Sep 1 1997

Elections in Europe

The media vote for austerity

In February (2/11/97), as the French election campaign approached, the New York Times ran a front-page “special report” from France. Entitled “Liberty, Equality, Anxiety,” the report by Roger Cohen was accompanied by a menacing photograph of a rally for far-right nationalist Jean-Marie LePen’s National Front party, featuring a giant poster of a grinning LePen.

“France stands at a crossroads,” Cohen wrote. “Real market reform–privatization, private pension funds, a shareholding culture–or preservation of a highly centralized, state-heavy French welfare model?” The consequences of a wrong turn in the upcoming June elections would be dire, Cohen made clear, and were apparently evident in LePen’s ghoulish smile.

Luckily, the news from Europe wasn’t all bad. In May (5/12/97), Newsweek‘s Fareed Zakaria was writing exultantly about Britain, which had just finished elections of its own. “Who’d Have Thought It?” ran the headline. “After 100 years of decline, Britain is back.” And the reason? “The British miracle can be traced back to Margaret Thatcher. Beginning 18 years ago, the country underwent a radical structural transformation even more intense than America’s in the 1980s.” As a result, “Britain likely will continue on its path of steady growth, low inflation and surging productivity.”

This May, a massive political reorientation took place in Britain, as Tony Blair dragged the Labor Party towards Thatcherism even as he defeated Thatcher’s successors in the Conservative Party. One month later, in France, voters forcefully rejected the deregulatory policies of Alain Juppé’s rightist government in favor of a left coalition led by Lionel Jospin’s Socialists.

The U.S. mass media, for their part, cast a virtually unanimous vote for austerity.

American correspondents in France, like Charles Trueheart of the Washington Post (5/22/97), looked on incredulously as the French endorsed Jospin and “his old-time welfare-state religion.” “This is exactly opposite to the serious, Thatcher-type free-market reforms that would let France tackle [its] horrible situation,” the Post complained editorially (5/29/97). “When are they going to understand that it’s the government that’s creating this unemployment, this high level of spending and years of high taxes?” demanded an exasperated CNN anchor, Stuart Varney, interviewing Goldman Sachs’ vice chair on the French elections (CNNfn, 5/27/97).

Reporters struggled mightily to make sense of a public that would not consent to “Thatcher-type reforms.” To U.S. reporters, the French were simply arguing with reality, laboring against fate. “The voters’ rejection of Chirac suggests that the French may have some congenital inability to face the competitive realities of the modern world,” wrote Thomas Sancton of Time (6/16/97) in a crude endorsement of the conservative Gaullists. “Few voters understand that things simply cannot go on much longer the way they have,” wrote a frustrated Craig Whitney in the New York Times (5/24/97). A headline over Roger Cohen’s front-page “News Analysis” on Jospin’s victory offered the explanation that the French are “Wary of a World That Demands Reforms” (New York Times, 6/2/97).

Thatcher Forever

This phenomenon of voter delusion was clearly absent on the other side of the Channel. Thomas Friedman, who writes the “Foreign Affairs” column for the New York Times, pointed out (5/5/97) that the wise British “know they need Thatcherism to thrive in a global economy.” Anne Swardson of the Washington Post (5/24/97) wrote that the French Socialists “have a dated sound in comparison with, say, British Prime Minister Tony Blair’s new Labor Party, which has shifted from old-fashioned Socialist rhetoric to more centrist positions.” Indeed, the media spoke of Blair and New Labor in heroic terms. “The old political language of class warfare is foreign to him,” marveled Newsweek‘s Stryker McGuire (5/12/97), who closed his breathless profile of Blair with a toast: “Few of any nationality or political persuasion would not wish such a young, fresh face well, or fail to raise a glass to his triumph.”

But to the sages of the press, the real British hero was Margaret Thatcher, for whom Blair stood in as a sort of second-best proxy. Thomas Friedman (5/5/97) expressed his gratitude that “the British Labor Party has been converted to the basic principles laid down by Mrs. Thatcher since 1979, when she began transforming Britain from a sluggish welfare state to a fast, market-driven economy.” After all, “Thatcherism was the only choice,” as the pull-quote said.

