at least not yet. This being said, Marine Le Pen’s disastrous performance in the run-off presidential debate in May still rankles and has surely compromised her chances of contesting the next presidential election in 2022, especially if Emmanuel Macron stands for a second term



Which leaves the rest of the right-wing opposition of “Les Républicains”. Now that three of its leading members are pillars of the government, the party is in the throes of redefining itself and seems to have split three ways.  Some members have formed what they call a “constructive” wing, offering qualified support for the government’s reform programme. Others have formed up behind Valérie Pécresse, current President of the Ile-de-France regional council and call themselves “Free” (Libres). It is not yet clear how they wish to differentiate themselves from the other parts of their party. The more hard-line members consider that only a resolutely right-wing opposition party can be a credible alternative to government.  Their standard bearer is Laurent Wauquiez, who passes for a disciple of Nicolas Sarkozy and who is likely to be elected to lead the party at their forthcoming congress in December. It will be interesting to see what the party’s attitude will be to those of its members who are now government ministers.



Whether this clarification, when it comes, will lead to greater permeability between Les Républicains and the Front National remains to be seen, and ultimately of course, it is voters who will decide. But as the next national elections are not until 2019 and 2020, there will be a lot of manoeuvering between now and then, starting with the parliamentary debates on next year’s budget in October.  



For the moment though, it looks as if Macron and Philippe have a firm hold on the centre ground, both in government and in parliament, with opposition from all sides either muted or lacking credibility.  Notwithstanding Mélenchon’s more outrageous statements, there will surely be challenges in the streets to the forthcoming announced reforms of unemployment insurance and vocational training, not to speak of the highly contentious issue of pensions. All three could be explosive. As often happens in France, a spark from an unexpected quarter could ignite huge popular protests. The government is said to fear more than anything demonstrations by university and high-school students or protesting lorry drivers blocking the country's roads and motorways. Macron’s future - and the future path of France - will depend crucially on whether he can skilfully exploit the window of opportunity that has opened up before him and demonstrate the necessary political skills to coax through the reforms on which he has staked his reputation.


Monday, 18 September 2017

Food, glorious food ! (1)


France has long and rich gastronomic traditions that are deservedly admired all over the world. Food is one of the country’s favourite topics of conversation and, on all possible occasions, people delight in swapping tips about food shops and restaurants, not to speak of wines. Foreigners often find it hard to understand why so many French people have scarcely finished one meal when they start planning the next. In the French language, many metaphorical expressions have food or wine as their theme. General de Gaulle, who had a reputation for colourful turns of phrase, once expressed a sense of exasperation with the French by exclaiming: “how can you possibly govern a country that has 258 varieties of cheese?" (“Comment voulez vous governer un pays où il existe 258 variétés de fromage?”)



Given this deeply entrenched food and eating culture, it is sad indeed that the French, above all peoples, seem to have become so readily accustomed to the mediocre produce they now find in most of their shops and supermarkets.



When was the last time any reader can remember eating a tomato, an apple or chicken that tasted like a tomato, an apple or chicken?  Not to speak of strawberries, now routinely sold out of season, that often taste no better than cardboard soaked in water. The answer is probably many years ago, unless of course you grow your own fruit and vegetables and keep hens in your back garden. But most people no longer have the space, the time or the inclination to do so. Perhaps also, French taste buds have been slowly numbed by having so few alternatives to bland and mediocre fare. It is only when one visits a deserted corner of rural France or a less developed country, in Asia for instance, that one fully realises how much taste has been lost over the years.



