What do the French really believe about capitalism?

The French elite (both left and right wing) are famous for disparaging the savage inequalities of Anglo-Saxon laissez-faire capitalism.  (BTW, I’ve never been clear why they include Britain in that category.  If France has socialized medicine then Britain has communist medicine.  And government spending is currently 50% of GDP in Britain.)

The Economist magazine often points out that the French are actually much more pragmatic then their rhetoric suggests, and that they have come to terms with markets.  It seems to me that the current economic crisis in the PIGS provides a good test of this proposition.  So what have the French been telling their southern neighbors to do, in order to rescue their economies?

1.  Privatize, privatize, privatize.

2.  Deregulate market access.

3.  Make it much easier for firms to hire and fire workers.

4.  Raise the retirement age to 67.

5.  Shrink their governments, which are already smaller than the French government as a share of GDP.

In other words, the French think a troubled economy can best “reform” by becoming more like the United States.

I’ve always thought that the French have a fine model–but it only seems to work in France.



41 Responses to “What do the French really believe about capitalism?”

  1. Gravatar of alexandre delaigue alexandre delaigue
    8. November 2011 at 05:47

    You are not talking about “the french”. These ideas come a very small subgroup of french society: the “inspecteurs des finances”, top civil servants who work in the finance and budget ministry. It is a caste with a very peculiar ideology, quite different from what you will find even in other parts of government. it is the caste that produced geniuses like Trichet. And created financial liberalization in international orgaznizations (read Rawi Abdelal’s “capital rules” to learn about this story). And rules all french big banks, for better and worse.

    But this special, and fiscally conservative, group, is not representative of general french opinion, even in political circles. Go to any other ministry (except finances) you will find a very different, colbertist, ideology. Finance people are powerful and very influent (he who controls state money has lots of power in France) but are a very small, if influent, minority.

  2. Gravatar of Kevin Bob Riste Kevin Bob Riste
    8. November 2011 at 06:14

    Fat guy tells his friend with a snoring problem to lose weight

  3. Gravatar of Morgan Warstler Morgan Warstler
    8. November 2011 at 06:34

    We shall rename the title of this post:

    Mundell ROCKS!

  4. Gravatar of John John
    8. November 2011 at 07:29

    The French model doesn’t work well for immmigrants to France, especially if they aren’t white. They have a huge problem with poor immigrants from Islamic countries living in ghettos, shut off from economic opportunity. In any case, the “savage inequality” really comes from the way the welfare state handicaps social mobility. In the United States, the break up of the African American family and the related urban problems really came after the 1960s and LBJ’s idiotic war on poverty.

  5. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    8. November 2011 at 07:30

    They ARE a funny race. The girls have cute accents.

    Their real problem is that they didn’t have a Shakespeare.

  6. Gravatar of John John
    8. November 2011 at 07:31


    Do you mean Mundell rocks because the one currency area forced member countries to privatize and stopped them from trying to inflate their way out of trouble?

  7. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    8. November 2011 at 08:06

    Loosely related, on what planet do you suppose these two live:


    Most interesting moment, imho, that the author couldn’t find out what Engels’ factory produced. Probably because Engels himself had nothing to do with HIS FATHER”S factory and sold it when Dad died. Just another rich kid living off his father’s fortune.

  8. Gravatar of StatsGuy StatsGuy
    8. November 2011 at 08:21

    Scott, you are assuming the French are being honest in their advice – why?

    Maybe the French are telling Italy to gut their private sector because they believe it will soften local economies and reduce competition with France in high margin/high tech sectors…

  9. Gravatar of StatsGuy StatsGuy
    8. November 2011 at 08:21

    Sorry, gut their public (not private) sector…

  10. Gravatar of Nixonfan Nixonfan
    8. November 2011 at 08:42

    French bond yields are poised to start rising. Where’d you rather be: short or long? The ECB is way too small to make a difference.

  11. Gravatar of Russ Abbott Russ Abbott
    8. November 2011 at 09:14

    Would the following work for Europe?

    1. First relax the constraint on the ECB’s authority to print money. (I know, a big step.)

    2. Have the ECB do NGDP targeting at the Eurozone level.

    3. Have the ECB also do NGDP targeting at the country level.

    That would require it to inject money into some countries and remove it from others–while maintaining an overall consistency with its Eurozone NGDP targeting.

