The state after statism: french economic and social policy in the age of globalization



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THE STATE AFTER STATISM:

FRENCH ECONOMIC AND SOCIAL POLICY IN THE AGE OF GLOBALIZATION

Jonah D. Levy

Associate Professor, Department of Political Science

University of California Berkeley

Tel.: (510) 642-4686

E-mail: jlevy@socrates.berkeley.edu


Paper prepared for presentation to the Thirteenth International Conference of Europeanists

Palmer House Hilton, Chicago, March 14-16, 2002.


THE STATE AFTER STATISM:

FRENCH ECONOMIC AND SOCIAL POLICY IN THE AGE OF GLOBALIZATION
France has long been paired with Japan as the archetypal state-led political economy (Shonfield 1965; Cohen 1977; Katzenstein 1978; Zysman 1983; Hall 1986). For decades, French planners aggressively manipulated an array of policy instruments – from trade protection, to subsidies, to cheap credit, to exemption from price controls – in an effort to accelerate the pace of economic modernization. French authorities channeled resources to privileged groups, favoring investment over consumption, industry over agriculture, and big business over small. They also “picked winners,” both specific sectors, such as coal and steel in the reconstruction era and nuclear power and telecommunications in the 1970s, and specific firms, the so-called “national champions,” multinational corporations anointed as France’s standard-bearers in the battle for global economic leadership. When “national champions” did not exist, French planners constructed them through a series of state-sponsored mergers; when “national champions” lacked capital, the planners financed them through cheap capital and guaranteed state markets; and when “national champions” were deficient in technology, state-run labs performed research for them, transferring cutting-edge solutions in computers, nuclear power, high-speed trains, and digital telecommunications switches (Cohen and Bauer 1985; Cohen 1992).

In the early 1980s, French dirigiste practices appeared to be in for a period of rapid expansion. The election of François Mitterrand as president in 1981 brought France’s first Socialist-Communist government since the Liberation era. The left pledged to intensify dirigiste policymaking in order to pull France out of its economic crisis. Toward this end, much of industry and the entire banking sector passed under state control; ambitious objectives were established for all manner of industries from coal, to machine-tools, to toys and telecommunications; domestic demand was stimulated through heavy social spending; the hand of labor was strengthened (or so it seemed) by the Auroux laws; and the government pledged to revive the celebrated French planning system. “Socialism in one country,” it appeared, represented the highest stage of dirigisme.

Just two years later, however, appearances in France had changed. Confronted with double-digit inflation, rising trade and budget deficits, stagnant investment, and a currency crisis that threatened to push the French franc below the minimum exchange rate allowed by the European Monetary System (EMS), President Mitterrand reversed course. A government elected to intensify dirigisme began instead to dismantle dirigisme.

Today, virtually nothing remains of the institutions and practices associated with the dirigiste model. Planning, sectoral industrial policies, and ambitious grands projets have been abandoned; the vast majority of nationalized companies have been privatized; credit, price, and capital controls have been lifted; restrictions on lay-offs and temporary and part-time employment have been eased; and a macroeconomic orientation emphasizing inflationary growth coupled with large devaluations has given way to one of the lowest inflation rates in Europe and a strong franc, culminating in European Monetary Union (EMU). By all accounts, France has become a much more market-oriented political economy, whose performance rests on the calculations of profit-seeking businesses, as opposed to state technocrats.

To proponents of the globalization hypothesis, France offers the clearest illustration of the triumph of international constraints over national sovereignty.1 All the vast resources of French authorities and all the determination of the left were of little consequence in the face of international competition and European obligations. In just two short years, the "strong" French state had been overpowered by stronger international forces. What is more, since 1983, history has repeated itself not just once, but twice. In 1995, Gaullist Jacques Chirac invoked the constraints of the Maastricht Treaty -- the need to rein in budget deficits in order to qualify for EMU -- to justify a retreat from the spending promises that had helped him secure election as president less than six months earlier. In 1997, Socialist Lionel Jospin performed essentially the same flip-flop after becoming prime minister. The thrice-confirmed lesson seems clear: globalization and European integration leave no place for France’s free-spending, statist ways.

The rollback of dirigisme is only part of the French story since 1983, however. French governments have also launched a number of expensive new programs, notably in labor markets, social protection, and the promotion of small business. French authorities may not be pouring billions of francs (or euros) into industrial policy, but they are still spending plenty. As Figure 1 reveals, government revenues, which totaled 42.6 percent of GDP in 1983, at the height of Socialo-Communist voluntarism, have continued to rise in the ostensibly less interventionist post-dirigiste period, reaching 46 percent of GDP in 1999 (OECD 2000; Ministry of Finance 2001). Thus, not only has the post-dirigiste French state failed to shrink; by some measures, it has become bigger than ever.

The evolution of the French state presents a puzzle, then. The core features of the state-led model of economic development have been dismantled, and French leaders on both sides of the political spectrum regularly blame the constraints of European integration and globalization for limiting their ambitions. Yet through it all, state spending and taxation have actually increased somewhat. To understand the evolution of the French state in the post-dirigiste era, I argue, we must look not only to external constraints, as emphasized by the globalization hypothesis, but also to the domestic factors that have fashioned France’s response. More specifically, the emergence of new kinds of state intervention in France has been driven by a combination of political and institutional factors. Politically, the dominance on the French right of a Gaullist party whose founding ideology is statism, along with frequent national elections and a system of quasi-primary elections, has placed tremendous pressure on French politicians of all political stripes to propose statist solutions. Institutionally, the underdevelopment of associations outside the central state has deprived French authorities of alternatives to state coordination, so that new economic and social needs have generally been refracted into the state arena.

This paper analyzes the French state after statism, the evolution of state intervention in the post-dirigiste period. Section 1 traces the elimination of the key features of the dirigiste model following the 1983 U-turn. Section 2 describes some of the most prominent new state initiatives in recent years. Section 3 identifies the political and electoral forces driving the expansion of state intervention, while section 4 points to the institutional forces. Section 5, the conclusion, considers the implications of the new state activity for France’s political economy and for our understanding of the place of the state in the age of globalization.


SECTION 1 – THE DISMANTLING OF DIRIGISME

The 1983 U-turn touched off a range of reforms that struck at the core of the dirigiste model (Cohen 1989; Hall 1990; Schmidt 1996; Levy 1999; Levy 2000). These changes, inaugurated cautiously by the Socialists from 1983 to 1986, were amplified when the right returned to power under a neo-liberal banner from 1986 to 1988, and confirmed and completed by subsequent governments on both sides of the political spectrum. Four sets of changes figured most prominently.

The first change concerned macroeconomic policy. For much of the postwar period, French authorities stimulated the economy through a combination of deficit spending and lax monetary policy, with much of the money flowing to industry (Zysman 1983; Hall 1986; Loriaux 1991). The effects of the resulting inflation on competitiveness were negated by periodic “aggressive devaluations” that not only compensated for price differentials with France’s trading partners, but also conferred a temporary advantage on French producers, albeit at the expense of worker purchasing power. The Socialists broke with this strategy in 1983. Under the so-called franc fort policy, the French franc was informally anchored to the Deutschmark. Since devaluations were no longer an option (let alone "aggressive devaluations”), France would gain the edge through "competitive disinflation," that is, by running a rate of inflation lower than that of its trading partners. Toward this end, Keynesianism demand stimulus gave way to austerity budgets, wage indexation was abandoned, and most important, monetary policy was tightened, with real interest rates ranging from 5 to 8 per cent for over a decade (Fitoussi 1995). Since the early 1990s, the French inflation rate has been among the lowest in Western Europe, while the balance of trade, after nearly twenty years in the red, has registered steady surpluses.