The underlying reasons for all this have been well rehearsed: In the space of just three or four generations, France has gone from being a largely rural, agricultural country to a constellation of large cities and built-up areas with big, almost abandoned spaces between them. Large retails chains like Auchan, Carrefour, not so long ago the world’s 2nd largest retailer and the more home-based Leclerc, have grown fast by serving large concentrations of population with large stores and fierce competition on prices. According to INSEE, the national statistics office, the average household spent 35% of its budget on food in 1960 but that figure has now shrunk to 20%, a quarter of which is spent outside the home. Of course, the general increase in living standards goes some way to explaining this, but there are also the attendant changes in life styles, with more two-adult households going out to work and children eating lunch at school. In parallel, agriculture in all its forms has become an industry and quantity has largely replaced quality. In all this, France has typically, some would say tragically, followed the same trend that has been apparent in the U.S for decades.



Even that time-honoured myth about France's two-hour lunches has faded. In French cities today, despite the willingness of some to perpetuate the myth by taking clients or foreign guests to a top-class restaurant, most employees are only allowed an hour’s break from their work and many are content to eat a baguette sandwich or a McDonalds cheeseburger. In the evening, after a long trek home in overcrowded buses or trains or through endless traffic jams, there is little energy left to do much more than heat up a ready-to-eat meal out of the freezer or fry fish fingers accompanied by pasta or rice, finishing off with a milk based, over-sweetened desert in a plastic container. Picard, a chain of frozen food stores, is now strategically placed in most high streets but its convenient and attractive-looking offerings turn out, more often than not, to be bland and devoid of real taste. Supermarket shelves overflow with sweet deserts of all kinds.



The food industrialists have not been slow to jump on the organic food bandwagon to try and persuade the French that they cannot only eat better but also more healthily. And, by and large, French consumers have fallen for it. In the town in which I live in the western suburbs of Paris, there are now no less than four organic food shops within a mile of each other, three of them belonging to national retail chains and the fourth a small shopkeeper. Having tasted their fresh produce, I must honestly report that I am not convinced of the need to pay more for apples or carrots that may have been grown without herbicides or pesticides but which do not taste perceptibly better. And some of their best ideas like cereals, nuts and dried vegetables available in bulk have been largely copied in the normal supermarkets. I wonder which one of the four will go out of business first  - and which will survive when the organic bubble bursts.



In a word, food in France has been largely commoditised, in the same way that so many other goods and services have been, and commoditisation is having the same impact it has had on other industries. There will continue to be a mass market served by large retail chains charging the lowest prices they can without going out of business. To remain competitive, they will continue to squeeze every possible cost, from staff to transport to produce. But for a smaller number of more discerning consumers, perhaps more in France than in other European countries, who are willing to pay much higher prices for much tastier produce, there will be up-market specialist shops or market traders who either grow their own produce or source from carefully chosen suppliers. The losers will be the shops, supermarkets and traders with no discernible advantage in terms of price or quality.



I suspect that this fate is already befalling Carrefour, which used to be one of France’s most successful retailers, as well as an exporter of French food and retail know-how to the rest of the world, but is now struggling to reinvent itself. But that will be the subject of a future post.





(1)  The title of a song from Lionel Bart’s musical “Oliver”, based on Charles Dickens’ novel “Oliver Twist”.

Monday, 11 September 2017

Amazon in France:a love-hate relationship!


In just a few years, the Internet giants that even French journalists now call “les GAFA”, have made as profound an impact on everyday life in France as in most other countries. In doing so, as perfect examples of digital-driven globalisation, they have generated highly ambivalent attitudes among consumers. Quite often, the same people who engage with them intensely on their desktops or smartphones on Saturday, will vote for avowed anti-globalisation parties on an election Sunday. This ambivalence became clearer to me through two recent chance encounters.


The small Breton seaside village in which I have spent most of my summer holidays for the past 40 years has a population of about 500 for most of the year that swells to more than 10,000 during the peak tourist season. Thanks largely to the income from tourism, the village can support a small supermarket, a doctor’s surgery, a pharmacy and, somewhat surprisingly perhaps, a small bookshop selling books, maps, postcards and the like. They all manage to stay open throughout the year. This in turn means that the village is still a reasonably balanced community with people of all ages, including enough young children to justify a small primary school. It has thus escaped the fate that has befallen so many small villages in France that do not have the attraction of long sandy beaches and boat trips round the islands.


