France and the Socialists -- an experiment. voters may scuttle. Economic slump has turned policy from nationalization to stress on free enterprise, but time is running short
SOME conservative economists make a curious comment about the ``Socialist experiment'' in France. ``It was necessary for France,'' says Alain Jupp'e, an economic adviser to Jacques Chirac, the mayor of Paris and the head of the neo-Gaullist Rassemblement Pour la R'epublique.
Or hear Paul Horne, an economist in the Paris office of an American brokerage firm: ``The Socialist experience has been on balance, seen from a historical standpoint, a very useful development.''
Basic to their comments is an assumption that the experiment will soon end. Both expect the left-wing government, elected to power in 1981, to lose the parliamentary election in the spring of 1986 and the presidential election in '88. The latest polls tend to confirm that. They indicate that only 26 percent of French voters support President Franois Mitterrand.
Have the Socialists mismanaged the economy, as apparently many French now believe?
A Finance Ministry economist contends that the French economy actually did better than other European economies in the 1981-84 period, though it did not grow as fast as the United States or Japan. In other words, he argues, the overall economic approach was a success.
But Mr. Jupp'e disagrees: ``The Socialist experiment in France failed. In France, for the last two or three years, all the debate is about liberalism [in European terminology, this means conservative, free-enterprise economics], and no more about socialism.''
He maintains that because the French Communist Party is now ``very weak'' and the Socialist Party has been damaged by its record in power, moderate and conservative parties will govern France for 20 years after their return to power. In other words, he sees the Socialist years in office as a sad but useful lesson for French voters.
Mr. Horne, of Smith Barney, Harris Upham & Co., has a less partisan view. He says the left-wing government has ``proved a democratic alternative can work in France.'' The last time leftists were part of a French government was in 1958.
The years in office have also proved helpful, Horne says, in that ``the learning experience for the Socialists has been very important. Their leaders and technocrats have had to change their views.'' By that, he meant the Socialists have had to switch economic policies from expansion to austerity; from Keynesian-style stimulation of the economy through rapid growth in government spending (up 27 percent in 1982) to monetarism, with its tight control of the nation's money supply; from rapid nationalization of 36 banks and 11 major industrial corporations to verbal promotion of free enterprise; and from enlarging government to trying to shrink government.
``Too much taxation kills effort,'' Mr. Mitterrand says nowadays. ``The French are beginning to understand that it's enterprise that creates jobs, and that it's enterprise that determines our standard of living and our place in the world.''
Says Bruno Durieux, an economic adviser to former Prime Minister Raymond Barre (who is expected to challenge Mitterrand for the presidency in 1988): ``The Socialists were forced to adapt an economic policy that took account of the facts.''
President Mitterrand met with the French Socialist elite in January at the 'Elys'ee Palace and warned there would be no relief from the government's 21-month-old austerity program, even though unemployment is expected to rise from 9.8 to 10.5 percent this year. Rather, he will push a number of pro-business economic reforms, such as investment credits and an overhaul of France's rigid labor relations system.
Some days later, Prime Minister Laurent Fabius met with a group of French businessmen and maintained that, despite rising unemployment, the Socialist government would not indulge in a little pump-priming before the French troop to the polls. This, he said, would risk the improvement in the inflation rate and in the nation's balance of payments now taking place.
Mr. Durieux notes the political irony in the situation: ``The government had promised another policy, and their voters are unhappy with this policy [austerity]. They say they have been had. The conservative voters say it is foolish. A policy of the right should be done by a government of the right. The result is, everyone is unhappy. Economic policy is going in a good direction, but the government doesn't have the political base to follow this.''
To Yves Laulan, an economic adviser to Mayor Chirac, another leading politician with his eyes on the presidency in '88, the ``original sin of the Socialist government was to put France out of step with the world economy.''
When it took office in 1981, it gambled on a policy of stimulating the economy with greatly increased government spending. It cut the workweek to 39 hours, without loss of pay. It lengthened vacations. It decreed increases of 10 percent in the minimum wage, 20 percent in pensions, 25 percent in housing allowances, and 25 percent in allowances for families with two or more children. France's European neighbors and the US were still deep in recession.
