Tuesday, 19 January 2021

France: Administrative Elite and the Province Determine the Pace of Reform

 



This article follows my summary of the essay by the young MIT economist Antoine Lévy[1] in Le Figaro of 2 January 2021, which received much attention in France. Lévy had lamented the late start of the Covid vaccination in France. He cited the disregard for logistics, evasion of responsibility, state and administrative failures, and the government's loss of reality as key features of the French backlog.

A week later, an article[2] appeared in Le Monde (which has since been renamed), which puts the accent on

- France's hypertrophic bureaucracy in the health sector [2]. There, France has 93,000 administrative units (at the state, social security, and municipal levels) that can spend public money; in Germany, there are 15,000.

- Centralism with a vertical, silo-based organisation of ministries. The health minister gives his instructions to the programme managers, who in turn delegate the money to those responsible in the areas.

- Arrogance: On the ground, mayors and local authorities complain about the arrogance of senior officials, by whom they are disregarded even in an emergency situation where there should be unity.

- Hyper control: The central government's distrust and obsession with detail have paradoxically been reinforced by the various decentralisation laws. The state, no longer an actor but a client, then compensated for its loss of power by hyper-control.

- Administrative reform 2022: What has the Comité action publique 2022 achieved? "Nothing," says economist Jean Pisani-Ferry succinctly. "It was a kind of Mexican army[3]," confirms Philippe Aghion, professor at the Collège de France, who was also a member of the reform commission. "We used bureaucracy to deal with the bureaucrats".

It is depressing and impressive how little France seems to have changed in this respect in the last century. Let us take as crown witnesses, in chronological order, writings by Marc Bloch and Herbert Lüthy[4].

With their groundbreaking work, the historians around the journal Annales revolutionised the study of history. Instead of listing battles and events, the Annales historians wanted to show human activity in its entirety, and to this end sought cooperation with other disciplines such as geography, sociology or economics. The medievist and agricultural historian Marc Bloch was a co-founder of the Annales historiography (along with Lucien Febvre); another famous representative was Fernand Braudel. Marc Bloch came from a Jewish family originally resident in Alsace, which had left Alsace after the Franco-Prussian War of 1870/1871. In 1944, he was captured in Lyon and executed by a German firing squad.

In L'Étrange Défaite (1946) published posthumously[5], Marc Bloch (as a soldier in 1940) examines from a frog's perspective[6] the reasons for France's defeat in the battle for France during the Second World War, the Drôle de Guerre (Phoney War). Bloch's contemporary history essay is a testament to the shortcomings of the elites who entered the war in May 1940.

First, Marc Bloch denounced the bureaucratic character of the army, which he attributed to habits adopted in peacetime: in particular, the “cult du beau papier” (superfluous written memos), but also the "fear of displeasing a powerful man of today or tomorrow". According to Bloch, all this bureaucratic organisation is also rooted in the training of officers themselves, which revolves around a cult of theory and tradition. Officer training was based on elegant and abstract theoretical rules of engagement that did not stand the test of practice.

Second, a secrecy and command culture slowed down the dissemination of information. The combination of bureaucracy and rigid training led to general disorder in the field as leaders changed too often. Intelligence on enemy positions was prevented by meagre information at the operational level, as relevant information was classified and circulated only high up in the hierarchy. Information went through very long layers and ended up being outdated by the time it reached the people who were supposed to use it.

Third, dilution of responsibility between too many levels of the hierarchy and a delay in the transmission of instructions. This makes it impossible to estimate within what time span an order can be carried out, leading to counterproductive manoeuvres, such as the retreat of the armies on the Meuse and at Sedan before the German breakthrough in the Belgian Ardennes. Senior officers were also repeatedly surprised that "the Germans had simply moved faster than seemed to be the rule", the rule being based on the study of the Napoleonic campaigns and the First World War: the rigid and backward-looking strategic thinking of the French leadership, according to Bloch.

Fourth, shirking responsibility: Marc Bloch's indictment of the French generals, who denied any responsibility for the defeat of the French army in 1940, weighs particularly heavily. Because, in his eyes, the generals were incapable of adapting to the new realities of mobilised warfare of movement with tanks and air power.