    If it did that, then countries like Greece would be able to institute government austerity while relying on ECB stimulus to keep its economy going.

    What would happen with countries like Germany when the ECB runs out of German bonds to sell? It could impose an additional VAT on German products.

    But once one accepts the notion of an ECB-imposed VAT, one could forget about bonds entirely. To stimulate a country’s economy the ECB would offer a negative VAT — i.e. a value added credit. To slow it down, the VAT would be increased. No need to deal with bonds at all!

    We could do that in this country as well. The FED would increment or decrement a state’s sales tax depending on the condition of that state’s economy and the condition of the overall US economy. A negative increment, i.e., a credit or subsidy, would stimulate a state’s economy; a positive increment would cool it off.

    This seems like such a simple mechanism and one that seems likely to work. What am I missing? Why don’t we do it?

  12. Gravatar of W. Peden W. Peden
    8. November 2011 at 09:17


    I’ll bet 100 Papiermark that Morgan’s answer is “yes”.

    Personally, I fear that the long-run effects of the Club Med crises will be to strengthen socialism in these countries. Already in the Republic of Ireland the socialist sectarian terrorist-aligned party, Sinn Fein, has finally begun to make inroads into the country.

    I agree that the French model doesn’t only not work everywhere, it doesn’t work anywhere, including in France. It is also true that the Americans subsidised the self-destruction of the traditional African-American family, one of the greatest and most robust institutions in modern history.


    Why would they do that if their chief concern is (as it surely is) to get their money back?


    On the size of the UK state: I wonder if it’s a coincidence that the UK’s worst recoveries after major economic crises (1946-1947, 1976-1977, 1982-1983, and 2010-2011) all took place when public spending as a % of GDP was over 45%. In contrast, the UK’s recoveries from the crises of 1908, 1920, 1926, 1930-1931, 1958 and 1991-1992* all took place when this % was much lower. Certainly there were other factors, but the accelerating inefficiency of the UK public sector and its steady expansion since 2000 haven’t helped.

    Certainly modern Anglo-Saxon public finance is a good model for nowhere.

    * The UK didn’t even go into recession in 2001-2002.

  13. Gravatar of StatsGuy StatsGuy
    8. November 2011 at 09:19


    “The ECB is way too small to make a difference.”

    That is a convenient lie that both the ECB and the bond markets would love everyone to believe. The ECB _chooses_ not to be big enough to make a difference.

    Game is over, right now – the bond vigilantes are calling Italy (at >6%, the incentive to stay in the ECB is massively reduced; Their austerity “savings” are netting them 60Bil, of which HALF is going to higher interest rates than Germany, to express “doubt” about holding Italian bonds; the effect is self fulfilling, particularly since they cannot use monetary policy to compensate for fiscal contraction, NOR can they deflate to win exports).

    Could the ECB stop it? Sure, but they don’t want to – the ECB wants certain IMF-like fiscal reforms in Italy, and now is the time to push for them.

  14. Gravatar of Morgan Warstler Morgan Warstler
    8. November 2011 at 09:31

    Retirement age 67. Privatize, market driven reforms.

    And Mundell says, pensions can be no more than half of last wages. Isn’t it great to have a macor-economist get down in the weeds and state that pensions have to be lowered??

    My favorite bit from him is that if you have a FREE TRADE AGREEMENT, you can’t be printing money – that’s exactly right, free trade = currency peg or outright Euro.

    Look, it isn’t that hard on Greece or anybody else, debts can and will be forgiven WHEN they live like any US state should / does – on a balanced budget.

    This really isn’t about debt, it is about fair and free competition. Those countries that are losing will have to ape the efforts and strategies of the ones who are succeeding.

  15. Gravatar of dwb dwb
    8. November 2011 at 09:44

    I have worked with the french when i lived overseas, and EdF in particular. I am not so sure they really believe it – seems more to me that their prescription is good for other people, because the Germans say so, and as long as we don’t have to give up our vacation and national oligopolies (EdF). EdF has a vast commodities trading operation the world over (London, Houston)… should the French AAA rating backing EdF be supporting their commodities trading? really?