The second set of reforms pertained to France's public enterprises. In 1982, the left nationalized twelve leading industrial conglomerates and 38 banks. When combined with the Liberation-era nationalizations carried out by General de Gaulle, this latest program, costing 47 billion francs, placed thirteen of France's twenty largest firms and virtually the entire banking sector in state hands (Stoffaës 1984). Public enterprises received tens of billions of francs in subsidies, but were pressured to expand employment and invest in areas deemed strategic (if not profitable) by the government.

The 1983 U-turn brought a fundamental shift in the government’s relationship to the public enterprises. Nationalized companies were released from their planning targets and instructed to focus instead on profitability. While slashing capital grants and subsidies, the left offered no resistance when public enterprises closed factories and withdrew from strategic sectors. This shift in public-sector management set the stage for the right to launch a campaign of privatizations upon its return to power in 1986. Before the privatization process was interrupted by the 1987 stock market crash, thirteen financial and industrial groups had been sold off, netting 84.1 billion francs to the French treasury (Zerah 1993: 183). Since 1993, a second round of privatizations has been conducted by governments of both the right and the left, reducing the once-vast holdings of the French state to little more than energy production, public transportation, and some weapons manufactures.

The third major policy shift after 1983 was the abandonment of state efforts to steer private industry. The guiding spirit of this change was that firms would receive less government assistance, but would be subject to fewer restrictions, so that they could raise the necessary resources by their own means (Hall 1990). The hefty budgets for bail-outs of loss-making companies, sectoral industrial policy programs, high-tech grands projets, and subsidized loans quickly dried up, triggering a wave of bankruptcies. As a counterpoint, however, French business gained a number of new freedoms. The deregulation of financial markets, initiated in 1985, enabled firms to raise funds by issuing equity, reducing their dependence on state-allocated credit. The removal of price controls in 1986 allowed companies to reap the full benefits of successful competitive strategies. The elimination of capital controls in the late 1980s facilitated the expansion of production abroad and gave managers an "exit" option if domestic conditions were not to their liking. Taken together, these and other reforms helped boost corporate profitability from 9.8 per cent of value added in 1982 to 17.3 per cent in 1989 (Faugère and Voisin 1994: 32).

The revival of corporate profits was also fueled by a fourth set of developments, the reform of France's system of industrial relations (Groux and Mouriaux 1990; Howell 1992; Howell 1992; Labbé and Croisat 1992). State authorities de-indexed wages and lifted a number of restrictions limiting managerial prerogatives, most significantly, the administrative authorization for lay-offs (the requirement that lay-offs of ten or more employees for economic reasons receive the approval of an inspector from the ministry of labor). They also expanded the scope of workplace bargaining. In a context of high unemployment and weak and divided trade unions, French employers were able to use this new bargaining arena to introduce labor market flexibility largely on their terms. Studies of initial firm-level deals revealed that most accorded no compensation to employees in return for acceptance of greater flexibility and that up to one-third of these agreements actually violated French labor law. Not surprisingly, much of capital's gain in the post-1983 period would come at labor's expense. From 1982 to 1989, the share of value added received by capital increased from 24.0 per cent to 31.7 per cent, surpassing the levels of the early 1970s (Faugère and Voisin 1994: 28-29).

The reforms since 1983 have left no dirigiste stone unturned. Looking across the wealthy democracies, one would be hard-pressed to find any country that moved so far away from its postwar economic strategy as the France of François Mitterrand and Jacques Chirac. But there is more to the French story than the rollback of dirigisme. State authorities have also launched a number of new programs.


POST-DIRIGISTE STATE INTERVENTION

If the practices and institutions associated with dirigisme have been dismantled with astonishing speed and thoroughness, the same cannot be said of the French state. On the contrary, state spending and taxation have increased somewhat in the post-dirigiste period, as new initiatives have been launched in such areas as labor market policy, social protection, and the promotion of small- and medium-sized enterprises (SMEs). This section describes each of these new state activities in turn.


Labor Market Programs

French labor market policy has developed in a number of directions. State intervention centered initially on early retirement, a strategy designed to square the circle of "job loss without unemployment" (Daley 1996). French authorities recognized the need for companies to be able to restructure in order to restore profitability and competitiveness, but such restructuring would not come at the expense of the workforce. Rather, government programs would permit employees over the age of 55 -- or, in some cases, 50 -- to retire at close to full pension.

The expansion of early retirement to accommodate and humanize restructuring began under the Giscard presidency. Between 1974 and 1980, the number of early retirees more than tripled from 59,000 to 190,400 (DARES 1996: 100). The left tripled the figure again to over 700,000 workers in 1984. Such measures were expensive, costing as much as 1 million francs per retiree, but they were assumed to be temporary. Officials expected that once French firms restructured and the economy recovered, job creation would begin anew, and early retirement programs could be wound down. Employment creation has remained sluggish, however, and early retirements have continued at a rate of 450,000 to 600,000 per year since the mid-1980s. The effects of early retirement on the French labor market are striking. Today, fewer than one worker in three is still employed at age 60, and France's labor force participation rate for men aged 55 to 64 is among the lowest in Western Europe, at just over 40 percent (Scharpf and Schmidt 2000: 350).

With the return to recession and rising unemployment in the early 1990s, center-right governments deployed a second labor market strategy. The right’s efforts focused on the reduction of labor costs, particularly at the low end of the wage spectrum, where a relatively generous minimum wage (6,800 francs per month) and heavy social security charges (roughly 50 percent of wages) are said to dissuade job creation. In 1994, Gaullist Prime Minister, Edouard Balladur attempted to create a sub-minimum wage for youths 20 percent below the legal minimum, before retreating in a hailstorm of protest. Subsidies and tax breaks for low-wage hires proved less controversial. Under Balladur, employers hiring low-wage workers were exempted from family allowance contributions, while a program inaugurated in 1995 by Balladur's Gaullist successor, Alain Juppé provided subsidies of 5,000 to 15,000 francs for jobs paying less than 1.3 times the minimum wage.

The center-left government of Lionel Jospin has added two further labor market initiatives since coming to power in 1997. The first is a youth employment program, the Programme Emploi Jeunes (PEJ), which is occupies some 350,000 young people. The PEJ is targeted at youths with no significant work experience. In contrast to previous state-sponsored, make-work projects, the PEJ provides full-time employment for an extended period (five years). The government hopes that this extended tenure will enable participants to acquire the skills and experience necessary to secure permanent employment once the subsidies run out. Under the highly generous terms of the PEJ, the state pays 80 percent of the minimum wage and all social security contributions, leaving only 20 percent of the minimum wage to the charge employer. Employers in the private sector are barred from participating, however. Fearful that private companies would substitute subsidized hires for existing personnel, the government restricted the PEJ to non-profit and public organizations. The PEJ is expensive, costing some 35 billion francs, although some of the money has been recovered from other youth employment programs that were terminated.