A book by the Basel historian Herbert Lüthy[7] attracted attention in France[8] as well as in Germany and Switzerland shortly after Bloch's publication. France's clocks go differently, not necessarily wrong! This speaks, as Friedrich Sieburg[9] noted, of "insight into the outrageous stability of the French being, which resists even the most stormy calls to adapt itself to the demands of the hour with a tenacity that arouses in the same breath the anger and admiration of those around it." The French version of Lüthy's book "A l'heure de son clocher: essai sur la France" thus echoes the cosy provinces of France, as evoked by Charles Trenet in "Douce France" in the 1930s[10], rather than hectic Paris.

Lüthy notes how much France lags behind in its mercantile economic concepts. For "France has not been governed but administered for decades". What Herbert Lüthy wrote in 1954 could still apply today: "Every new regime, and France has created more than a dozen of them in the course of two centuries, has come to power with a revolutionary programme of comprehensive state, administrative and judicial reforms; none has been able to do more than change names and replace people". After all, France was formed into the harmonious hexagon as we know it today under King Philip II (1165-1223), also called Philip the Lazy. The ´lazy´ king built the first beginnings of the administration in Paris and settled there with his administrative substructure.

Administrative dominance: Lüthy describes the continuity of France as the history of the development of its administration, France is the continuity of administration. "It has survived unshaken all dynasties, all revolutions and all catastrophes. Behind constantly changing facades of feudal, absolute, liberal monarchy, empires and republics in continuous numbering, the great institutions and corporations - and thus this state itself - have remained the same" (Lüthy, op.cit., p.20).

Elite: In reality, the administrative state is directed by the elite civil service (´Grand Commis´), civil servants far superior to the politicians in terms of seriousness and expertise. They shape the reason of state and decide "almost always from the spirit of the past". The civil servant elite is "a state of its own sovereignty, withdrawn from all political intervention, responsible to no one but its own hierarchy; ...a completely closed mandarinate that has acquired the esprit de corps and the consciousness of a select elite ... from childhood onwards in the great boarding schools preparing for careers" (Lüthy, p. 21).

Resistance to the 'technocrats' (eux!) from Paris can sometimes come from ´France profonde´, the villages and provinces of France. Shortly after television pictures showed President Macron being celebrated, even adored, by OECD employees at the Château de la Muette, the technocrat messiah was stopped by the protest of the yellow waistcoats from the car-dependent province[11]. "Messianism and parochialism" form a unity in France, according to Lüthy.

But anyone who loves France, not just as a pensioner or tourist, has to fear for it. This is truer today than 50 years ago; with a common currency and a common economic area, Germany in particular has tied its fate to its western neighbour. Moreover, Germany itself, and even more so the EU, which is strongly French in its bureaucratic nature[12], is marked by similar burdens as Bloch wrote down for France's "Strange Defeat" in 1940.

 



[1] Antoine Lévy (2021), "La lenteur de la vaccination française est un symptôme de notre déclassement", Le Figaro, 1 January. My blog post on this: http://shiftingwealth.blogspot.com/2021/01/covid-frances-clocks-tick-differently.html

[2] Claire Gatinois & Audrey Tonnelier (2021), "Vaccination: la bureaucratie mise en accusation", Le Monde, 7 January.

[3] The idiom stems from the Mexican Revolution. Meaning: ineffective organisation with a hierarchical structure involving an excess of managers and superiors.

[4] See also Alain Peyrefitte (1976), Le Mal français, Paris: Plon.

[5] Marc Bloch (1946), L'Étrange Défaite, Paris: Société des Éditions “Franc-Tireur”.

[6] Bloch did not want to register for the entrance examination at the war college, which is why he did not advance beyond the rank of captain.

[7] Herbert Lüthy (1954), Frankreichs Uhren gehen anders, Zurich: Europa Verlag. Idem (1955), A l'heure de son clocher: essai sur la France, Paris: Calmann-Levy. The English versions of his book carry the title France against Herself: A Perceptive Study of France's Past, Her Politics and Her Unending Crises.

[8] See for example Jacques Chapsal (1955), "Luthy (Herbert)", Revue française de science politique, Vol. 5-4, pp. 898sq.

[9] Friedrich Sieburg (1954), "Im Brennpunkt des Gesprächs: France's clocks go differently", Die Zeit, 13th May.

[10] The government of the united left French parties (Front Populaire) that came to power at the time of the Third Republic in 1936 (Prime Minister Léon Blum) made legal holidays (congés payés) universally binding.

[11] One of the few journalists who, unlike those from the FT or The Economist, seems to have intellectually penetrated Macron's helplessness in France's difficult reform environment is Thomas Schmid (2018), "Die Gelbwesten oder Warum Frankreichs Uhren anders gehen", https://schmid.welt.de/, 12 December.

