Sarkozy's reforms must reach beyond taxi licences
Wednesday, 26 March 2008
Wolfgang Munchau
WITH the local elections now behind him, President Nicolas Sarkozy of France has an opportunity to relaunch his faltering reform agenda. It is impossible to underestimate the significance of such an effort, or its failure, to the Sarkozy presidency and the future of the French economy.
The combination of Mr Sarkozy's protectionism and his support for domestic economic reforms has puzzled many observers. In his first nine months in office, he produced a few noteworthy reforms. Universities were given more autonomy. He tackled pension reform in the railway sector. And he tried to pry open the 35-hour week, although he botched the implementation. There was a modest but important agreement between employers and trade unions to make it a little easier to dismiss workers, and to increase the number of temporary jobs. But taken together, the first blitz of reforms was clearly not the rupture he had promised.
For the next wave of reforms, Mr Sarkozy placed faith in the Attali commission, under the leadership of Jacques Attali, the former president of the European Bank for Reconstruction and Development (EBRD). This exercise degenerated into a comic lesson of how not to reform. It came out with a list of 316 (!) proposals, including absurdities such as "décision 105", which says that Roissy Charles de Gaulle, Europe's second largest airport after London Heathrow, should become Europe's largest one. The Attali commission repeated the biggest mistake European economic reformers have made time and again: to produce lists that are too long and too unfocused, while paying insufficient regard to the nitty-gritty details of implementation.
Take décision 211 to liberalise the taxi business. As every visitor to Paris knows, there are not enough taxis in the city. In 1925, there were 25,000, a number that fell to 14,000 during the Great Depression and has hardly changed. This shortage was achieved artificially through a highly restrictive licensing system. It raised the value of a Paris taxi licence so each sells for more than €150,000 (£115,000).
The Attali commission proposed to liberalise the taxi business without any compensation to the existing licence holders. In response, the taxi drivers' association launched a protest and won. Mr Sarkozy's administration backed down, wisely fearing the impact of a prolonged taxi strike ahead of the municipal elections.
This is a typical case of how well intended reforms fail if the reformer has not done his homework. Jacques Delpla, a member of the Conseil d'Analyse Economique, who last year co-wrote* a book proposing sweeping reforms in exchange for full compensation of the losers, says the answer to the taxi problem can come only from partial compensation of the drivers, since they bought their licence in good faith.
So far, the government has been reluctant to accept the idea that large reforms require large compensation, as this would raise the budget deficit. France already has little room for manoeuvre under the European Union's stability and growth pact and there is no appetite for a showdown ahead of the French EU presidency in the second half of this year.
This leaves only one alternative: to focus on a few reforms that matter the most. Liberalising the taxi business is probably not among the two or three most pressing concerns for the French economy. My priorities would include further liberalisation of working hours (beyond the law put in place last year) and a reform of the country's archaic labour contracts law, along the lines proposed by the economists, Olivier Blanchard and Jean Tirole. They have advocated a single labour contract to eliminate frictional unemployment, which is very high in France.
France also desperately needs product market reforms. One of the more useful ideas of the Attali commission -- at the behest of Mario Monti, a former European commissioner -- is an independent competition authority with the power to investigate abuses of competition and make public recommendations over mergers and takeovers.
France is full of absurd restrictive practices for which Mr Sarkozy's party has a lot to answer. A famous example is the loi Raffarin, named after a former Gaullist prime minister. Under this law, anyone who wants to set up a retail store of more than 300 sq m must make an application to a committee that includes other retailers as members.
It is no surprise that France has one of the lowest proportions of discount stores in Europe. Another law forces producers to sell goods to wholesalers and retailers at fixed prices to protect small shopkeepers. The effect of these restrictive laws is to subsidise a cosy oligopoly of established retailers and keep prices artificially high.
Mr Delpla tells me that he is cautiously optimistic that some of these reforms are under way. The hostile reception of the Attali commission report is a sign that the time for grandstanding is over. What is required is policy wonkery at its most technical and least glamorous - not what you would expect Mr Sarkozy and certainly not Mr Attali - to excel in. But this is what Mr Sarkozy needs to do to save his presidency and the French economy. (*Jacques Delpla and Charles Wyplosz, La Fin des Privilèges (Hachette, 2007.)