The second high-profile measure by the Jospin government has been the reduction of the workweek from 39 hours to 35 hours. Although conservative critics and the national employer association denounced the reform as a job-killer that would force companies to lay off workers as a result of higher labor costs, the government took a number of measures to assuage business concerns. The reform was phased in over a five-year period, giving employers time to adjust and to extract wage concessions from employees as the price for shorter working hours. Employers were also allowed to introduce considerable flexibility into work schedules, which can now vary considerably from week to week. Finally, the government tendered significant subsidies to companies that signed collective bargaining agreements reducing work time. The subsidies are greatest at the bottom of the pay scale (21,500 francs per year for a minimum-wage hire), declining gradually to 4,000 francs for jobs paying more than 1.8 times the minimum wage. The cost of the reform is estimated at 110 billion francs, although again, part of the money is being shifted from other programs, notably the Balladur and Juppé government’s subsidies for low-wage hires.

Looking at labor market policy globally, Figure 2 reveals that the number of French workers enrolled in some kind of public labor market program has expanded two-and-one-half-fold in the post-dirigiste period -- rising from slightly under 1.2 million in 1984, at the height of industrial restructuring, to nearly 3 million in 1999 (DARES 1996; DARES December 2000).2 This total is in addition to the 2 million French workers who are formally unemployed. Aggregate spending on labor market policy has shown a similar increase, expanding from slightly over 2 percent of GDP in the mid 1980s to 4.2 percent of GDP in 1999. Today, France spends as much as on labor market intervention as Sweden, the Mecca of active labor market policy.
Social Protection

The French state has been equally prominent in the social policy arena (Levy 2000). Once classified as a “welfare laggard,” Figure 3 reveals that France has developed the largest welfare state outside Scandinavia, exceeding even Germany laboring under the costs of unification. As can be seen in Figure 4, French welfare spending rose from 21.3 percent of GDP in 1980 to 26.5 percent in 1990, to 29.5 percent in 1998 (OECD 2002). The two largest welfare programs, pensions and health care, have both experienced significant growth since the early 1980s. Spending on pensions increased from 7.7 percent of GDP in 1981 to 9.8 percent in 2000 (Ministry of Finance 2001: Statistical Annex, Table VII.2). France’s pay-as-you-go pension system is among the most generous in the world and, in contrast to most other countries, it has experienced only limited retrenchment measures in recent years (Charpin 1999; Myles and Pierson 2001). French health care spending increased from 7.4 percent of GDP in 1980 to 9.6 percent in 1998, as France passed Austria, Belgium, Denmark, Holland, and Sweden to become the number two spender in the EU, behind Germany (OECD 2000: Table A7). The French health care system is not without problems, but thanks in part to this increased commitment of resources, the French system was rated the planet’s best by the World Health Organization.

French authorities have not only expanded existing social programs; they have also launched new ones. In 1988, the Socialist government of Michel Rocard, established a national social safety net or guaranteed income, the revenu minimum d'insertion (RMI), for all adults over the age of twenty-five. The RMI replaced a patchwork of local and targeted social assistance programs that had left large segments of the population uncovered, notably the long-term unemployed and persons suffering from psychological problems, alcoholism, and/or chemical dependency. Benefits are available on a means-tested basis to all citizens and long-term residents over the age of twenty-five. The RMI provides a monthly allowance of 2500 francs along with the promise of support services to help "insert" (the "I" in "RMI") recipients back into society and, in some cases, into a job.3 Claimants are also eligible for housing allowances and free health insurance. Although the "insertion" dimension of the RMI remains underdeveloped, the program does provide non-negligible financial assistance to some 1 million of France's neediest citizens, at an annual cost of 25 billion francs.

The Jospin government has launched two new social programs. The couverture maladie universelle (CMU), which began operating in 2000, makes health care available free of charge to low-income groups. The CMU originated with a pledge by the Juppé government in 1995 to extend public health insurance to the 200,000 French citizens (0.3 percent of the population) who lacked such coverage. The Jospin government honored Juppé’s pledge, but also addressed the far greater problem of access among those who actually possess heath insurance. France's public health insurance reimburses just 75 percent of the costs of medical treatment on average (Join-Lambert, Bolot-Gittler et al. 1997). Although 85 percent of the population reduces co-payments by subscribing to a supplementary insurance, for the remaining 15 percent, low reimbursement rates tended to place all but emergency medical treatment out of reach. The CMU greatly attenuated this problem by providing free supplementary health insurance on a means-tested basis to an estimated 6 million people at a cost of some 10 billion francs annually.

In 2002, the Jospin government established a new welfare entitlement, the aide personnalisé à l’autonomie (APA), which helps defray the costs of in-home assistance for the elderly. Like the RMI, the APA replaced a locally variable program, the prestation spécifique de dépendance (PSD), which had been established by the Juppé government in 1997. The APA provides up to 7000 francs per month, depending on the severity of the incapacity and the financial resources of the claimant, for home-assistance expenses. Some 800,000 elderly citizens are expected to benefit from the APA, as against 135,000 for the PSD, at a cost of 23 billion francs per year.

The commitment to expanding France’s welfare state extends beyond partisan lines. The RMI was established by a unanimous vote of the French parliament. While it is true that governments of the left enacted the CMU and APA, in both cases, the left built upon earlier initiatives of the right. Moreover, Gaullist President Jacques Chirac was elected in 1995 thanks to a campaign that stressed the need for heightened state intervention to heal France’s “social fracture” and renew the “Republican pact” between state and citizen.

An interesting feature of French political discourse is that the same distrust of market forces and faith in state guidance that animated dirigiste industrial policy can now be found in social policy. Jacques Chirac would have never dreamed of calling for a new round of nationalizations or a revival of sectoral planning. Yet it was entirely legitimate, even electorally savvy, for him to call for intensified state intervention in the social arena. This kind of redirection of the sphere of legitimate state intervention can be seen in the third area of intensified activism, the promotion of small- and medium-sized enterprises (SMEs).
Promotion of SMEs

While winding down industrial policy programs for the “national champions,” state authorities have developed an array of instruments to promote SMEs (Levy 1999). The guiding principle of these programs is to encourage SMEs to "make leaps," to accelerate the pace of their development. State subsidies of up to 50 percent or success-conditional loans are available for a variety of risky ventures, including: integrating composite materials or electronics into existing products; developing new products; computerizing production operations; and hiring managers and engineers. All of these actions are designed to usher SMEs to a new stage in their development, whether in the form of new products, new production processes, or a new management structure.

State authorities see no contradiction between their claim to have moved beyond dirigisme and the multiplication of public programs and tax credits, costing some 100 billion francs annually, in support of SMEs. Part of the reason is that they regard SMEs as more needy than the national champions, as more susceptible to various forms of market failure. Large firms and conglomerates possess the financial and managerial resources to think strategically; they do not require government programs to assist them in these tasks. By contrast, many SMEs lack the resources or know-how to act strategically. The various measures proffered by state agencies have been devised with the idea of addressing traditional weaknesses or problems confronted by SMEs: a limited awareness of new process and product technologies; underdeveloped managerial structures; a lack of capital and access to bank loans. French officials believe that small, well-targeted programs can help SMEs overcome these obstacles, bolstering what has traditionally a weak segment of France’s economy.