[12] Hans Magnus Enzensberger (2011), Sanftes Monster Brüssel oder Die Entmündigung Europas, Suhrkamp.

Wednesday, 6 January 2021

Covid: France´s Clocks Tick Differently


 

France's clocks tick differently. France, "that centre of resistance to the mechanisation and mechanisation of life", without which Europe would be[1] "poor and inwardly ripe for any colonisation".

For decades, France has boasted that its expensive public health system provides its 67 million inhabitants with the best possible care from birth to death. Louis Pasteur, who invented the world's first vaccine in the 1880s, is revered throughout the country. In the Corona Year 2020, however, the reputation of French health policy has been severely damaged; Chancellor Angela Merkel even warned of "French conditions" in view of the many triages, deaths and transfers of seriously ill patients to Germany. Despite high public spending, there is a lack of intensive care beds. The management of masks, tests, tracing and isolation is chaotic.

In the early days of 2021, France's inability to organise a credible COVID-19 vaccination programme has confirmed the deep flaws in both the health and political systems. These threaten to prolong the pandemic, cause thousands of unnecessary deaths and ruin the economy. Within the EU, the same handicaps apply - the slowness of the European Medicines Agency (EMA) and the EU's EU vaccine procurement delay in ordering the most advanced vaccines from BioNTech and Moderna[2]. But the table points to the stark differences: Germany may have stumbled; France is still hanging in there. Here, the binding bottleneck is not the lack of vaccines: Of the 560,000 doses received in France by the end of the year, only 2000 had been injected by 4 January. France's clocks tick differently.

 

Covid vaccinations in five major EU countries,

Ranking as of 4 January 2021

EU country

Vaccinations doses

%, population

Germany

265.986

0,32

Italy

128.880

0,21

Spain

82.834

0,18

Poland

50.391

0,13

France

2.000

0,00

Sources: Bloomberg; Covidtracker.fr

 

The French MIT economist Antoine Lévy, a true touche-à-tout (jack-of-all-trades)[3] , has named the essential facets of the failure of the French coronoa policy in a much-noted newspaper article in Le Figaro[4]. He identifies five major errors:

·       The misjudged primacy of logistics, according to Charles de Gaulle's motto "L'intendance suivra"[5] .

·       Failure to act for fear of prosecution, explained by the trauma of the French blood scandal. In the 1980s, HIV-contaminated blood products had been knowingly administered until public stockpiles were emptied.

·       State investments without cost-benefit analysis resulting in wrong priorities. Hundreds of billions of euros have been spent by the public sector since March 2020 - without earmarking enough money for logistical infrastructure necessary for herd immunisation.

·       State and administrative failure with wordy excuses, disinformation and war metaphors: first China was to blame, then Brussels, then capitalism - an omnipresent culture of excuses. But according to Lévy, the sluggish development of testing capacities, the mistrust in private laboratory facilities as well as underpaid and inadequate staff in France's public hospitals are the responsibility of French politics.

·       Loss of reality of a government infatuated with pedagogy and communication ("logorrhoea"), neglecting action in the face of a threatening crisis. "The morbid obsession with polite language, which must never displease, to the detriment of sober confrontation with the choice that reality imposes in all its difficulties" (my translation), this is where the author locates the greatest failure.

These complaints are not new as far as France is concerned. The slowness of political decision-making processes, the paralysing hierarchisation of an unequal society and the disdain for operational implementation have been described and analysed time and again. In addition to the book by the Basel historian Herbert Lüthy cited at the beginning, the historian Marc Bloch (L'Étrange Défaite)[6], who was tortured and murdered by the Nazis, and the French statesman Alain Peyrefitte (Le Mal Français) are witnesses. What can we learn from their works? This is what the second episode will be about.



[1] Herbert Lüthy (1954), Frankreichs Uhren gehen anders, Zurich: Europa Verlag. The quotations ibid.

[2] The Economist (2021), Europe has fallen behind on covid-19 vaccination, 5th January.

[3] Sofia Tong (2020), "Economist Antoine Levy is all over the map", MIT News, 21. August.

[4] Antoine Lévy (2021), "The slowness of French vaccination is a symptom of our downgrading", Le Figaro, 1. Januar.

[5] Loosely translated: The administration will follow.

[6] My thanks to Jean Pisani-Ferry for the hint.