WITH the local elections now behind him, President Nicolas Sarkozy of France has an opportunity to relaunch his faltering reform agenda. It is impossible to underestimate the significance of such an effort, or its failure, to the Sarkozy presidency and the future of the French economy.
The combination of Mr Sarkozy's protectionism and his support for domestic economic reforms has puzzled many observers. In his first nine months in office, he produced a few noteworthy reforms. Universities were given more autonomy. He tackled pension reform in the railway sector. And he tried to pry open the 35-hour week, although he botched the implementation. There was a modest but important agreement between employers and trade unions to make it a little easier to dismiss workers, and to increase the number of temporary jobs. But taken together, the first blitz of reforms was clearly not the rupture he had promised.
For the next wave of reforms, Mr Sarkozy placed faith in the Attali commission, under the leadership of Jacques Attali, the former president of the European Bank for Reconstruction and Development (EBRD). This exercise degenerated into a comic lesson of how not to reform. It came out with a list of 316 (!) proposals, including absurdities such as "décision 105", which says that Roissy Charles de Gaulle, Europe's second largest airport after London Heathrow, should become Europe's largest one. The Attali commission repeated the biggest mistake European economic reformers have made time and again: to produce lists that are too long and too unfocused, while paying insufficient regard to the nitty-gritty details of implementation.
Take décision 211 to liberalise the taxi business. As every visitor to Paris knows, there are not enough taxis in the city. In 1925, there were 25,000, a number that fell to 14,000 during the Great Depression and has hardly changed. This shortage was achieved artificially through a highly restrictive licensing system. It raised the value of a Paris taxi licence so each sells for more than €150,000 (£115,000).
The Attali commission proposed to liberalise the taxi business without any compensation to the existing licence holders. In response, the taxi drivers' association launched a protest and won. Mr Sarkozy's administration backed down, wisely fearing the impact of a prolonged taxi strike ahead of the municipal elections.
This is a typical case of how well intended reforms fail if the reformer has not done his homework. Jacques Delpla, a member of the Conseil d'Analyse Economique, who last year co-wrote* a book proposing sweeping reforms in exchange for full compensation of the losers, says the answer to the taxi problem can come only from partial compensation of the drivers, since they bought their licence in good faith.
So far, the government has been reluctant to accept the idea that large reforms require large compensation, as this would raise the budget deficit. France already has little room for manoeuvre under the European Union's stability and growth pact and there is no appetite for a showdown ahead of the French EU presidency in the second half of this year.
This leaves only one alternative: to focus on a few reforms that matter the most. Liberalising the taxi business is probably not among the two or three most pressing concerns for the French economy. My priorities would include further liberalisation of working hours (beyond the law put in place last year) and a reform of the country's archaic labour contracts law, along the lines proposed by the economists, Olivier Blanchard and Jean Tirole. They have advocated a single labour contract to eliminate frictional unemployment, which is very high in France.
France also desperately needs product market reforms. One of the more useful ideas of the Attali commission -- at the behest of Mario Monti, a former European commissioner -- is an independent competition authority with the power to investigate abuses of competition and make public recommendations over mergers and takeovers.
France is full of absurd restrictive practices for which Mr Sarkozy's party has a lot to answer. A famous example is the loi Raffarin, named after a former Gaullist prime minister. Under this law, anyone who wants to set up a retail store of more than 300 sq m must make an application to a committee that includes other retailers as members.
It is no surprise that France has one of the lowest proportions of discount stores in Europe. Another law forces producers to sell goods to wholesalers and retailers at fixed prices to protect small shopkeepers. The effect of these restrictive laws is to subsidise a cosy oligopoly of established retailers and keep prices artificially high.
Mr Delpla tells me that he is cautiously optimistic that some of these reforms are under way. The hostile reception of the Attali commission report is a sign that the time for grandstanding is over. What is required is policy wonkery at its most technical and least glamorous - not what you would expect Mr Sarkozy and certainly not Mr Attali - to excel in. But this is what Mr Sarkozy needs to do to save his presidency and the French economy. (*Jacques Delpla and Charles Wyplosz, La Fin des Privilèges (Hachette, 2007.)