Although, like many people in France, I buy most of my books these days on-line and read them increasingly on a Kindle or similar device, I always make a point, to salve my conscience perhaps, of buying my summer holiday postcards from the bookshop in the village. I was in there doing just that this summer when another customer came in and asked for a book that the bookseller told him was out of print. He said he would try and find it through his “own network”, as he put it. Oblivious for a moment to the thin ice I was about to fall through, I ventured that it might perhaps be found on Amazon or the Amazon market place. This caused the bookseller, normally an affable and mild- mannered man, to launch into a long and blistering attack on the Amazon “bandits” who pay no taxes in France and who even manage to have their VAT refunded! The survival of his shop in the village, he went on, was due mainly to the fact that, under French law, all new books are sold at one and the same retail price regardless of their distribution channel, as well as to the presence of the supermarket, the primary school and the pharmacy next door. If it weren’t for all that, he concluded, he would have to close down his shop as there was no way it could survive by being open only during the summer.


Many politicians of course, and not just on the extremist fringes, have had a field day exploiting such sentiments and the popular media are quick to relay the complaints of “hard-working over-taxed small shopkeepers” confronted with the “freeloading Internet giants” like Amazon.  You have to go to the more serious media to find out that, at the instigation of governments confronted with the same phenomenon throughout the EU, the European Commission, among others, is working hard do something about what it calls “aggressive tax planning”. It is indeed abundantly clear that the GAFA, together with many other multinational corporations, have devised sophisticated tax optimisation strategies to avoid having to pay high rates of corporate income tax in relation to their actual sales and profits in a particular country. One article I read showed a detailed diagram tracing the multiple financial flows between national subsidiaries towards holding companies in Luxembourg, the British Virgin Islands and the State of Delaware, where corporate income tax can be minimised. As an example of one of the many and various national, EU and OECD initiatives that are currently on the drawing board, the European Commission is working on a “CCCTB (common consolidated corporate tax base) directive”. If adopted and implemented, this directive would oblige the GAFA to consolidate their revenue from all countries in the EU and pay an agreed level of tax that would be apportioned to the member states on the basis of the revenue generated in each one.



Whether the CCCTB directive, if and when it eventually comes into force, will make the position of my village bookseller any more secure is a moot point. But it would in theory put him on an equal footing with Amazon in selling books, and maybe, all other things being equal, ensure the continued presence of his bookshop in the village. That being said, as Internet becomes more and more prevalent, consumers clearly find it more convenient to buy books, as well as many other items, on-line, as the large number of other on-line booksellers testifies, not to speak of Amazon’s smothering embrace of many other retail markets.  But Amazon will probably continue to be a convenient popular scapegoat for the inevitable ills of globalisation.



But there is of course, as always, another side to the story. It makes fewer breathless headlines but will probably have an equally lasting impact. It concerns the investments made and the jobs created by the Internet giants. The GAFA have made substantial investments in France, in European or national headquarters, flagship stores, research laboratories and, as far as Amazon is concerned, logistics centres.  Over the last ten years or so, it has built four large logistics centres in France. It is building a fifth in the north of the country, an area hit by industrial decline and high unemployment, and has just announced its intention to build a sixth in the Paris area. To date, it has created about 5000 jobs.  Naturally enough, it has been encouraged to do so by generous public investment subsidies, including one of over €1 million for the building of a giant warehouse in a part of rural France where the former “minister of productive investment”, Arnaud Montebourg, used to be an MP. During his ministerial tenure, he was mainly known for his “buy French” campaigns and occasional violent criticism of globalisation. In this case, he clearly used his ministerial powers of persuasion to help the local authorities clinch a deal with Amazon.