State authorities reject the dirigiste label for a second reason. In their view, the character of SME promotional policies is very different from past dirigiste methods. State officials are no longer picking winners and forcing firms to merge; they are merely trying to create a supportive environment for private managers. They are not imposing competitive strategies or planning targets, but rather underwriting the strategies developed by small businesses. Moreover, many of the tools of intervention operate through private consulting companies, as opposed state technocrats. Thus, the new SME policies are more market-conforming, more respectful of private initiatives than traditional state intervention.

For all these changes, though, the underlying assumption behind the policies toward SMEs is that the heads of small firms do not fully understand their own interests and that the state must encourage (and, in the process, become quite involved in) such desirable practices as: investment in risky innovation; improvements in quality control methods; the introduction of new materials into products; modernization of plant and equipment; use of sophisticated software; hiring of managers and engineers. Nor is coercion entirely absent from the relationship. While state officials are not telling private managers what to do, they are paying 20 to 50 percent of the costs for them to do certain things. Ironically, it could be argued that at no point in French history has the state meddled in so many firms and in so many prerogatives of management as under today's ostensibly post-dirigiste regime.

This section has shown that despite the discrediting of France’s postwar dirigiste model, a number of expensive new state interventions have emerged in the years since 1983. The French state may be different from the past, but it is not smaller. The next two sections seek to explain why state intervention has proven so resilient in France. Section 3 looks at the political and electoral factors driving state intervention, while Section 4 analyzes the institutional factors.


SECTION 3 – POLITICAL AND ELECTORAL PRESSURES FOR STATE INTERVENTION

France’s political system has proven very receptive to state intervention, even in the years since the 1983 U-turn. As noted above, many of the new state policies have been the product of governments of the right, not just the left. Two characteristics of France’s political system have tended to push politicians of all stripes toward statist solutions: 1) the nature of the dominant party of the right, the Gaullist Rally for the Republic (RPR); 2) the rules structuring French electoral competition.


Gaullism and Statism

For the Communist and Socialist parties, the break with dirigisme has been a wrenching experience, and it should come as no surprise that left governments have sought new ways of coordinating the economy and assuring social solidarity. Perhaps more surprising is the fact that the French right, particularly the dominant party of the right, the Gaullist party of Jacques Chirac and Edouard Balladur, has often behaved in the same way. Three features have pulled the Gaullists in a statist direction.

The first feature is the party’s founding ideology. Scholars have often noted that outside Great Britain, Western Europe does not possess strong liberal parties. Certainly, France is no exception to this observation. The French politician most clearly identified with a neo-liberal agenda, Alain Madelin, will be lucky to poll 8 percent in the upcoming presidential election, and Madelin’s Liberal Democracy party rates perhaps 10 percent in the opinion polls.

To say that the French right is not neo-liberal is something of an understatement, however. The dominant party of the French right, the Gaullist Rally for the Republic (RPR), is not only not neo-liberal; it is statist. This is a striking departure from most European countries, where Christian Democrats are generally the main conservative party. Christian Democracy shares to some extent the neo-liberal aversion to concentrated state power. While acknowledging a place for government in preserving social cohesion, the Christian Democratic doctrine of “subsidiarity” maintains that challenges should be addressed at the lowest level possible, ideally through the family, the church, or community and social organizations, with the state intervening only as a last resort (Kersbergen 1995). For French Gaullists, by contrast, the state has tended to be the first resort, arguably the only resort.

For nearly a quarter century prior to Mitterrand’s election as president in 1981, it was the French right, not the left, that ran France’s dirigiste model, and it was the Gaullist party that gave the clearest expression to the dirigiste vision. The party’s founder, General Charles de Gaulle saw the state as the agent of modernization and the general will. An enlightened, interventionist state would lead French business where markets feared to tread, overriding France’s cautious, traditional elites to restore the country to greatness. When de Gaulle came to power in 1958, he established a new political regime, the Fifth Republic, that was designed to concentrate power in an elected president, who could modernize the economy over the objections of self-serving, particularistic interests. De Gaulle’s reign as president from 1958 to 1969 marked the heyday of dirigiste policymaking -- of voluntarist industrial policy, “national champions,” and advanced-technology grands projets. For many Gaullists, even today, an activist state is a core component of their ideology.

A second feature of Gaullism that has fueled statism is the identification of state intervention with resistance to American hegemony. De Gaulle’s central objective was to restore France as a great power in the international arena, reducing its dependence on the United States. In de Gaulle’s mind, challenging the international status quo required an activist state. France would gain its military autonomy by forging an independent nuclear deterrent, the force de frappe, and ending its military participation in NATO. In foreign policy, de Gaulle forged an independent line, criticizing US positions on a range of issues, notably the Vietnam War and the Arab-Israeli conflict. And in the economic arena, resisting American hegemony meant building “national champions” to beat back US multinationals. It also meant freeing France of dependence on US technologies by developing and promoting the use of indigenous technologies, a strategy that Elie Cohen has aptly labeled “High-Tech Colbertism” (Cohen 1992).

In the post-dirigiste period, Gaullists no longer embrace industrial policy, but the equation of state intervention with resistance to American hegemony continues to shape policy, especially in the social arena (Levy 2000). Where once French authorities railed against predatory US multinationals, now the threat is said to come from US-led “globalization” and “Anglo-Saxon liberalism,” which are blamed for placing downward pressure on wages and social benefits. Once again, protecting France from pernicious US influences, from a race to the bottom in social standards and convergence on a neo-liberal minimum, requires state activism. It is, therefore, no coincidence that a Gaullist, Jacques Chirac campaigned for president in 1995 on a program of intensified state intervention to heal France’s “social fracture” and restore “social cohesion.” From a Gaullist perspective, the expansion of state intervention is not merely a social imperative, but a geopolitical imperative, a measure of France’s capacity to preserve its sovereignty and identity in an increasingly integrated, interdependent, and US-influenced world.

The third feature of the Gaullist movement that has fueled state intervention is an obsession with social order. This concern was not a founding feature of Gaullist ideology, but rather a legacy of the near-revolution that rocked France in May 1968 and led to Charles de Gaulle’s resignation from the presidency the following year. Many leading figures in the Gaullist party, including Chirac and Balladur, were junior government officials in May 1968. This scarring, formative political experience has made both Chirac and Balladur extremely reluctant to confront popular protests. In a country with a relatively new and contested constitution and a long tradition of revolutionary politics, concern for social order has invariably trumped concern for fiscal prudence. Time and again, French leaders (to be fair, leaders from all parties, not just the Gaullists) have responded to protests with policy concessions – new spending programs, protection from competition, or the withdrawal of proposed liberalizing reforms (Berger 1981; Cohen 1989; Levy 2000).

