France: The price of suspicion

Yann Algan, Pierre Cahuc 25 November 2007

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France is in the throes of a vicious circle – one that has considerable economic and social costs. For over 20 years, surveys carried out in developed countries reveal that the French, more so than elsewhere, don’t trust their fellow citizens. They’re the most likely to mistrust public powers, social partners, and the justice system. They are also the most resistant to the market economy.

According to a World Values Survey, when asked “Do you think it’s possible to trust others, or can you never be careful enough?" only one of five French people answered that they trust their fellow citizen. That’s two times less than in the US or Canada, and three times less than in Scandinavia. Of the 26 richest countries in the world, France comes in 24th place, just ahead of Portugal and Turkey. In this context, there is no doubt that recent events only serve to fuel further the French sentiment of suspicion. The cash theft by one of the principal representatives of the largest union of employers  in France (MEDEF) fuels suspicion of secret financing for trade unions. And the suspicion of inside crime at the huge state-controlled aeronautic company EADS throws an equally harsh light on the potential for collusion between the state and the industrial and financial realms.

As these scandals emphasise, the suspicious stance of the French goes hand in hand with a lack of civic-mindedness, which is much higher than in other rich countries. Out of a sample of 21 OECD countries, French people are the least shocked by bribery, or by the practice of claiming aid to which one is not entitled. It’s no surprise then – according to the International Social Survey Program – that the majority of French think “you can’t get to the top without being corrupt”. Of the 14 countries surveyed, France was 3rd most likely to associate success with corruption.

Yet this French exception has nothing to do with cultural atavism. New information on the historical evolution of cultural attitudes shows that the French were more inclined to trust others before the Second World War. This is clear if we look at the degree of trust held by European emigrants to the US in the last century. As emphasised by many sociological studies, emigrants tend to bring with them the same level of trust towards others that they had in their country of origin. Children born in the USA to emigrant parents who had little trust in others tend to have little trust in others themselves. Yet, there is a striking break: descendants of French who went to live in the US before the last world war are much more trusting than the children or grandchildren of French who emigrated after 1945. We can see this reversal as an effect of the Occupation and Collaboration that deeply traumatised and divided France. But the corporate and government-controlled social model established after the Liberation is also a factor.

Corporatist social system

The post-war social system is first of all corporatist, a characteristic partially inherited from the Vichy regime. This first characteristic, which differentiates France from the Scandinavian social democracy, means that social rights are granted according to status and profession. Social relations are thereby segmented between those who benefit from rights and “others”. Special retirement plans are a symptomatic example, with France being the OECD country with the highest number of specific plans: executives, civil servants, craftsmen, storekeepers, and professionals – not to mention the numerous special plans of big public enterprises or specific professions (parliamentary representatives, miners, notary publics, sailors, military personnel, etc.) The aim of the “social actors” then becomes to safeguard rent-seeking, as evidenced by the current SNCF and RATP strikes in opposition to reforms to their retirement plans. This fundamental social segmentation can only fuel division and suspicion.

Vicious circle of mistrust

State socialism manifests itself by regulating civil society at the level of minute detail, and brings with it a vicious circle of mistrust. So the French people’s lack of trust gets in the way of their ability to cooperate, which brings the State to regulate work relations in minute detail. By emptying social dialogue of its content, these interventions prevent the adoption of favourable reforms to improve the function of the job market. Distrust even induces a fear of competition, leading to the set-up of regulatory barriers-to-entry, that create rent-seeking which favours corruption and mutual distrust.

The French social model fosters a truly vicious circle. Corporatism and state intervention undermine the mechanisms of solidarity, destroy social dialogue and reinforce mutual distrust – that which in turn feeds categorical demands and the constant call for regulation, and thereby favours the expansion of corporatism and state intervention.

Disastrous social and economic consequences

This spiral of mistrust has disastrous social and economic consequences. It heavily penalises economic activity – because mutual trust is essential to well-functioning markets. The incapacity of the French in social dialogue and job market reform is therefore largely responsible for the very mediocre French job market performance in comparison to other countries. Corporatism and specific market regulations on goods have a very high cost. The situation with taxis is a good illustration. For fear of competition, those concerned latch on to a Malthusian system (25,000 taxis in Paris in 1925, 15,000 in 2005) – of which we know the result; users can’t find a taxi when they need one, and drivers practically have to bleed to death to get the famous taxi-badge – a clear example of a lose-lose outcome. In comparing the links between economic performance and social attitudes in about 30 countries from the early 1950s to the present day, we estimate that lack of trust has cost us 3 points more in unemployment, and 5% of GDP at least in comparison to Scandinavian countries, like Sweden, which benefit from a much higher level of trust.

But suspicion doesn’t only have an economic cost: surveys available show that people say they’re less happy as much as they say they mistrust their fellow citizens. And the French model ends up perpetuating a social system as costly as it is inegalitarian -- incapable of ensuring that everyone has the “social security” promised in 1945.

How to escape?

How do we get out of this vicious circle? The Scandinavian countries, by opting for a universalist model that offers the same social rights to everyone and that limits regulatory barriers to competition, seems to have found the key to strengthen the feeling of community interest. To re-establish this trust requires a change of course in order to correct the drift of corporatism and state intervention in the French social model. Reforms must therefore favour the limitation of corporatism, promote social dialogue and institute a true mutualisation of risks associated with a functional modern economy.

These imperatives outline our priorities:

·  to harmonise the social security systems, with regards to both retirement and health,

·  to seriously reform union representation, so that unions are present in business and conduct true public service missions for representation of both sides rather than for corporate interests,

·  to stress the independence of regulatory entities which deal with competition,

·  to create a public agency that coordinates unemployment insurance, assistance to job-seekers and professional training, in order to secure career paths.

All this must enable the French to envision the future with confidence.  

This commentary is based in the CEPREMAP book, La société de défiance: comment le modèle social français s'autodétruit?

 

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Topics:  Labour markets

Tags:  France, competition, mistrust, labour market reform, retirement policy

Yann Algan is Professor of Economics at Paris School of Economics and University Paris East

Director, CREST Macroeconomic Laboratory; Professor of Economics at the Ecole Polytechnique (Paris); CEPR Research Fellow

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