  16. Gravatar of Benjamin Cole Benjamin Cole
    8. November 2011 at 09:49

    I have often pondered if living in a well-run socialist nation, on a globe with a huge capitalist nation, isn’t a really a good deal.

    New products and services are invented in the large capitalist nation (the USA). The Apples, the new oil and gas drilling techniques, better medicine–all come to France free of charge, so to speak.

    They get six weeks off a year, great medical care, early retirement (relative the USA).

    Scott Sumner has an academic schedule, and so he might not appreciate the difference between two weeks or six weeks off every year.

    If you are working 9-5 every week, it is huge.

    My guess is that a middle-class family in France has a better life than one in the USA.

  17. Gravatar of Morgan Warstler Morgan Warstler
    8. November 2011 at 10:51

    Benji, I cannot think of a guy I know who would enjoy 6 weeks of actual vacation. And most of the older guys I grew up with worked until they were dead. As my grandfather said, “what else are you going to do with your time?”

    Work is fun.

    That said, I know a ton of guys who work from almost wherever they are.

  18. Gravatar of Morgan Warstler Morgan Warstler
    8. November 2011 at 10:54


  19. Gravatar of Becky Hargrove Becky Hargrove
    8. November 2011 at 11:06

    Morgan, perhaps we need a WSJ subscription to get the video. Looks like Scott is going to have to post it here even if he doesn’t want to see it.

  20. Gravatar of Becky Hargrove Becky Hargrove
    8. November 2011 at 11:13

    Karl has it:

  21. Gravatar of Jason Odegaard Jason Odegaard
    8. November 2011 at 11:24

    Not really relevant to this post, but Plosser is back with a speech declaring that any tolerance for higher inflation would be damaging:


    Curiously, though Plosser says he favors “flexible inflation targeting” I wonder what that means if he advocates rigid adherence to low inflation.

    Just wanted to give a heads-up.

  22. Gravatar of Luis H Arroyo Luis H Arroyo
    8. November 2011 at 11:30

    You understand nothing.
    France is France. The rest is a mess… capitalism, for example. Remember what Jünkers (luxembourg), member of the Euro Group (or something else) said to Geithner: “al that is quite good for US, but not for us, because you americans, are all keynesians…”

  23. Gravatar of Benjamin Cole Benjamin Cole
    8. November 2011 at 12:00


    You live in a limited, cloistered world, with blinders on.

    Ask anyone who is an employee, and almost all would love to get another four weeks off a year.

    Also, a lot changes after age 50. You will find yourself wanting to smell the roses a bit, investigate Roman architecture, vista Mumbai etc. Your world will open up.

    What the heck are you working on that is that damn important? Curing cancer? Solution to man’s energy needs? Usually just making money.

  24. Gravatar of Mike Sandifer Mike Sandifer
    8. November 2011 at 12:09


    Do you see a 67 year-old eligibility age as a virtue? If anything, it seems the retirement age should be falling as an economy grows over time.

  25. Gravatar of John John
    8. November 2011 at 12:23


    I think you’re a full blown socialist. Go comment on the Joseph Stalin appreciation blog.

  26. Gravatar of John John
    8. November 2011 at 12:29

    Ben Cole,

    There are no well run socialist nations. If you’re talking about a place like Sweden, you’re talking about market economies that are very free alongside big social welfare spending, not a socialist system. If you want a really socialist nation (socialism means public ownership of property) you have to look at North Korea or Cuba. Extensive public ownership of property is a death wish for any country.

  27. Gravatar of John John
    8. November 2011 at 12:31


    I agree with you that retirement and vacation are dumb models. You should be doing something you want to do. You always have that option. That said, how do you find so much time to write on this site?

  28. Gravatar of Jason Odegaard Jason Odegaard
    8. November 2011 at 13:07

    Hi John,

    What’s wrong with Statsguy’s comments? Or am I missing something, why would he go to a “Joseph Stalin appreciation blog”?? That comment seems one step from a Godwin’s Law event.

  29. Gravatar of Kelvin Kelvin
    8. November 2011 at 13:18

    Not really sure if the French model works even in France.