Gaullism, then, is not a garden-variety conservative party. Its founding ethos emphasizes state intervention as the key to rapid economic development and the breaking of American hegemony. Its transformation, stemming from the events of May 1968, has made Gaullist leaders willing to pay almost any price to limit protest and preserve order. The orientation of the French right toward statist solutions is reinforced by a second set of factors, the rules governing French electoral competition. Two features are especially important: the dual executive and the two-round voting system.
Electoral Competition in the Fifth Republic

France's Fifth Republic incorporates elements of both a parliamentary system (a prime minister who can count on a disciplined parliamentary majority to pass legislation) and a presidential system (a president elected directly by universal suffrage, with power to name the prime minister and to dissolve parliament). This "dual executive" arrangement was devised to strengthen the Fifth Republic's founder and first president, Charles de Gaulle. It gave de Gaulle the advantages of both American presidentialism and European cabinet government. On the one hand, because the French president names the prime minister and possesses the power dissolve parliament, de Gaulle was able to bend the legislature to his will. On the other hand, because the president is answerable to the electorate only, parliament had little recourse against him. It could not vote de Gaulle out of power; it could only sanction the prime minister, who served as a kind of buffer, keeping de Gaulle above the fray of day-today politics and policy-making. Backed by this powerful institutional arsenal, de Gaulle was able to dominate French politics and the nation's fractious political parties throughout the 1960s.

Ironically, though, a set of arrangements that was widely seen as contributing to the cohesion and "strength" of the French state ultimately proved to be a source of weakness. The president was indeed all-powerful as long as he commanded a majority in parliament. But once de Gaulle departed from the political scene and the Communist and Socialist parties joined in a powerful “Union of the Left,” French elections became hotly contested. In this context, the dual executive evolved into a dual threat to the government. With parliamentary and presidential elections usually held in different years, there were essentially twice as many opportunities to change the government as under a pure parliamentary system. If the opposition won a presidential election, then the new president could immediately dissolve parliament and appeal to the voters for a majority to implement his program; if the opposition won a parliamentary election, then the president would be reduced to a figurehead, required to submit to the will of the new legislative majority.

Nor were these mere hypothetical situations. Each of the last three presidencies has included one period of “cohabitation,” that is, of a president and parliament from opposite sides of the political spectrum (1986-1988, 1993-1995, 1997-2002). Indeed, since 1986, France has experienced cohabitation more often than not (nine years out of sixteen). What is more, the sitting prime minister has lost six consecutive national elections dating to 1981 (1981 presidential and legislative elections, 1986 legislative, 1988 presidential and legislative, 1993 legislative, 1995 presidential, 1997 legislative). With France engaged in almost perpetual election campaigns and governments being repudiated regularly by the voters, leaders of all political stripes have felt keen pressure to respond to popular demands for state protection and resources.

The pressure on politicians is accentuated by a second constitutional feature, the two-round majoritarian electoral system. Under French electoral rules, if no candidate secures 50 percent of the vote on the first ballot, a run-off is held between the top two candidates.4 Typically, a number of candidates compete on the first ballot, followed by run-off between the top candidate of the right and the top candidate of the left. On the second ballot, unsuccessful left candidates support the candidate of the left (with greater or lesser degrees of enthusiasm), while unsuccessful candidates of the right support the candidate of the right. Thus, the first ballot chooses the standard-bearer of the left and right respectively in a kind of rough analogue to an American primary election. In these primaries, statists on the French right, appealing to the core values of the Gaullist majority, have generally been able to outpoll candidates of a more liberal persuasion. The clearest example comes from the 1995 presidential election.

Just a few months before the 1995 election, Jacques Chirac trailed far behind his long-time-friend-turned-rival within the Gaullist party, Edouard Balladur. The prime minister from 1993 to 1995, Balladur had gained popularity for his cautious, low-key approach to liberalization. Balladur would nudge France in a liberal direction, but not if confronted with any kind of serious opposition. The combination of Balladur’s tactical skills and public fatigue with Chirac, who had already lost in two presidential elections and who struck many as impetuous and irratic, placed Balladur so far ahead in the polls that many Chirac loyalists had defected to the prime minister’s campaign. Yet in the final months before the election, Chirac was able to overtake Balladur as the candidate of the right, before capturing the presidency in a run-off with Lionel Jospin. Chirac’s campaign began to turn around when the former admirer of Reagan and Thatcher embraced a statist agenda. Chirac denounced Balladur’s alleged subservience to liberal dogma (la pensée unique), while pledging to expand state intervention to restore the “Republican pact” between state and citizen and heal France’s “social fracture.” Thus, in a primary election on the French right, a candidate pledging to intensify state intervention proved more attractive to conservative voters, notwithstanding his erratic personality and opportunistic ideological repositioning, than a cautious, moderate liberal.

France’s two-round electoral law bolsters statism in a further way, by lowering barriers to entry for new political parties and fringe candidates. Under the French system, there is no penalty for voting for an uncompetitive candidate on the first ballot, since the victor is almost never chosen until the second ballot. Consequently, little parties and non-mainstream candidates find it relatively easy to enter the political fray. Indeed, if they fare well in the first round of voting, they can then demand programmatic or other concessions in return for their support in the run-off election.

The ease of fielding new parties and presidential candidates has made it difficult for the Gaullists on the right and the Socialists on the left to move away from statism. In elections to the European Parliament in 1999, the Gaullists tried to move in a more liberal direction, forming a single electoral list with Alain Madelin’s neo-liberal followers. In response, former Minister of the Interior, Charles Pasqua declared that Chirac had betrayed the RPR’s principles and fielded an independent list, the Rally for France (RPF). Despite the novelty of Pasqua’s party and the RPF leader’s rather unsavory personality, the upstart RPF outpolled the Gaullist list 13.1 percent to 12.8 percent (the worst showing ever for the RPR), forcing Chirac to rethink his strategy.

Chirac’s Socialist rival, Lionel Jospin has been under similar pressure. The Socialists have always had to embrace a degree of state intervention in order to maintain their electoral alliance with the Communists. With the decline of the Communist party, which now represents less than 8 percent of the French electorate, one might have imagined that Jospin would be less constrained. But in the 2001 municipal elections, new constraints emerged. Several newly created or long-marginal left parties – Motivated, Trotskyists, Revolutionary Communists -- made significant inroads on the first ballot, and many of their supporters stayed home on the second ballot, leading to a surprisingly poor showing for the left. Several of these parties are fielding candidates in the 2002 presidential election, so that Jospin will have to demonstrate his leftist (i.e. statist) credentials if he is going to outpoll Chirac on the second ballot.

Both Jospin and Chirac are under pressure to allow a greater role to the state from yet another source, former Socialist Minister of the Interior, Jean-Pierre Chevènement. Chevènement has become the “third man” in the 2002 presidential campaign, with as much as 14 percent in the opinion polls, drawing from both sides of the political spectrum. Chevènement’s central campaign theme is a call for the restoration of the traditional statist-Jacobin model. Thus, statist policy is underpinned by more than the preferences of French politicians. Even if French political leaders were shown to be more “pragmatic” and less statist than the median voter, the French electoral system provides numerous opportunities for the median voter to rein in those leaders: twice as many national elections as under a typical parliamentary system, two rounds of voting, and low barriers to entry for new political parties and fringe candidacies.

The dynamics of political competition in France have tended to bolster statism in two ways. The first way is in the pledges that politicians make to secure election. The fact that the main party of the right was founded on statist principles, that parties of the right ran the dirigiste model for most of the postwar period, and that state intervention continues to be linked with the very appealing theme of resisting American hegemony means that it is almost impossible for politicians of the right – let alone the left – to run a successful campaign without some kind of statist agenda. This pressure is intensified by the two-round ballot system, which allows upstart parties and candidates to siphon votes from mainstream candidates who move too far in a liberal direction.