Nor is it entirely accurate to accuse Amazon of paying no taxes at all in France. Like any business, it pays local property and business taxes and, more importantly, contributes through compulsory payroll levies to the health care and pension provision of all its French employees. One of them is a young woman I was sitting next to on a plane last year. Definitely a member of the Y generation and a child of globalisation, she was on her way to Tokyo to take up her first job as a junior manager for a French logistics company operating in Japan. A few days after my conversation in the bookshop, I found out, through LinkedIn, that she has now returned to France and taken up a position as area manager at one of Amazon’s largest logistics centres in France.  She is no doubt happy to have a good job doing what she trained to do in school.



Whether her story will be of comfort to the village bookseller in Brittany is a matter of some doubt. She, after all, is a winner from globalisation whereas he is a potential loser. I nevertheless hope that I shall still be able to buy my postcards in his shop for a few summers to come.

Wednesday, 30 August 2017

The next grand bargain ?


President Macron’s tour of central European capitals last week was ostensibly about reforming the EU posted workers directive. The directive, that came into force as long ago as 1996 and has been tweaked a few times since, is clearly in need of reform. As a half-way house between freedom of movement and no movement at all, the idea of posting workers from one EU country to another for a short period of time, abiding by the host country’s minimum wage regulations but escaping their, usually higher, social contributions, does not in itself seem a bad idea as a way of contributing to the gradual convergence of living standards. That being said, it has clearly been abused by unscrupulous employers, some of whom have gone so far as to set up shell companies in countries like Bulgaria and Romania solely to be able to employ cheap labour in high-cost countries. Abuse of directives however would not normally be a priority concern for a French President; once a Directive has come into force, it is, after all, the European Commission’s job to police it. But by publicly insisting that the Directive is “against the spirit of Europe” and engaging with some of the governments most directly concerned, including the firing of a well-aimed warning shot across the bows of the Polish government, Macron has given us some clues as to his underlying motives for taking up the issue in the first place.



Macron has said on more than one occasion that Europe should “be more protective”, a somewhat enigmatic phrase, the meaning of which is now starting to become clear. In doing so, it throws light both on France’s domestic and European agendas. As I have written here before, the French in general enjoy a high level of social protection and have not taken kindly to “posted” workers undercutting them on building sites or driving endless streams of lorries the length and breadth of their motorways. Opposition politicians and trade unions have been quick to talk of unfair competition, unbridled liberalism or uncaring capitalism. Macron knows only too well that such feelings can generate populist reactions of the kind that gave Marine le Pen and her Front National an unprecedented harvest of votes in the recent elections and that were also one the major reasons for the outcome of the Brexit referendum.



However, now that Britain is heading for the exit, its influence on policy waning fast in the halls and corridors of Brussels, is this not an auspicious moment for a young, newly elected and ambitious French President to seize the initiative and, together with Germany, push France's agenda of  “deeper integration”, a coded phrase for more harmonisation along French lines, more regulation, greater protection and less competition, in a word, less anglo-saxon liberalism, of which the UK has always been seen by the French as the champion?  This being said, Macron is also fully aware that French levels of regulation, worker protection and the resulting high levels of public spending are unsustainable and one of the reasons for the higher levels of unemployment in France than in most other EU countries. He even went so far as to point this out himself, clearly for the benefit of French public opinion, in a joint press conference with the Austrian Chancellor, Christian Kern, in Vienna last week. The question is therefore, how far can Macron go in reducing these levels of regulation and protection while ensuring that their basic principles gradually spread to the rest of the EU but still stay strong enough in France to stop a majority of voters from expressing populist-driven rage at the next election?