    Mind you, these are the types of reforms that Sarkozy said France should undertake BEFORE he was elected. So it’s not like he deserves credit for having Fillon introduced them NOW.

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  31. Gravatar of John John
    8. November 2011 at 14:02

    Jason Odegaard,

    In his article on this blog a few posts ago he wrote about how the Fed has to force people to hold less money. The assumption behind that was that if people wanna hold more money, it derails the market system unless the Fed intervenes in the right way. Also the idea of government, or quasi-governmental control over economic activities isn’t exactly the hallmark of a market economy. Those are very anti-capitalist arguments.

    Then he said earlier in the thread that the French might be telling Italy to shrink their public sector to give France a competitive advantage. Again, if the public sector is what gives countries an advantage, particularly in high tech sectors like Statsguy said here, then why in the world would you want a market economy? It seems like the Soviet or Cuban model would be a lot better if that were the world we lived in.

  32. Gravatar of Morgan Warstler Morgan Warstler
    8. November 2011 at 17:47

    John, you open a MI tab, and whenever your brain fries on real stuff, you click the tab hit refresh, yammer for 5 or 10 minutes and tab over.

    Benji, Augmented Reality.

  33. Gravatar of StatsGuy StatsGuy
    8. November 2011 at 18:20

    W. Peden:

    I’m being blatantly cynical, but the French don’t need to get their money repaid exactly. They need Italian bonds to temporarily rise in price so that their banks can pass them off to the next fool in line. Italy selling its assets and committing to steep austerity will accomplish that, though in the long run will gut their tax base unless they can simultaneously devalue and engage some monetary expansion.

    They are doomed – the banks all know it, and are exiting even at steep losses. If they had US or German funding costs, they would have a chance of making it without their own currency. Not so, unless they get the IMF or ECB to commit to massive long term purchases in exchange for fiscal tightening to drive the rate down to near German levels.

  34. Gravatar of tim tim
    8. November 2011 at 18:31

    hi scott
    i disagree with you about the British economy. Yes spending is currently high and they have temporarily increased taxes, but the UK also has one of theast regulated labour markets in the world, the least regulated product market, low barriers to entry (much fewer occupations need licenses) and it has had the world’s largest privatisation programme with privatised electricity, gas, water, rail, buses, ports, toll roads etc. In fact it is a much more deregulated economy generally then the US, as is most of Europe. I believe that it is a misconception that the US economy is more free market than Europe’s as you have shown in posts about some Scandinavian countries. Other than its low taxes and labour market, the US has a very inefficient tax system (no VAT and very complicated in contrast to Britain’s), is no more deregulated than most countries and has less privatisations or public-private partnerships. Then there’s health care. The US employer provided insurance is extremely inefficient but the NHS uses an internal market to allocate funding.

  35. Gravatar of W. Peden W. Peden
    9. November 2011 at 03:14


    Fair point on labour market regulation. Given the economic mess that the UK is in right now, it’s astonishing that our unemployment rate is so low.

    The NHS has also become very efficient after Thatcher & Blair’s neoliberal reforms (after the total embarassment it was back in the 1970s).

    It astounds me that the US still has a nationalised rail service, decades after rail stopped being a natural monopoly with the development of big trucks, planes & mass car ownership.

  36. Gravatar of mucherie mucherie
    9. November 2011 at 04:17

    perhaps an explanation from the french business lack of self-confidence: when I was a very young economist, nobody wanted to hire me in the french banking industry, I was a kind of free-lance guy; after only two years spend in the US (chicago), when I return back in France, I could have a good job and the wage was up 60% (and leisure & holidays was up 300%): just because I have been closer to the “center”. French people says they have the best model, but they do not believe in it, this is a hidden inferiority complex

  37. Gravatar of mbk mbk
    9. November 2011 at 06:23

    Well, it was a French politician, I believe Raymond Barre, who once said “The French social model is not a model, since no one wants to imitate it, and it is not social, since it leads to high unemployment”…

    That being said I am quite familiar with French people and have lived in France (and the US). Of all European countries I’ve seen, France resembles the US the most in some key structures, *except for the political structures*. On a personal level I find the French extremely individualistic, stand-offish, they self-fix their personal problems, the country is huge with economies of scale affording large retail companies (Carrefour for example) that you see nowhere else in Europe, tons of high quality R&D, good infrastructure and tons of space.