The result, notes Mr. Laulan, was that French inflation ran higher than that of its neighbors, and its international payments dived deep into the red as more prosperous consumers bought more foreign goods as well as French goods. France was forced to borrow billions of dollars on the international money markets to maintain domestic consumption and prevent the franc from plunging in value.
An economist in the 'Elys'ee Palace conceded the government had predicted, incorrectly, an American recovery in 1981 and thus thought France could step on the accelerator without creating an international payments problem. But the US recovery started only in December 1982.
France was soon in economic trouble. The Socialist government had to switch to an austerity program just as world recovery became more vigorous -- a major embarrassment for the Socialists.
Mr. Laulan calls France's Socialist years ones of ``stagflation.''
Government economists maintain that the result has not been so bad. France, they noted, skipped the recession that hit hard in 1982 in West Germany, its largest trading partner. Nor, they argue, was growth in 1984 so much below that of its European partners. France had 1.9 percent real growth in output of goods and services last year, compared with just under 3 percent in Germany.
This year government economists expect growth in France to run about 2 percent, or slightly below. Germany expects growth between 2.5 and 3 percent.
So, despite widely differing economic policies, for the period from 1981 through this year France could still end up slightly ahead of Germany in the growth race -- as it has for more than a decade.
In 1983, however, real wages in France were down fractionally -- 0.3 percent. That hadn't happened in France for 20 years.
``The French aren't used to suffering any economic pain,'' noted Mr. Horne of Smith Barney. ``The French were squealing as if they had gone through a major recession.''
To Horne, the drop in real wages was ``the major contribution'' of the Socialists, a necessity to bring down the rate of inflation. President Mitter- rand almost eliminated ``indexation'' -- boosting wages at the same rate as inflation -- for government employees. In manufacturing, unit labor costs may rise only 4 percent this year -- far lower than before the Socialists took power.
Inflation, government economists note, has been brought down gradually from 13.6 percent in 1980 to about 7 percent last year. ``The best way to maintain purchasing power is to reduce inflation,'' a Socialist official said. Opposition economists charge that the unfavorable gap between inflation in France and in its European neighbor countries has worsened.
Political critics also charge the Socialist government with increasing France's foreign debts.
``France has been living in debt,'' says Mr. Laulan, who was chief economist at a major nationalized bank until fired for his outspokenness. ``This money has not fed investment. It has fed consumption. It is very worrisome.''
At the 'Elys'ee Palace, an economist held that France's external debt situation is no worse than that of the US or Canada. ``We have no problem,'' the economist said. ``All international banks are very willing to consider loaning to us.'' France's ``debt service ratio'' -- the cost of servicing foreign debts as a proportion of exports -- amounts to 5 percent. This, the economist noted, is far below the 20 percent level that the International Monetary Fund considers dangerous.
Laulan also charges that the government takes too high a proportion of income in taxes. The marginal tax level, considering both income and wealth taxes, rises as high as 72 percent. The result is not only discouraging to enterprise, he says. It has revived the black economy.
``For over 20 years there was a tremendous effort to moralize taxes,'' he said. ``This has been drastically reversed. To cheat the tax man now is not a sport -- it is considered a moral duty.''
A government economist maintains it was ``only justice'' that the marginal rate for the wealthiest 10 percent be raised, as it had remained at 65 percent since 1965. But he also said it was the government's plan to lower the marginal level this year and next year to encourage work and investment.
Whether the Socialist government's economic austerity program can put France's economy into better shape by election time next year remains to be seen. But even if it does, a number of observers here doubt it will rescue the Socialists from defeat. The national mood has swung toward conservatism and free enterprise, they note.
Said opposition economist Durieux: ``Mrs. [Margaret] Thatcher couldn't have done her politics in England in 1974. The political conditions were not present. They were in 1979. For France, it will be the same in 1986. France will be ready for a more liberal [conservative] government.''
First of two articles on the French economy.