“She was able to break the stranglehold that British labor unions had over the economy when she arrived in power, and legislated flexibility in British hiring and firing practices,” Craig Whitney recalled wistfully in the New York Times “Week in Review” (5/4/97). “Two decades later, Mr. Blair has accepted most of these Thatcherite prescriptions as essential for Britain to compete effectively in the new global economy.” On a more aesthetic plane, “she brought a sense that prosperity was cool.” (Newsweek, 5/12/97)

To summarize, “France has a stagnant economy” (New York Times, 2/11/97) because “high social welfare costs keep business and government alike . . . from creating jobs.” (Washington Post editorial, 5/28/97) Whereas Britain has “the strongest economy in Europe” (Los Angeles Times, 3/10/97) because it has accepted, according to Thomas Friedman (New York Times, 5/5/97), “the principles of Thatcherism–breaking the unions, privatizing state industries, lowering income taxes, catering to the bond markets, improving competitiveness in the global economy, and fiscal austerity.”

By the Numbers

Is any of this true? A helpful guide to answering this question is to be found in the Organization for Economic Cooperation and Development’s (OECD) June 1997 Economic Outlook, whose statistical annex offers a more dispassionate view of the issue than the U.S. media’s. (The OECD is the official think tank of the 25 most industrialized countries.)

To start with, one might compare the two nations’ rates of overall economic growth. Fareed Zakaria (Newsweek, 5/12/97) says that in France, “growth rates will continue to stagnate. Meanwhile, Britain will likely continue on its path of steady growth.” But in the 1990s (1990-96), France’s GDP grew at a faster rate than Britain’s, averaging 1.4 percent per year, compared with Britain’s 1.2 percent. More importantly, this higher growth has been propelled chiefly by stronger long-term productivity growth. Zakaria extols Britain’s “surging productivity,” but since Thatcher’s arrival in 1979, Britain’s worker productivity has been unable to outperform France’s: It’s grown at 1.9 percent per year, compared to France’s 2.2 percent.

This higher productivity has allowed French wages to grow faster as well: In France, wages and benefits per worker have risen in the 1990s by almost 1.1 percent per year, while in Britain the number is 0.7 percent. To many pundits, however, wage growth tends to be viewed as a sign of a malfunctioning economy.

But what about unemployment? It’s true that France’s unemployment rate is 13 percent, more than twice that of Britain. But Britain’s lower unemployment is not caused by prolific job creation–in the 1990s so far, Britain has been losing jobs at the rate of about 0.5 percent per year. (France has neither gained nor lost jobs over the same period.) But Britain’s workforce has also been shrinking–every year for the last six years, a feat not matched by any OECD country since at least 1980.

In other words, increasingly fewer Britons of working age participate in the job market; as they stop looking for work, they are no longer counted as being unemployed, and this has more than compensated for what is nevertheless a dramatic loss of jobs. While France’s dismal record of job creation is on permanent exhibit, it is never mentioned that Britain’s is even more dismal.

The Fruits of Austerity

The fact remains that France has a jobs problem. Where did it come from? Most respectable media observers have elected to blame France’s 13 percent unemployment rate on “high social welfare costs.” Though convenient, that is selective. It ignores one of the basic elements that determine the level of employment: monetary policy. Pursuant to the terms of the 1992 Maastricht treaty, France has kept interest rates punishingly high. Over the past three years of recession, France’s real (inflation-adjusted) short-term interest rate averaged more than 3.6 percent; by contrast, as the U.S. was coming out of its recession in 1993, the U.S. equivalent was literally zero.

John Schmitt, a labor economist at the progressive Economic Policy Institute in Washington, puts it well: “When all of Europe signed an agreement in 1992 that said ‘We will implement austere fiscal and monetary policies between now and the year 2000,’ should it be a surprise that we have since seen a big increase in unemployment?”

