Hundreds of thousands of people wearing yellow vests are protesting against tax increases. Paris has been burning for weeks. France has not seen such mass protests, violence, and destruction for decades.
The basic narrative of these events is well-known. Emmanuel Macron was elected with a program that promised to ensure France’s leadership position in Europe by enhancing the competitiveness of the national economy through liberalization reforms—a kind of “Make France Great Competitive Again” program to ensure that France would not be dependent on the goodwill of Germany. He enjoyed some support among the electorate (about one-quarter of the voters), and a larger pool of voters half-heartedly accepted his proposal given that his arch-rival campaigned under the banner of Frexit—leaving Europe completely.
His steps toward reform were not very well-liked, and his popularity went into free fall. Nonetheless, the reform process was not scuttled by violent resistance from the unions, a fate that undermined the reform attempts of his predecessors, including the left-wing François Hollande and the right-wing Nicolas Sarkozy.
Paris has been burning for weeks due to an unexpected and shockingly large wave of protests against Macron.
Paris has been burning for weeks due to an unexpected and shockingly large wave of protests against Macron—a wave of protests that involve most of France and that enjoy wide popular support. There has been nothing like this in France for several decades.
The wave of protest was provoked by a large tax increase on petrol, not by the reforms aimed to make the French economy more like a free(er) market economy.
France's Long History of Intervention
If there is an example of a dirigiste, interventionist state, then that is France in Europe. France was the birthplace of the mercantilist, absolutist monarchy in the early modern period. The Bourbon Kings had perfected the practice of mercantilist protection and monopolization of key industries, including the state-mandated “industrial development policies” in the 17th and 18th centuries. To the detriment of France, the French state chose the silk industry and suppressed the textile industry.
Under the rule of the famous finance minister, Jean-Baptiste Colbert, textile manufacturers were heavily persecuted. This mistaken policy allowed Britain, which opted for policies allowing more freedom to industrialists, to be the birthplace of the Industrial Revolution. The modern French state is the stepchild of the political culture of the Bourbons. It is the prime example of dirigisme.While Britain developed to become the workshop of the world, and their fleet ruled the waves, France sank into a series of crises and lost her preeminent position in Europe. The great-grandchild of the Sun King paid with his head for the crisis of the dirigiste state of his time.
The modern French state is the stepchild of the political culture of the Bourbons. It is the prime example of dirigisme. It redistributes as much as 56 percent of annual GDP and imposes the highest tax burden in Europe. The French state directly manages key industries and sustains one of the largest welfare states in Europe. It also imposes complicated bureaucratic red tape on economic actors, trailing way behind the Scandinavian states and Germany as far as ease of business is concerned.
France is nevertheless also a great power and one of the key states in Europe, and it harbors great European and geopolitical ambitions.
France's International Position in Jeopardy
The highly-trained political and technocratic elites, who are probably one of the most sophisticated political classes in the world, is one of the key drivers behind the interventionist state and the European and geopolitical ambitions of France. This dirigiste French political culture was, in general, supported by public opinion, which expects the embrace of an overarching welfare state and the enhancement of Gloire, or national pride.
The relative decline of the French economy threatened the European and geopolitical ambitions of the French political elite.
The other side of the scale, however, is the slow deterioration of France’s position due to her slow economic growth, increasing debt levels, high deficit, and high unemployment rate, which seems to have stabilized at around 10 percent.
Since the early eighties, one of the key challenges of French political life was striking a balance between the deeply ingrained culture of dirigisme and competitiveness. The relative decline of the French economy not only had negative implications for internal stability but also threatened the European and geopolitical ambitions of the French political elite. This was especially painful with the relative decline of France as compared to Germany, which is threatening the traditional leading role of France in Europe.
Here's the Thing about Macron
Mitterand was probably the first president who won the elections based on a (left-wing) dirigiste program promising further development of the welfare state, but he had to face realities and introduce austerity measures aiming to enhance competitiveness. The predecessors of Macron, Sarkozy, and Hollande also lost their re-election hopes: they had to abandon their grandiose promises made during the election campaigns and instead try to introduce reform programs aiming to lessen state intervention.
Macron was the first French politician to build his election campaign on reform and competitiveness in order to keep up France’s position in the world. Those who voted for him knew what to expect. As a member of Hollande’s team, he proposed increasing the work week from 35 to 37 hours to lessen the tax burden on higher incomes, and the competitiveness package he developed aimed to lessen the protection of workers and companies in order to promote growth.
Macron’s tax increase is depriving companies, entrepreneurs, and employees of what they hoped to gain from the reforms.
It was predictable that once he was elected, his popularity would plummet. First of all, a majority of the electorate voted for him to avoid voting for an even more threatening candidate, Marie LePen. Secondly, it is one thing to accept the inevitability of reforms and another to actually experience the difficulties those reforms pose in their own personal lives.
There was one hope for Macron: he had enough time that his reform package would usher in growth, and in 2022, he would be able to base his re-election campaign on good-looking growth, lower unemployment, and better wages.
Macron’s tax increase, however, is depriving companies, entrepreneurs, and employees of what they hoped to gain from the reforms: greater scope of action to enhance their income.
You Can't Decrease the State by Raising Taxes
The sudden outbreak of waves of protest shows that the most destructive course of action is to pursue an economic policy that on one the hand promises to liberate the economy from state shackles and is based on hopes for and faith in individual ingenuity, and, on the other hand, introduces handsome tax hikes, which expand the burden on private economic actors in order to increase the revenues of the state budget. The real consequence of a choice between Colbert or Turgot is the question of inevitable decline or sustained growth. Macron took away with his left hand what he intended to give with his right. The program of decreasing the role of the suffocating, over-regulating, and overtaxing state is irreconcilable with tax increases.
France is again at a crossroads: She has to choose between the policies of Jean-Baptiste Colbert and those of Anne-Robert-Jacques Turgot, the great French liberal economist who was the economic minister of France between 1774 and 1776 and who argued for free trade, less taxation, and less regulation. After two years, Turgot had to resign; his work actually had more influence on Adam Smith than on French politics.
The real consequence of a choice between Colbert or Turgot is not imminent, but from generation to generation the difference is the question of inevitable decline or sustained growth. Indeed, as history demonstrates, it is a choice of life or death.