The second way in which the dynamics of French political competition bolster statism is in the policies that politicians pursue once in office, even self-styled liberal politicians (Berger 1986; Levy 1999). Again, the experience of Jacques Chirac – this time, in the mid 1980s – is revealing. When Chirac became prime minister in 1986 under a then-fashionable neo-liberal banner, his campaign included a pledge not to touch the welfare state. For a leader whose formative political experience was May 1968, social cohesion trumped tax cuts. Nor was this Chirac’s only deviation from neo-liberal orthodoxy. His high-profile privatization program was very much marked by dirigiste habits.

Although the Chirac government privatized a large swathe of French industry, its strategy – drafted and micro-managed by Minister of Finance, Edouard Balladur – was anything but free-market (Bauer 1988). In a time-honored Gaullist tradition, foreigners were barred from holding more than 20 percent of any company. The price of the companies was set by the government, not by auction in the market. Finally, through a series of backdoor bargains, Chirac and Balladur forged a system of mutual cross-holdings and interlocking directorates that enabled a small coterie of Gaullist loyalists to gain control of the privatized companies at low cost, to be insulated from hostile takeovers, and to be responsible to each other, rather than to the market.

The Chirac government’s commitment to neo-liberalism was further undermined by the pressures of the dual executive system. Although the right won the parliamentary elections of 1986, the real prize was a presidential election just two years later. Under the French system, if Mitterrand managed to defeat Chirac for the presidency in 1988, he could dissolve the parliament and count on winning a Socialist majority to support him. Consequently, Prime Minister Chirac was running for president almost from day one. Despite a pledge to shrink government spending by 1 percent of GDP annually, Chirac began to prime the pump after his first year in office, expanding infrastructure and labor market programs to reduce unemployment. As a result, when Chirac went down to defeat in 1988, total government levies had decreased under his tenure from 43.4 percent of GDP to …. 43.1 percent.

The lesson of the Chirac government is that for a variety of political reasons – concerns for social order, lingering statist proclivities among Gaullist figures who ran the dirigiste machine for decades, and a very short electoral cycle – the commitment of French authorities to liberal economic principles, on the rare occasions when such a commitment is voiced, is honored mainly in the breech. Indeed, much the same story could be told of the more cautiously liberal Balladur government from 1993 to 1995 and the Juppé government from 1995 to 1997. Thus, France’s political system tends to favor statists over liberals in the competition for public office and to dissuade even self-styled liberals from implementing their preferred policies in the (unlikely) event that they gain office.
SECTION 4 – INSTITUTIONAL PRESSURES FOR STATISM

The roots of statism in France are institutional as well as political. Part of the reason why the demands for social protection or new forms of economic coordination have been directed toward the state is that there is no obvious alternative in French society. As Tocqueville lamented over 150 years ago, French authorities have long concentrated power in the central state, while weakening or, at least, neglecting societal and local institutions. This orientation figured especially prominently in the postwar dirigiste model. Under the logic of dirigisme, state authorities needed to be free to pursue the general will, unimpeded by conservative, self-serving, particularistic interest groups. The “strong” French state rested upon a “weak” set of societal and local organizations.

In the post-dirigiste period, this strategy has come back to haunt French policymakers – an outcome that I have labeled “Tocqueville’s Revenge” (Levy 1999). Time and again, French authorities have attempted to devolve economic and social functions to actors outside the central state, who were deemed more flexible, efficient, and democratic. Yet in each instance, the organizations in question have been too weak and divided to handle these new responsibilities. As a result, pressures for intervention have bounced back into the state arena, spawning new forms of state activity. We can see this pattern in a number of areas, including industrial relations, business finance, the promotion of SMEs, and health care.

Aside from the brief and unsuccessful neo-liberal experiment of Jacques Chirac from 1986 to 1988, French authorities have been extremely uneasy about embracing the market. Their preference has tended to run toward Germanic solutions, toward economic and social coordination by institutions located between the state and the market. As the state withdrew from detailed industrial relations, French authorities hoped that unions, employers, and works councils would work together to upgrade training, launch apprenticeships, and expand flexibility. As the state withdrew from industrial policy, French authorities hoped that investment banks would nurture long collaborative relations with industry, what the French call banque-industrie, taking an equity stake, providing capital in hard times, and financing risky long-term development. As French authorities became less enamored of “national champions,” they looked to provincial policy networks to nurture local districts of SMEs with guidance, technology, and capital. And as French authorities sought to move away from micro-managing the health care system, they hoped that the medical profession could organize responsible cost control.

The case for the Germanic approach was bolstered by a number institutional reforms in the 1980s that seemed to point France in a teutonic direction. France’s 1982 Auroux laws mandated firm-level bargaining, a process that could conceivably evolve into something like Germany’s celebrated system of codetermination. The rigged privatizations of Chirac and Balladur laid the foundation for German-style investment-bank strategies, as the main banks and insurance companies in France acquired substantial equity holdings among industrial enterprises. The Defferre decentralization laws gave new powers and resources to local authorities, who were expected to promote small business in the manner of Germany’s decentralized support for the Mittelstand. And the government’s formal recognition of MG-France, a doctor’s association representing general practitioners, fueled hopes of German-style, corporatist agreements to rein in health care spending, while safeguarding public health priorities (la maîtrise médicalisée).

The Germanic, associational approach confronted two central difficulties, however. The first was historical. The domination of state authorities throughout the postwar period had marginalized, weakened, and distorted the strategies of the very institutions called upon to assume critical responsibilities in the 1980s and 1990s. As a result, these institutions tended to be ill-prepared for weighty coordinating functions.

In industrial relations, French unions were divided into five rival movements, who fought each other as much as employers. Union strategies were geared toward influencing the national political arena, as opposed to the workplace arena, since it was in the national arena that they key levers influencing worker destinies could be found: hefty boosts to the minimum wage; the extension of wage agreements from one sector to another; bail-outs of loss-making firms. Firm-level bargaining, by contrast, received relatively scant attention. Thus, French unions entered the post-dirigiste period with few members, many rivals, and little experience with workplace bargaining.

In finance, postwar dirigiste policymaking had likewise done little to prepare France's banks and insurance companies for the banque-industrie mission. The financing of developmental or industrial policy priorities had been handled directly by the state, through its special lending channels, not by the large deposit-taking banks. Indeed, under the system of administered credit rationing, France's banks were actively discouraged from seeking out risky or long-term projects. Consequently, they had neither cultivated close ties to industrial clients nor developed a capacity for balancing risks against profit opportunities.

France’s provincial policy communities were also unprepared for the responsibilities of the 1980s. Under the dirigiste model, local economic development policy was a state affair more than a local affair, handled primarily by a high-flying national development agency, the Délégation à l’Aménagement du Terrritoire et à l’Action Régionale (DATAR), along with state-appointed prefects in the provinces. Local authorities were legally barred from providing direct aid to companies, and their budgets kept at modest levels. To the extent that provincial officials were involved in economic policy at all, it was primarily as supplicants, pleading with Parisian technocrats to locate factories in their community or bail out ailing local firms.

Finally, the French health care system displayed a pattern much like that of industrial relations, with a medical profession divided into a number of warring organizations. Despite the fact that the French welfare state is ostensibly of the “Bismarckian,” as opposed to “Beveridgean” variety (Palier 1999), with the social partners administering the system in a corporatist fashion, in practice, state authorities set the key parameters, such as benefit and contribution levels. As a result, French medical associations had little incentive to behave responsibly, lobbying instead for special privileges from the state (Hassenteufel 1997).

