Behind the focus on investment, training and work lies an even more serious purpose in Macron’s vision which turns on the much heralded reform of the French pension system, now expected to kick off in 2019 and scheduled to be phased in over a period of about 10 years. A high Commissioner for pensions has been appointed and he has launched an extensive public consultation on the Internet, to be followed up by citizens’ meetings before the government drafts its legislation and submits it to parliament in the spring or summer of next year.
The pension system of any country is highly complex, the product of past history and successive reforms, major or minor. France is no exception and only a few experts, whose job it is to manage the system, understand its full ramifications. The bare facts are that it is a mandatory, pay-as-you-go system for both the basic pension (Pillar 1) and the occupational part (Pillar 2). Contrary to many other advanced industrial economies in which the state provides only a minimum basic pension and the occupational part varies widely from company to company, the largest part of most pensioners’ income in France is the responsibility of the state, supervised and guaranteed by the state, to which employers simply contribute a large amount. It is a system to which the French are profoundly attached, emphasising, as does any PAYG system, the idea of inter-generational solidarity. The huge pension funds of the United Sates, the U.K or the Netherlands are not only unknown but also unwelcome in a country in which many people view the workings of financial markets through a haze of deep suspicion. The state guarantee is taken for granted. The idea that retired fire-fighters - as happened in Detroit for instance - could be deprived of their pension because the city had gone bankrupt, is totally beyond the realm of understanding of most people in France.
From a macro-economic viewpoint, whatever pension system it adopts, a country can only devote a given amount of the wealth it produces to its pension provision. And in France, it has become clear over the years that groups with considerable negotiating clout, notably civil servants and equivalent, have captured a greater proportion of that wealth to the detriment of less powerful groups like small farmers, employees on the minimum wage or the self-employed. This is surely one of the reasons why Macron has promised a long overdue root and branch reform of the whole system, encapsulated in the simple idea that each Euro of contribution will give exactly the same pension entitlement to every contributor. But all other things being equal - and there is no doubt that the special schemes, will be fiercely defended by their beneficiaries - the reform can only work if the economy creates more wealth, with more people in employment and paying more into the system for longer rather than draining national wealth in the form of benefits. Which brings us back to the need for investment, continuous training and a flexible labour market that I referred to as essential components of Macronomics in my last post.
The current strike in the SNCF is only a foretaste of what is likely to happen once the government officially announces its plans and sends draft legislation to parliament. And one of the reason why the railway unions have opposed SNCF reform so doggedly is to put on a show of strength in preparation for the struggle to come, where they will inevitably find more common ground with other public sector workers than they have so far, even though many judge their retirement privileges out-dated and unjustified. And yet, on the face of it, what is there to object to in the idea that every worker should get the same pension entitlement for every Euro of contribution and that the whole system should be managed under one set of rules by one state-run administration? It would not of course mean that every pensioner would get the same income but it would ensure that the state remains the pension system’s manager and guarantor and would be seen to acting with even-handedness, and not, as happens at the moment, indulging in behind-the-scenes pressure and opaque accounting practices to subsidise schemes in deficit by those in surplus.
So what then can we conclude from all this about Macron’s overall economic strategy? Why is he on course to put France through another wave of strikes and disruption? He has gone on record as saying that his ambition is to profoundly change the country for the next 50 years and there is no doubt that a successful reform of the French pension system would do more than anything else to change the state of France’s economy and the mindset of its people. It would be a profoundly significant signal that France is changing its ways. This is perhaps the key, and, as I suggested in my last post, most French commentators have not yet fully picked up on it. It is all about the concept of self-reliance, a quality more reminiscent of Anglo-Saxon and Nordic cultures and somewhat foreign to France, where the nanny state is invariably seen as the Great Protector and the Great Provider. It is the same concept that underpins all of Macron’s economic policy initiatives so far, from the changes to labour legislation, the promised reduction in unemployment and other social benefits, to the radical changes in apprenticeships and vocational training. Tellingly, it is a concept that does not translate neatly into French, where the words “autonomie”, “autosuffisance” or “indépendance” do not fully capture the idea that people should rely more on themselves and less on the state. There have been occasional and half-hearted attempts to establish this idea in France’s recent past: by Edouard Balladur for instance, who as Prime Minister between 1986 and 1988, presided over a wave of privatisation and wrote a book about it in 1992 entitled: “Je crois en l'homme plus qu'en l'État” (“I believe in people more than the state”). But Balladur was only a closet liberal and so much a product of France’s elite culture that his timid steps were quickly and silently crushed under the weight of a left leaning establishment. About ten years later, in 1995, another politician, Alain Madelin, a controversial and maverick figure with genuine liberal credentials, was appointed Minister of Finance but he too quickly came up against establishment norms and resigned just three months later. Margaret Thatcher of course was the great promoter, for better or for worse, of individual responsibility and self–reliance, in the UK of the 1980s. But although some see Macron’s tussle with the railway unions as his “Thatcher moment”, the excellent “Economist” commentator on French affairs, Sophie Pedder, who has just written a book on Macron (“Revolution Française” - Bloomsbury, 2018) writes this: “ A Thatcherite vision this is not. Macron, like many of his generation, may speak English. But he does not seek to emulate les Anglo Saxons.”
I’m not sure that I entirely agree. First of all, as I have suggested above, the conflict with the railway unions may turn out to be extremely tame in comparison with the forthcoming conflict over pension reform. And even though Macron is clearly determined to keep the basic structure of the French social model, if my reading of his economic policy is correct, he is nevertheless trying to wean the French off their overreliance on the state. Equally tellingly, a leading German newspaper titled a recent interview with Angela Merkel, in which she “responded” to Macron’s grand designs for Euro area reform, as follows: “…. People in the EU must take their fate more into their own hands. The Chancellor tells us what this means in concrete terms” (die Menschen in der EU müssen ihr Schicksal mehr in die eigene Hand nehmen. Im F.A.S.-Interview erklärt die Kanzlerin, was das konkret heißt…) The literal translation “take their fate more into their own hands” can also be read as “people in the EU must become more self-reliant”. And, as Chancellor Merkel made clear, she was not only delivering a message to Donald Trump and the Chinese about Europe’s external credibility but also to other European leaders about its inner workings. No serious progress has ever been made in the EU if France and Germany have not seen eye to eye. Since his election in May 2017, much has been made of Macron’ desire to convince Germany that he is serious about reforming France in the hope of greater financial solidarity within the Euro area. Is this not the outline of the grand bargain to come: more self-reliance in France, more financial solidarity from Germany? Pension reform is probably, in his view, the key that will unlock that move. And, if successful, it will be the clearest signal yet that France can put its own house in order, generate stronger growth, put more people into work and take pressure off the public purse, thus gradually reducing debt. How convincing this, inevitably long-term, vision will appear to the outside world and particularly to Germany will start to become clearer at the summit on Euro reform at the end of June.