That it came as a surprise to most of the media is particularly strange given the vast quantities of ink that were expended on the grueling details of the negotiations over European monetary union. Coverage of these negotiations–which dealt explicitly with the wrangling over how tight Europe’s monetary policy ought to be–took place simultaneously with news of the French election. Yet the role that France’s monetary policy plays in its economic problems somehow never managed to seep through.

A striking exception to this pattern was seen one week before the French vote in a small article in the New York Times (5/24/97). The story was by Edmund L. Andrews, a business reporter who covers Europe, and it was the only article about the French economy appearing under Andrews’ byline that managed to find its way out of the Times‘ Business section. The headline ran, “Economic Outlook in France: Gloom.” In the piece, Andrews referred to the debate over “whether France needs to embrace a more ‘American’ approach by chopping away at the web of regulations that protect workers and restrict businesses.”

“Many economists argue that France’s problems are only loosely related to this debate over deregulation,” Andrews wrote.

The real cause, they say, has more to do with France’s extremely tight money and fiscal policies of the last few years. Determined to join Germany in leading the formation of a new single European currency . . . France had locked its monetary policy in step with the stringent policies of the German central bank. That sent interest rates soaring when growth was already stagnant and it sent the franc rising against the dollar, crippling exports.

To the casual consumer of French election news, this take on France’s economic problems sounded extraterrestrial. In the very next day’s paper (5/25/97), the New York Times‘ regular France correspondent, Craig Whitney, returned to the party line: “Given the cost of hiring people, French and German employers often don’t. . . . Unemployment thus stays in the double digits.” The suggestion that monetary policy, rather than taxes and regulations, may be responsible for high unemployment in France made a brief and unobtrusive cameo and then disappeared. What remained was the ubiquitous sentiment that austerity is not only good for France but inevitable.

‘Perfectly Perverse’

The corollary to this pro-austerity view is that the program of the victorious French left–creating 700,000 new jobs, half in the public sector, and cutting the workweek with no loss in pay–is a bellwether for catastrophe. An editorial in The New Republic (6/23/97) was predictably disparaging: The left’s victory was “so perfectly perverse . . . the most obtuse and suicidal course possible . . . a recipe for disaster . . . as mindless as it is sweeping.” This conclusion–which was shared by almost all mainstream media commentators–follows from the assumption that drums through most coverage: If France’s unemployment is caused by its big public sector and restrictive labor regulations, than Jospin’s plan would be just more of the same.

But again, Andrews’ New York Times article provides insight that eludes mandarins like those at The New Republic. He quotes a French economist as saying that “the fundamentals of the French economy have never looked better,” but that the economy is hampered by a pervasive pessimism.

People are saving their money at record rates . . . because they worry about holding on to their jobs. . . . While household budgets are quite strong . . . sales of everything from furniture to appliances and cars have been stagnant. . . . French companies, despite strong profits from exports, have been so reluctant to invest in new plants that they are awash in cash. . . . The biggest obstacle now is the gloom. Until French consumers start buying and French companies start building, growth rates will remain anemic.

The portrait that emerges is of the classic scenario that economist John Maynard Keynes warned against: A suffocating monetary policy, combined with tight-fisted consumers and businesses, produces a basically sound but chronically constipated economy. A classic Keynesian priming of the pump would seem in order, and that is precisely what the French socialists have promised.

But while such a plan may be popular with the public, it will never win the endorsement of most U.S. pundits. (An exception was columnist William Pfaff, who greeted the left victory in France as a sensible rejection of an austerity policy that “has lost its pertinence in the conditions that now prevail”–Chicago Tribune, 6/10/97.) One reason media coverage tilts so heavily in favor of austerity has to do with journalists’ sources. Almost all the “experts” asked to give comments for articles on the European economy are analysts at the European divisions of investment banks and brokerage houses. These are people whose salaries go up when wages in Europe go down.

At a more fundamental level, the establishment press has always been against social democracy–in Europe or anywhere else. As long as Americans remain convinced by images of rotting welfare states next door to booming free markets, every effort at home for national health insurance or full employment policies will die at birth. And that will suit those who own the press just fine.