Along with the historical legacies of dirigiste policymaking, the second factor limiting the Germanic or associational model in France was the relative modesty of institutional reforms in the 1980s. The arrival of a leftist government in power for the first time in decades offered a chance to shuffle the institutional deck, and as described above, several reforms did create new opportunities for societal and local institutions. Still, most of these reforms were passed during the initial ultra-dirigiste phase of the Mitterrand years and were geared more toward second-left, autogestionnaire themes of participation and democratic expression than toward economic coordination. As a result, the reforms did not tend to give societal and local institutions the powers that they needed.

The Auroux laws mandated workplace bargaining, but left France’s anemic labor movement without the capacity to negotiate with employers on an equal footing. Privatization gave French financial institutions an equity stake in industrial enterprises, but the banks were squeezed as both lenders and borrowers by policies of financial market liberalization and were, therefore, in no position to engage in risky, long-term investments. The Defferre laws freed French local authorities from heavy-handed state controls, but gave them little extra money and failed to rationalize a distinctly un-Cartesian provincial landscape, marked by a proliferation of overlapping local initiatives. Finally, the government conferred official recognition on MG-France, but did little to bolster this organization against its rivals in the medical profession.

The weakness and inexperience of French institutions between state and market -- whether historically predetermined or the result of the timidities and contradictions of the 1980s – scuttled the Germanic, associational project. The weakness of French unions, who collectively organize less than 5 percent of the private-sector workforce, meant that instead of co-determination and cooperation, French industrial relations reform was marked by one-sided deregulation. In finance, instead of forging long-term, strategic alliances with industry, most French banks avoided the kinds of high-profile, risky clients favored by the government, not to mention small business. When banks did embrace the German banque-industrie strategy, the results were uniformly disastrous, notably for the self-styled “Deutschebank of France,” Crédit Lyonnais, which became the largest bankruptcy in French history. In local governance, instead of policy networks united in the promotion of small business, French provincial authorities offered a proliferation of competing, underfunded initiatives that held little interest to local SMEs. Finally, in health care, instead of spearheading a negotiated containment of expenditures, MG-France was denounced and bled of members by rival medical associations, while health care spending continued to spiral out of control.

In all of these areas, the failure of the Germanic project has placed tremendous pressure on state authorities to salve pressing problems. With neo-liberal deregulation politically contested and German-style coordination institutionally unavailable, state authorities have found themselves on the front line. In response, the French state has re-intervened on a large scale.

In industrial relations, to cushion French workers against a one-sided, employer-driven deregulation, state authorities have both spent and re-regulated. Official unemployment, high as it is, has been limited by massive spending on early retirement, subsidized hires, and government internships. On the regulatory front, the government has imposed modest restraints on lay-offs – more consultation, better severance packages – and a less modest requirement that firms move to a 35-hour workweek. The Jospin government has also sought to bolster French workers by blocking what it regarded as excessively one-sided collective agreements to implement the 35-hour workweek in the metal and mining sector and to introduce job search requirements into the unemployment insurance system.

The financial arena has likewise seen extensive state intervention. When French banks neglected low-margin SMEs, the government created a series of specialized credit channels, providing billions of francs of subsidized loans, which were eventually merged into a Bank for the Development of SMEs. When French banks refused to assist troubled “national champions,” the state injected 10 billion to 20 billion francs in Renault, Air France, Thomson, Bull, and the SNCF respectively. And when Crédit Lyonnais, the leading proponent of the banque-industrie strategy, experienced an un-German financial collapse, the government committed over 50 billion francs to a rescue package.

In the provincial arena, with local authorities unable to mount coherent, well-funded programs in support of SMEs, the state has stepped into the void. As noted above, state authorities have created a number of special lending channels, culminating in the SME Development Bank, as well as programs that encourage SMEs to integrate new technology, launch new products, or upgrade managements structures. State authorities have also bolstered their organizational presence in the provinces, shifting personnel and resources downward, in order to be able to respond quickly to the demands of local business. Most of the small-business programs are administered by so-called "deconcentrated" agencies associated with the Ministry of Industry: the National Agency for the Valorization of Research (ANVAR), the Agency for the Development of Applied Production Technology (ADEPA), and the Ministry of Industry's own field services, the Regional Directions of Industry, Research, and the Environment (DRIRE). The French use the word "deconcentration" to denote a shifting of power within the state, from Parisian ministries to provincial branch offices -- in contrast to "decentralization," which entails a transfer of power away from the state, to independent, elected local authorities.

Finally, in health care, the failure of a negotiated approach to cost control has given way to a decidedly top-down approach. In 1995, the Juppé government, a government of the right, enacted what has come to be known as the “nationalization” of the French health care system. Juppé’s reform, which required an amendment to the French constitution, subjects the health care budget to a parliamentary vote. His hope was that by imposing an annual budget from above, rather than accommodating a series of autonomous spending decisions from below, the government would be able to better limit spending. The Juppé plan also tightened administrative controls on hospitals and proposed to reward or punish physicians by adjusting fees annually, from one region to the next, according to each region’s success in meeting government spending targets. The Jospin government has continued along these lines, levying penalties on medical professions and pharmacists who exceeded public targets. Recently, the French employer association withdrew from participation in the health care administration, arguing that there was no sense in participating in a system where the government called all the shots.

In responding to the temptations and pressures for intervention, French authorities have sought to fashion more market-conforming, light-handed methods. They have tended to be more respectful of private initiatives, underwriting business adjustments to international market competition, as opposed to trying to block such adjustments. Even when state intervention has been motivated primarily by social considerations, some improvements can be detected. Early retirement programs may be expensive, but they do allow French industry to restructure with relatively little opposition. Bail-outs of French banks or loss-making nationalized companies may not be the best way to spend public money, but at least, they have been framed as one-time, transitional measures on the road to privatization, rather than new attempts at state guidance. Thus, France has not come full circle. Post-1983 state intervention attests to a certain degree of institutional learning and market sensitivity. Still, if France has changed, that change cannot be equated with the eclipse of the state. Indeed, almost 20 years after the break with dirigisme, the French state is absorbing a greater share of GDP than at any time in the postwar period.
SECTION 5 – CONCLUSION: IMPLICATIONS OF THE FRENCH EXPERIENCE

This paper has sought to explain why state intervention has proven so resilient in France, notwithstanding the repudiation of the dirigiste model and the growing constraints of globalization and European integration. My explanation has emphasized political and institutional factors. Politically, France has been a case of liberalization without liberals. It is not just parties on the French left that feel ambivalent about liberalization, but also a French right marked by the Gaullist-statist heritage and a deep concern for social order. Moreover, the combination of a very short electoral cycle (due to the dual executive system) and quasi-primary elections has generated strong pressures for state intervention, whatever the feelings or preferences of politicians. Institutionally, France has been a case of “Tocqueville’s Revenge.” The inability or unwillingness of state authorities to rebuild long-neglected societal and local institutions has left the French state on the front line. Lacking buffers to deflect demands for economic assistance or social protection, French authorities have found themselves intervening on a massive scale.