  
At a time when many in France see the forthcoming reform of the French labour market as little more than a capitalist plot to give more flexibility to employers to the detriment of workers’ rights, it is therefore significant that Macron is seeking to curtail competition on labour costs from the rest of the EU, and particularly its newer and poorer members, by insisting on reining in the effects of the posted workers directive.  Of course, those members would like to enjoy the same generous levels of heath care and pension provision as those enjoyed by French workers and pensioners. Eventually, they probably will. The issue for them, as for all other members of the EU is how best to achieve it and how long it will take. Macron’s preferred solution is more widespread French style regulation and he is starting to sketch out the series of compromises necessary to persuade other members to adopt it. He seems prepared to offer a (slightly) less regulated French labour market and greater fiscal discipline. What will he expect in return? For Poland, for instance, to step back into line on democratic freedoms and the rule of law in return for continued unrestricted access for its workers to the rest of the EU? For Hungary and the Czech republic to take in more refugees in return for continuing massive regional aid from Brussels? For Germany to relax somewhat its strictures on fiscal deficits and show greater solidarity with other members of the Eurozone as a price for its industry’s privileged access to a market of 500 million consumers?


A lot, some might say the very future of the EU itself, will depend on what compromises are struck and, crucially, how they are sold to national public opinions.  The forthcoming meetings on the reform of the posted workers directive will give a first clue, as will, in the middle distance, the political horse-trading over the future Presidents of the European Commission and the European Central Bank. This autumn, we should have the ECJ ruling on Uber v. Barcelona, that will establish whether Uber is considered under EU law as a mere digital platform or, on the contrary, a fully fledged employer subject to licensing regulations and the attendant obligations towards its workers.  In any event, Macron’s ideal spin will be: “no need to fear too much deregulation or EU low-cost competitors because they are now, thanks to France, moving towards our levels of worker protection”. Not only will such talk be designed to reassure French public opinion but, more fundamentally, it will be true to the agenda of integration and harmonisations that France has pursued ever since the start of the EU. The original grand bargain was massive support for French agriculture in exchange for tariff-free access for German industry to the rest of the area, overseen by a French style administration in the shape of the European Commission.  General de Gaulle, it may be remembered, was adamant that the UK should not be allowed to pollute the EU club with its anglo-saxon economic liberalism and vetoed its entry in 1963. Another Frenchman, Jacques Delors, President of the Commission from 1985 to 1995 was the leading light behind other major advances in integration, like the Schengen agreement (1985) the single European act (1986) and the Maastricht treaty (1992) that established the Euro.



Many years and many more member countries later, but once again without the UK, the time could be ripe for the next grand bargain. It will take some time for its contours to become visible but President Macron and his administration are already working on it. Engaging the governments of the poorer countries of the EU is clearly the first move in an interrelated sequence of events that will take some years to play out.




Thursday, 24 August 2017

"La rentrée"


Back in April, I wrote ("School's out "- April 11) that for most people in France, life tends to revolve around the school year, with parents, grandparents, resorts and tourist offices throughout the land planning their day-to-day activities according to whether children are in or out of school. The most typical sign of this national obsession with the school year is the "rentrée scolaire", i.e "back to school time", when children and parents return from their long summer holiday to an everyday life organised, once again, around the school day.  Well before the date at which all French schools re-open their classrooms, the media are full of talk about "la rentrée", from the amount of a special back-to-school allowance for less well off families to the impressive list of exercise books, textbooks, pencils, compasses, rulers and calculators that schools prescribe according to the grade in which their children will return to school. The back-to-school allowance is paid out this week and anyone in a bookstore, stationer’s or supermarket will witness the unmistakable sight of mothers (usually) and their children seeking out the supplies they need and ticking them off on a long list provided by their school.



To underscore the importance of this landmark event in French national life, the term "rentrée" is also used extensively in connection with other activities that spring back to life after the long summer break: No self-respecting political party or important national politician would miss "la rentrée politique" during which political parties organise their "summer universities" at which their leaders, for the benefit of their activists and a freshly attentive public, state or restate their policy aims and programmes. Trade union leaders vie with each other to be the first to make their "rentrée syndicale" at which the dates of the autumn’s street demonstrations and protest marches will be proclaimed or confirmed. This year, the country has already been put on notice that a national day of action will be held on September 12, undoubtedly to protest about labour market reform on which negotiations have been quietly proceeding during the summer. According to whether the unions are mildly or severely angry about the government’s promised reforms, "la rentrée sociale" (a time-honoured euphemism for autumn street demonstrations and marches) will be either tense (agitée) or calm (apaisée). Unless of course the government manages to drive a wedge between the main unions, in which case it is more likely to be a damp squib. As we have yet to see the full details of labour market reform, it’s difficult to predict the flavour of the coming "rentrée sociale", but there is little doubt that it will take place in one form or another.