    Most stereotypes about France peddled in the US are ridiculously misplaced. The problem with France as de Tocqueville pointed out a very long time ago is that an excessive centralization of government deprived the country from doing better since long before even the French revolution.

    People commit a kind of fallacy of composition in judging countries, and this applies to France as well. They assume if the French state is what it is, it must be because the French are what they are. This is just not so. The French benefit and suffer from the system effects of their country just as much as Americans benefit and suffer from the system effects of theirs. Much of those benefits and sufferings are not due to individual choices.

    Just to deflect immediate libertarian exhortation about the virtues of personal responsibility and good attitude: I certainly believe in those too. But then again, try being born say, in Sierra Leone.

  38. Gravatar of Jason Odegaard Jason Odegaard
    9. November 2011 at 07:37


    The Fed could encourage people to hold more and more cash balances by raising interest rates rapidly. That is not any more market encouraging, history suggests that discourages market activity.

    I don’t think Statsguy is arguing that the Fed is forcing people to abandon savings, but rather encouraging investment rather than a flight to safety (cash). Encouraging how? What Scott frequently mentions – the cash balance, meaning supply the market with the amount of cash it wants to hold before commencing further longer-term investment.

    Monetary issuance has occurred by governments for a long time, and free markets can exist in that environment. What Statsguy implied about the French having an advantage by having state-sponsored tech industry does sound socialist. The monetary policy comments don’t really sound socialist. And either way, even if Statsguy supports state ownership of some interests, that’s a long way from supporting gulags and mass killings that happened under Stalin.

    What I have come to appreciate more from Scott’s writings isn’t that we need to remove government involvement – it is that good governance is what trumps bad governance in human welfare. And that’s really the choice – encouraging good governance over corrupt governance.

  39. Gravatar of ssumner ssumner
    9. November 2011 at 10:58

    alexandre, OK, The French elite.

    Kevin, Nice analogy.

    John, Good point.

    Statsguy, Or maybe they think it would make it easier for Italy to repay those French banks. But I would also note that when France was in trouble during the 1980s, Mitterrand started privatizing.

    Patrick, Good point about Shakespeare, but there certainly have a lot of culture.

    Nixonfan, I don’t predict bond markets. (Something about the EMH.)

    Russ, The first 2 would work, but not the third (central banks can only hit one target.)

    Fiscal union would be a bad idea.

    W. Peden, Good point about the UK–and probably not a coincidence.

    Morgan and Statsguy seem to have the same postive views, but draw different normative implications.

    dwb, Good point.

    Ben, I agree about the vacations, as I prefer time to money. But most Americans prefer money, as do most immigrants from around the world (who’d rather move to the US than France.)

    Morgan, You said:

    “Work is fun”

    Are your friends coal miners? Migrant farm workers? Hotel maids?

    I thought so.

    Thanks Jason. Plosser does seem inconsistent.

    Luis, I don’t understand.

    Mike, I don’t favor having the government set a retirement age. Your pension (per year) should depend on when you retire.

    Kelvin. Everything is relative. It works a bit better than you’d expect. Compare the TGV to the Acela, or compare the two nuclear industries.

    Tim, It sounds like we agree. I agree with your post, and have expressed similar views elsewhere. I was referring to how the French see America.

    mucherie, Intreresting observation

    mbk, Some good points, but see my reply to Kelvin.

  40. Gravatar of ssumner ssumner
    9. November 2011 at 12:55

    Alexandre, I don’t think I answered your comment fully. Does this mean most French think Sarkozy is giving bad advice?

  41. Gravatar of John John
    9. November 2011 at 14:46

    Jason Odegaard,

    It’s a slippery slope from state ownership of industry to mass killings. Read “The Road to Serfdom.” Even if you don’t believe Hayek, you have to ask yourself what good is due process or habeas corpus without economic freedom. If the state has the right to send you to work in Alaskan coal mines for minimum wage under threat of imprisonment, the idea of liberty is dead. Completely and totally dead.

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