My point is not that France has failed to change in the years since 1983. On the contrary, France has experienced significant liberalizing reform. The dirigiste model has been dismantled, the market unleashed, and French competitiveness greatly enhanced. Still, the move toward the market has not been accompanied by a shrinking of the state, but rather by a redeployment of state energies to new arenas -- labor markets, social protection, and the promotion of SMEs.

Looking toward the future, it might be argued that the French state has not shrunk yet, that the new forms of state intervention are part of a transition phase, and that once this transition has completed, the French state will finally be downsized. Several developments augur for this scenario. The pressures of globalization and a liberalizing European Union continue to mount, while mainstream French politicians regularly express the need to reform and trim the state. Equally important, one of the principal drivers of state intervention, the short electoral cycle, may become a thing of the past with last year’s constitutional reform shortening the presidential mandate to five years, the same as parliament’s.5 Perhaps of greatest significance, the emergence of a militant employer organization, the Mouvement des Entreprises de France (MEDEF), which is pushing hard for Anglo-American-style liberalization, may offer a solution to the as-yet-intractable challenge of curtailing state intervention without triggering massive anti-government protests.

In the past two years, MEDEF has played on the divisions and weaknesses French unions to negotiate a series of very one-sided collective agreements. While the Jospin government has used its power to blunt these initiatives, President Chirac has expressed great sympathy for MEDEF’s approach. Indeed, several elements of Chirac’s campaign have been inspired by MEDEF themes, and the French employer association is openly supporting Chirac for president in the spring 2002 election. Thus, a scenario becomes plausible under which a newly elected President Chirac, backed by a parliamentary majority and confronting no national elections for the next five years, unleashes MEDEF to impose the reforms that prime ministers Balladur and Juppé were unable to enact. Of course, this scenario depends on a number of outcomes that are by no means assured: Chirac wins the presidential election; the right wins the legislative elections; Chirac upholds his commitment to MEDEF, which contradicts many of his other campaign promises; the unions fail to stand together to resist MEDEF in collective bargaining; and most critically, those groups hurt by the reforms do not hold Chirac (as opposed to MEDEF) responsible and take to the streets in protest.

More likely, though, French leaders will continue to confront powerful pressures for state intervention. The Tocquevillean problem has not been resolved, leaving the state as the only recourse for those in search of protection. The past year has witnessed the multiplication of protests by various groups – public hospital workers, truckers, police, farmers, employees of bankrupt companies, etc. -- demanding state assistance, and in the time-honored French fashion, the Jospin government has largely accommodated these demands. Moreover, if the post-dirigiste period has taught us anything, it is that French authorities stand all-too-ready to substitute new state interventions for the old. Finally, it is by no means clear that the constraints of globalization and European integration are incompatible with extensive state intervention. In the last few years, Sweden, where the state’s share of GDP is even higher than in France, has experienced very strong growth, large budget surpluses, and a return to quasi-full employment. More fundamentally, if some of the French state’s activities appear wasteful and at odds with competitiveness, other interventions have made a clear economic contribution, expanding the resources available to French firms and facilitating the reorganization of the labor force. France’s competitive position has improved greatly since 1983, and the country’s economic performance has been roughly comparable to that of other leading European nations, like Germany or Italy.

It is also important to gauge French intervention against real-world alternatives, as opposed to a neo-liberal ideal-type. No country is without defects. The US under-invests in public goods and over-invests in prisons (the worst of all passive labor market policies); Japan has huge public debt, a bloated, inefficient service sector, and a banking system buried in liabilities; and Germany has sky-high labor costs and an undigested East. The combination of wasteful and effective interventions in France does not appear significantly worse than the combination of wasteful and effective interventions in countries that are often held out as “models” to emulate. If globalization can tolerate the dysfunctions of the US, Japan, and Germany, then it can probably accommodate a good deal of intervention by the French state -- all the more so if this intervention bolsters market players.

The evolution of the French state since the 1983 U-turn holds three important lessons for our understanding of institutional change in a globalizing economy. The first is that shifting institutional paths requires a positive action as well as a negative action – the forging of a new mode of economic and social regulation to replace the old. In France, state authorities did more to eliminate their own dirigiste interventions than to empower alternative institutions to intervene in their place. As a result, the French state was quickly confronted with new demands for intervention. In short, absent the forging of a new institutional order, there will always be pressures and opportunities to resurrect elements of the old.

The second, related lesson of the French experience is that state intervention can morph and migrate. Whereas voluntarist industrial policy is a thing of the past in France, labor market expenditures have attained Swedish levels, and the French welfare state has become the largest outside Scandinavia. For this reason, in gauging institutional change, it is important to examine what is new, not just what is old. If we confine our investigation to existing forms of state intervention, to the question of whether these forms are surviving or being undermined, we may be committing the analytic equivalent of searching for the key under the lamppost. In the French case, such an investigation would yield the erroneous conclusion that the state has become a non-factor.

The third lesson of the French experience is that to the extent that globalization or European integration necessitates institutional change, national responses may take the form of institutional redeployment, as opposed to institutional eradication. This vision stands in contrast to strong globalization claims about convergence, but also to path-dependent analyses emphasizing the persistence of long-established arrangements. French authorities have not perpetuated postwar dirigiste arrangements; they have dismantled these arrangements. There has been real change. At the same time, the French state has not shrunk, as the logic of globalization would anticipate. Between plus-ça-change continuity and globalization-driven convergence, France may be on a third path -- where old forms of state intervention have been discredited and cleared away, but new forms have emerged in their place. Borrowing from Schumpeter, we might conceive of this third path as a kind of “institutional creative destruction.”














REFERENCES



1 The clearest statement of this view is offered by Michael Loriaux (Loriaux 1988; Loriaux 1991). Peter Hall also privileges the role of international pressures (Hall 1990), as do Philip Gordon and Sophie Meunier (Gordon and Meunier 2001). Helen Milner argues that growing international integration transformed the preferences of French firms, thereby undercutting support for state intervention to protect domestic markets (Milner 1988).

2 Figure 2 also suggests that French labor market expenditures have become more “active” over the years, encouraging recipients to work (“active”), rather than to withdraw from the labor market (“passive”). Whreas the number of employees in passive early retirement programs declined slightly from just over 700,000 in 1984 to less than 600,000 in 1999, subsidized jobs in the private sector expanded from 320,000 to 1.6 million, subsidized jobs in the public sector from 8,000 to 509,000, and positions in training programs from 143,000 to 298,000.

3 Although job placement is one of the objectives of the RMI, the program has no employment search requirement. For many recipients -- older, unskilled workers or persons suffering from psychological problems, alcoholism, and/or chemical dependency -- employment is a remote possibility, at best. In addition, the RMI has been criticized for creating poverty traps. A claimant who accepts a low-wage, part-time job can lose as much in benefits as s/he earns in wages. Even for a full-time, minimum-wage position, the effective tax rate is estimated to exceed 60 percent (Bourguignon and Bureau 1999).

4 In presidential elections, only the top two candidates may stand on the second ballot. In legislative elections, candidates receiving more than 12.5 percent of the vote may remain in the second round. This provision has led to a number of “triangular,” three-cornered races recently, as National Front candidates have refused to step aside for candidates of the mainstream right.

5 Of course, were a president to call an early parliamentary election, as remains the president’s prerogative, the presidential and parliamentary electoral cycles would again become decoupled.



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