In a totally different area, "la rentrée littéraire" is the best time of year for established writers to bring out that long-awaited new novel or for less well-known ones to hope for a breakthrough. All this frenetic publishing activity is of course intended to stimulate interest in the prestigious literary prizes (Prix Goncourt et al.) that are awarded later in the autumn.



As talk of "la rentrée" invades the media and its reality takes over everyday life, it is perhaps worth remembering that its all-pervasive nature, from Strasburg to Brest and from Marseille to Calais, is surely no accident of history, but on the contrary, one of the many small everyday signs and symbols of the drive for national unity that is one of the country’s most enduring characteristics. In an interview on "The identity of France" with "Le Monde" shortly before his death in 1985, the historian Fernand Braudel referred to the concept, coined during the Revolution, of the "Republic (being) one and indivisible" and concluded: "One of the components of France’s identity is this need for concentration and centralisation, against which it is dangerous to act."*



This blog is glad to make its "rentrée" and looks forward to the many and varied events on which to comment in the coming (school) year!



* Unless otherwise stated, all translations from French and German in this blog are my own.

Sunday, 6 August 2017

There is no such thing as a free lunch. Part 3: health care


The French have a reputation for hypochondria that is not entirely undeserved. Molière’s famous comedy “Le Malade Imaginaire” (usually translated into English as “The Imaginary Invalid”) still resonates strongly with audiences, nearly 350 years after its first performance. They watch with glee as the hero, Argan, groans and grumbles about his imaginary ailments, follow the many and various remedies proposed to alleviate them and perhaps too, secretly identify with his deepest desire to have his daughter marry a doctor.  In everyday conversations, health issues are never far below the surface and there are many who take their cue from the everyday greeting “how are you?” to tell you exactly how they are, in every possible detail.



This predilection of the French for their own health is surely one of the reasons why they have chosen to give themselves one of the best and most generous health care systems in the world, in terms of quality, availability, medical technology and cost to patients. But it is also, in its way, the ultimate free lunch inasmuch as the vast majority of patients are oblivious to its true costs. Latest developments are likely to conceal them even more.



Health care is under the authority of a large administration that also manages pensions and family allowances. It raises revenue from compulsory earnings-based contributions from employees and employers, the latter paying the larger share. Employees can, if they so wish, trace on their pay slips the amount paid by themselves and their employers, but most don’t bother, being primarily interested, naturally enough, in their take-home pay. They therefore tend to discount, not to say take for granted, the real cost of their health care and pension entitlements. The self-employed, also subject to compulsory contributions, are a little more conscious of what they pay, but full tax deductibility goes some way to deadening the pain. In 1991, in view of the increasing deficit of the entire social security system, a new tax, called the contribution sociale généralisée (CSG) based on all sources of revenue was introduced and a little later a special and “temporary” levy designed to pay off the system’s mounting debt. The rate at which the CSG is levied has steadily increased, from an initial 1.1% to the current 7.5% and the temporary levy is still in force. Although the government initially maintained that the CSG was a tax based on all revenue and therefore not specifically a "social contribution", the European Court of Justice found otherwise and ruled, in 2015, that non-resident recipients of dividend and other income from French assets were not obliged to pay CSG because they don’t benefit from health care in France.  It is also clear that increasing life expectancy and the fact that most people require more health care as they grow older can only increase the system’s annual deficit and lead to further escalation of its accumulated debt. Governments sometimes manage to contain the deficit and declare triumphantly that it has been reduced from, say 11 billion euros to 3 billion, always failing to add that the debt remains and grows bigger every year.