Thursday, 10 December 2020

'Great Demographic Reversal' & Shifting Wealth


 

China's rise since the 1980s has brought an era of low inflation and real interest rates; it also stimulated emerging economies. This combination has resulted in high prices for equities, real estate and commodities. The impact on personal income distribution has been positive globally, but negative within most countries. In a highly acclaimed book, Charles Goodhart and Manoj Pradhan announce the end of the golden age[1]. Changes in demography will reverse decades of trends: declining growth in wages and inflation, falling interest rates, and greater inequality between countries, while inequality is falling in many countries.

The main reason for this turning point is, Goodhart and Pradhan claim, the end of the supply shock on global labour markets, a product of mainly China´s demography cum globalisation. China's working age population is shrinking, its old-age dependency ratio is rising. Globalisation is on the retreat (not least as a result of the US policy of China's containment). As Martin Wolf aptly points out, the prophecy of imminent inflation is less significant than the book's analytical framework[2] - at least beyond the financial markets.

Fig. 1: China's demography by age cohorts, 1950-2100



Their forecast is not that new. The far-reaching and well written book by Goodhart and Pradhan is definitely to be recommended. But neither are its theses "original" nor "surprising", as the blurb suggests. In large parts, the thesis could have been written at the OECD Development Centre. Indeed, they were. Several publications and lectures since 2005 bear testimony to this; they have been dubbed ShiftingWealth [3] by the OECD in English; the German equivalent was christened Weltneuvermessung [4].

Our core argument since 2005 was that the integration of China and India into the world economy effectively doubled the potential labour force to be integrated into the world market economy. China brought in 750 million people of working age, India 450, and if we add the former "Eastern Bloc", the additional labour force amounted to 1.5 billion[5]. Real GDP growth clearly depends on the number of workers, either through the skills they deploy or their ideas. A simple production function, in which capital contributes one third of income (the rest is provided by low skilled labour and know-how) translates the demographic shock into wage effects. Since doubling the global labour supply halves the ratio of capital to labour, the productivity of unskilled labour is reduced - by just over 16 per cent. Equilibrium wages, which are clearing the labour market, fall by the same percentage. Foreign trade theory and its central globalisation theorem (Stolper-Samuelson) predicted that lowering the prices of wage-intensive goods would result in trimmed wages (for low skilled work) and richer profits.

Meanwhile, China's labour reserve army migrated from the hinterland, where employment is low-productive and mostly seasonal, to the productive urban area. This migratory flow was supplemented by those who had been laid off from unprofitable state enterprises. A dual labour market model from the 1950s, which we owe to Nobel Prize winner Arthur Lewis, illustrated the consequences: as long as the surplus of unproductive labour in rural areas had not melted away, pressure on real wages remained[6]. This kept profits high in China's modern sector - an incentive to reinvest there.

Fig. 2: Real wage index China 1979-2020

-          Median of weekly wages for full-time employees -



Meanwhile, rural labour supply has largely been redirected to the modern sector; in China, scarcity prices for labour are again being paid, and wages are rising. This is not only imminent, as Goodhart & Pradhan postulate, but has been happening for several years now (Fig. 2).

Fig. 3: Population trend in sub-Saharan Africa by age cohorts, 1950-2100



 

As for the future, it is not only China's demography that will determine the global level of labour-intensive goods and services, inflation and interest rates via subsistence wages of underemployed people. Africa and South Asia are at the forefront here, but are largely ignored by Goodhart and Pradhan. The United Nations predicts that Africa's working age population (15-24; 25-64) will rapidly increase [7]to over one billion people by 2050; by 2100 it will probably be two billion (Fig.3).

In South Asia (including Bangladesh, India, Pakistan, etc.), the cohorts of the working age population will rise to about 1.6 trillion people by 2050 - only after that is a moderate decline predicted (Fig.4). If we add up the UN forecasts for sub-Saharan Africa and South Asia, the working-age population is expected to increase to more than 2.5 billion people in 2050. While in China the working-age population (15-64) will shrink by almost 200 million people between now and 2050, the working-age population in Africa (500 million) and South Asia (400 million) will increase by a total of almost one billion people.

So, the demographic reversal may not have started after all.

Certainly, it is unlikely that the two 'young' regions will integrate into the global economic division of labour as successfully as China has done since 1980. But the massive increase in the job-seeking population in Africa and South Asia will overshadow the comparatively small decline in China's working age cohort by 2050. Despite the book's title, demography is a weak aspect of Goodhart and Pradhan's book.

