The Slow and Bumpy Road to Reform in France


The Slow and Bumpy Road to Reform in France

Emmanuel Macron

By Etienne Lepers for Global Risk Insights

Spain and Portugal seem now at the end of a painful series of structural reforms of their labor markets, and Greece is trying to negotiate the end of four years of harsh fiscal austerity. Yet, France is only now slowly entering the road to reform with the so called “Law on growth, activity and purchasing power” pushed by the young French Minister of the Economy Emmanuel Macron.

The main objectives of the law is to liberalize a number of activities that have been protected from competition, and to soften a certain number of regulations that might be harmful to economic growth (e.g., a ban on Sunday commerce in shops).

The debate is nothing new though. The exact same deregulation propositions were raised in the Rueff-Armand report on economic growth requested by President Charles De Gaulle in 1959. Taxis, notaries and pharmacists were already at that time on the list of unfairly protected sectors that needed to be liberalized. It took France half a century to arrive at a draft bill from these recommendations.

France, its lobbies and its politics

The steps towards the adoption of the law could not better reveal the structural difficulties that France faces in terms of reform.

Lobbies from the targeted sectors took stage first. Already in September of last year, angry notaries, pharmacists, vets, bailiffs and architects were demonstrating against the emerging draft bill.

This was quickly followed by taxi strikes routinely blocking highways. Driving school employees went on strike soon after. On top of this came the workers unions protesting against Sunday commerce restrictions. Minister Macron reported that he had received death threats linked to his reform package.

Messy French politics soon came into the spotlight. The parliamentary majority began to erode during debates of the draft bill: rebellious MPs of the Socialist Party began to talk about “social regression” concerning shops being open on Sundays, a “step back for democracy” concerning the creation of international touristic zones allowing shops to open later. There was general opposition to the “ultraliberal shift” of President François Hollande’s policies.

On the other side, the right-of-center party UMP – despite its general agreement with all the law’s economic advances – found it convenient to say that “it was not going deep enough” to sidestep its responsibility and oppose the government bill on principle.

After debating 2,000 amendment propositions to the bill (for only 100 articles), and after the measure had spent 111 hours in the lower house and 82 in parliamentary committee, Macron still had to pass the law by decree, for fear of not winning the majority.

The law is currently being debated in the upper house.

By contrast, the French people did not seem to play much of a role, despite several polls indicating that more than 60% of the population was backing the law, and despite the fact that Macron was found to be the second most popular Socialist politician after Prime Minister Manuel Valls.

But was the drama even necessary?

“Not the law of the century”…

President Hollande himself admitted that this is not “the law of the century.” In spite of all the buzz, the depth of the law is indeed limited. Its economic impact will thus be “very marginal,” in the words of most economists.

Pierre Cahuc, labor market economist and member of the council of economic advisors working on the law, points to the positive effect on employment that relaxing the Sunday commerce ban will have. He also points to the creation of cheap bus lines (in France, bus lines are forbidden to run between major cities, so as not to compete with trains) that will not only create jobs for this sector but also increase the mobility of the economically disadvantaged and hence favor employment.

There are also promises of jobs thanks to new rules that will shorten the delays for driving license tests, especially for low-skilled young people. But however positive the results might be, they will be extremely limited. The impact on economic growth has also been found to be almost zero, as the bill is not going to increase consumption, highlighted by Jean Pisani-Ferry, the chair of the official impact study on the law.

Beyond those big chunks of the law on which the media and political debate have focused, a lot of minor propositions have been overlooked and represent non-negligible aspects: the lowering of taxes on some employee shareholdings to support start-up companies, the creation of international tourist zones in larger cities where shops will be able to stay open later, the exemption of accounting disclosure for firms under 50 employees and the opening to the private sector of the Lyon and Nice airports.

But all in all, with nothing major in terms of labor market reforms, no revamp of the minimum wage system, no major advance on the opening to competition of protected sectors and no major innovation projects, this law is not going to solve any of the structural problems that France is facing.

The reforms are all going in the right direction but the impact will be minimal. So is this law worth it?

The risk of years of inactivity to come

Should the law be seen as an advance for the positive direction it points to and hence supported; or should it be opposed as a failure not to have reformed deeper?

For some, it does not matter much if the law increases growth or creates any jobs. It still represents big progress that the Socialist party continues to reshape its policy stance away from its leftist origins. It is an instructive reform that explains the benefits of fair competition and economic flexibility, and it may start a virtuous process.

For others, it is a dangerous law because reforms are likely to stop after this. The bill will thus lead to several years of continuing the status quo, not the least because it will relax pressure coming from Brussels.

The answer will depend on future political will for reform without fear of disruption, an element that in the last few decades has not been present on the French political scene.

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