The way the system works makes it easier to understand how the deficits and debt continue to grow. Patients may consult the doctor of their choice, within limits, pay the doctor directly for the treatment they receive and are refunded almost the entire cost by the health care system. Doctors, for their part, do not only make a diagnosis and prescribe the appropriate treatment but are also keen to give their patients “value for money” because they are also their clients! It is here that the essential difference between the French system and those of many other countries can be found – and it goes a long way to explaining why French public expenditure and national debt is so huge. In the U.K for instance, governments allocate fixed budgets to the health trusts that administer the National Health Service and they have to make the difficult choices about how to spend it. In the U.S, for those not on Medicare or Medicaid, insurance companies call the shots. In France, difficult choices are avoided inasmuch as health care costs are generated by medical professionals, refunded to patients with few questions asked and the total amount of expenditure is recorded at the end of the year. Unsurprisingly, it invariably turns out to be higher than revenue.





It is the kind of system that encourages people to spend more or less what they like on their healthcare and doctors have little reason not to give them what they want. Two examples suffice to prove the point. When CT and MRI scanning machines were introduced some years ago, there was brave talk of limiting their use only to the most serious cases. Under pressure from patients and doctors, these types of investigation are now widely available and used routinely in establishing a diagnosis, regardless of the cost. In terms of drugs prescribed, the top ten most costly drugs for ailments like rheumatoid polyarthritis, diabetes, high blood cholesterol levels and some forms of cancer cost over €23 billion in 2014. The third most costly drug was the lowly Paracetamol, at just over I euro for 16 tablets.  Mainly under pressure from patients, steeped in the generalised “refund culture”, doctors added €321 million worth of this mild, over-the-counter painkiller to their prescriptions in the same year. The system is also generous in terms of surgery. In the U.K, patients over the age of 80 cannot normally expect to have hip or knee replacement operations on the NHS. Nasty words like discrimination and rationing are avoided but that is what it amounts to. In France, patients between 80 and 90, all other things being equal, can have their hips or knees replaced, fully refunded by the health care system. Any whiff of health care rationing on the basis of age, or any other criteria, is anathema.  Quite rightly so, most in France would argue.



Conscious of escalating liabilities, successive governments have not been unsuccessful in streamlining the system and cutting its costs. The old paper based refund system has been largely replaced by a state-of-the-art card-based data transmission network; uncomplicated surgery is performed increasingly on an out-patient basis and doctors have been encouraged to prescribe a greater proportions of generic drugs, although of course the most recently developed, and therefore most effective and also most costly drugs are still under patent protection. There is always talk of making patients more “responsible” but there are huge built-in incentives not to be. On top of the half-concealed payroll costs, the previous government introduced legislation to oblige companies to provide top-up health care insurance for all employees, as a way of transferring more costs to the insurance companies. In addition, generalised third party payments have been introduced for everything. Most patients now just have to produce their health care entitlement card when they consult a doctor, pick up drugs at a pharmacy or undergo surgery in a hospital or clinic.



Is there any way of slowing the inexorable upward path of health care costs in the French system and bringing them eventually back into balance? The omens are not good. The system itself, because of the way it works and because its real costs are so well concealed from patients, is highly biased towards more expenditure Not only is there a very strong culture of seeking medical treatment at will and simply passing the bill on to the system, but in addition, the recently introduced third party payment, and the top-up insurance paid for by employers are powerful disincentives for patients to economise on their health care or pay for more of it out of their own pockets. Emmanuel Macron’s electoral promise to replace employee health care and unemployment insurance contributions by an increase in the CSG is in the same vein. The political advantage of such a move is obvious: employees will see an increase in their take home pay (pensioners of course will see the opposite effect). However, tilting the burden of funding towards the CSG, which is largely deducted at source, will make the costs of health care even more opaque. As one commentator pointed out the other day, the overall effect of this measure will be to increase the amount of tax (VAT and CSG) deducted at source and therefore, supposedly,  “painless”, while income tax, for instance, paid by an ever smaller proportion of households, will account for an ever smaller proportion of overall tax revenue.