 

Fig. 4: Population trend South Asia by age cohorts, 1950-2100

 


Goodhart and Pradhan expect real interest rates to rise as a result of the demographic changes underway in the industrialised countries and in China. Their macro and financial orientation leads them astray when they explain the long fall in global real interest rates with China's hitherto high propensity to save, the reinvestment of China's supplier credits in US government bonds and the ageing of the population in developed countries. Some of the arguments are reminiscent of the empirically rejected Bernanke thesis that international current account imbalances can be explained[8] by the Asian glut of savings.

In explaining high savings in the Asian region, on the other hand,[9] an observation developed by Amartya Sen (1990) has received strong empirical support: the son preference (measured as the son-girl ratio, the result of abortion of female fetuses). For a sample of 22 countries, the OECD found[10] a strong finding: savings rates rose from 21% with a low level to 51% with a strong son preference. For China, where the sexes were and remain particularly unequally distributed due to the one-child policy (son/girl 1.2), Shang-Jin Wei[11]demonstrated a close empirical connection between savings rate and son preference in spatial and temporal dimensions. How will this gender effect, ignored by Goodhart and Pradhan, affect the propensity to save and interest rates in the future? So far, there is little evidence of the abandonment of gender-selective abortion in China or India.

Another structural explanation for persistently high savings rates[12] is the high level of corporate savings in manufacturing due to undervalued exchange rates. In the context of underdeveloped financial markets, the internal financing of Asian companies is dominated by the retention of profits or the creation of provisions. However, massive sustained appreciation of the weighted external value of the currency can translate into lower corporate savings, especially in emerging markets[13].

Conclusion: Will Goodhart and Prahan's thesis be confirmed that changes in global demography will reverse decades-long trends in interest rates, wages and inflation? Much will depend on how successfully the young but poor subcontinents of South Asia and Africa can integrate into the global economy. It cannot be ruled out that the effectively effective global labour supply will continue to cap wages and prices for labour-intensive goods and services. High savings rates, and thus low interest rates, will continue to accompany us even if mass abortions of female fetuses are carried out in Asia and companies there remain self-financed.

 



[1] Charles Goodhart & Monoj Pradhan (2020), The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival, London: Pelgrave Macmillan, August. The book has several predecessors that can be traced back to 2015 (with Pratyancha Pardeshi). Cf. with http://eprints.lse.ac.uk/66775/.

[2] Martin Wolf (2020), Why inflation could be on the way back, Financial Times, 17. November.

[3] Martin Grandes, Nicolas Pinaud & Helmut Reisen (2005), "Macroeconomic Policies: New Issues of Interdependence", OECD Development Centre Working Papers No. 241, Januar.  Helmut Reisen (2005), China's and India's Implications for the World Economy, Basel University Lectures Series, erwähnt in Martin Wolf (2006), Answer to Asia's rise is not to retreat, Financial Times, 14. März. Der term ShiftingWealth was established by OECD (2010), Perspectives on Global Development 2010: Shifting Wealth, Paris: OECD.

[4] Helmut Reisen (2008), "Die Neuvermessung des Welt", Internationale Politik, July/August 2008.

[5] See for example Helmut Reisen (2006), "Globalisation, Proletariat and Precariat", Internationale Politik, 1/2006.

[6] In order to eradicate rural poverty, China is now again pushing migration from rural areas.

[7] In highly developed countries, the 25-64 age cohort represents the working age population. In poor countries, this restriction would be inadmissible because of the shorter period of education and the importance of the informal sector. The 15-24 age cohort is therefore also relevant for labour supply.

[8] Menzie D. Chinn & Hiro Ito (2007), "Current account balances, financial development and institutions: Assaying the world "saving glut"", Journal of International Money and Finance, Volume 26, Issue 4, June 2007, S. 546-569.

[9] Amartya Sen (1990), "More than 100 million women are missing", The New York Review of Books, Vol. 37(20), S. 61-66.

[10] OECD (2010), Perspectives on Global Development 2010: Shifting Wealth, Paris: OECD.

[11] Shang-Jin Wei (2010), "The mystery of Chinese savings", Voxeu.org, 6. Februar.

[12] Niall Ferguson & Moritz Schularick (2007), "'Chimerica' and the Global Asset Market Boom", International Finance, Vol. 10.3, S. 215-239.

[13] Marcus Kappler, Helmut Reisen, Moritz Schularick & Edouard Turkisch (2012), "The Macroeconomic Effects of Large Exchange Rate Appreciations", Open Economies Review, vol. 24, S. 471-494.