The conclusion that can be drawn from all this is that one of the major components of public spending, that the current government is committed to cutting, is more than likely to continue growing, unless restrictions are introduced to oblige French patients to pay more of their health care costs out of their own pockets and therefore become less spendthrift. Such moves would undoubtedly cause a huge outcry and will probably never be seriously considered. Overall therefore, it doesn’t look as if this particular free lunch will be made less nourishing any time soon.


Monday, 31 July 2017

There is no such thing as a free lunch - Part 2: the motorways


As every foreign motorist familiar with France will know, intercity motorways are certainly no free lunch. In this respect, they are a notable exception (water services being another) to the rule that public services are always provided by the state. The vast majority of the country’s intercity motorways are toll roads, conceded by the state to private companies. Given the general distrust in France of capitalism in general and private companies in particular, the relationship between the French motoring public and the companies is not always a happy one – and politicians do little to make it happier - on the contrary.



The economic case for toll motorways is fairly clear-cut. The infrastructure can either be paid for by the state out of general taxation or it can be paid for by users, or by a mixture of the two. Both models exist in Europe. In France, the toll model seems amply justified inasmuch as not all French taxpayers use the motorways but many foreigners who flock to France’s beaches and ski slopes throughout the year, and who are not French taxpayers, do. Initially, when most of the motorway network was built, the state charged the tolls but between 2002 and 2006, the government of the day decided to privatise the networks in order to raise much needed revenue and recoup its initial costs. After a European-wide call for tenders, the concessions were awarded to a number of companies who purchased the infrastructure for a period of 30, 40 or 50 years, funded it with debt, undertook by contract to maintain and develop it and, in return, collect the tolls. Unlike the SNCF (see my previous post) the concession holders are private companies who have to make enough revenue to pay off their debt, cover their own operating costs and keep their shareholders happy by paying regular dividends.



Given fairly strict regulation of the tolls the companies can charge and the rate at which they can increase them, it is perhaps surprising that the issue has generated so much controversy. Motorists regularly complain about price increases and politicians are often quick to jump to their defence, accusing the concession holders of gouging consumers, conveniently forgetting that they cannot increase tolls more than their regulatory obligations allow. The peak of such demagogy was reached when the former Minister for the Environment, Ségolène Royal, always quick to spot an issue from which to make political capital on the cheap, demanded that motorways should be free of charge at weekends. Various reports, in particular one from the very serious national court of auditors, have concluded that, given the profits made by the concession holders since privatisation, the state sold its motorways at much too low a price. Some politicians have even suggested that they should be taken back into public ownership. In the regular battles of figures that hit the media headlines, nobody, it seems, has ever raised more fundamental issues like whether the state would not be better advised to stick to those tasks that only it can properly fulfil, like security, defence and justice, nor whether the concession holders have not quite simply done a far better job of managing the assets they purchased than the state would ever have done or been able to do.



To any regular user of the motorways between Paris and western France like myself, it is clear that there has been no lack of investment since privatisation. Long stretches of motorway have been upgraded from two to three-lane highways, the roadways are regularly resurfaced and rest areas have been remodelled to make them far more consumer-friendly than they were. Toll technology has been modernised too: badges are now widely available, making it increasingly possible not to stop and queue at tollgates.



And the vehicles have kept coming.  Motorways are the routes of choice for the vast majority when they embark on a long car journey, not to speak of commercial haulage firms. During weekends at holiday time, 24-hour radio stations open their news bulletins with congestion warnings and report regularly on the length of tailbacks.  Despite the additional cost involved, many families eat lunch, dinner or snacks at motorway restaurants and cafés. The attractive picnic areas are always full at meal times. 



Users, it would seem, continue to complain all the way to the tollgates!