Mitterand – up to 1985
Socialism – left, state intervention
Welfare state failure
Internationalisation, deregulation of capital markets
European issues made domestically unpopular
Collapse of Communism, their ally
Voting behaviour, unified right, going for the centre
Personal – Mitterand old, party not flexible enough
Classical support from workers, their effect diminished.
Real income rise – support right
Stability achieved – support post-materialist green
Keynesian, welfare failure in other countries. Economic downturn producing changes.
Back with the same economic policies. Shows even more that the France was fed up with economic downturn. Cheap victories. French New left is not new labour.
Experiment was interupted and continues, if Jospin keeps its election promises. Otherwise it failed mainly due to long-term unstability of Keynesian policies, that created inflation, high taxes and dependency on the state.
This essay seems to call for economic analysis and reasoning. The communism was failing, France had rising unemployment and inflation, coupled with too little investment. All that seems to indicate that the failure of French socialism in the middle of 1980-s was due to using wrong economic techniques. Demand management was not appropriate for handling supply side shocks. However, when one looks at the recent reappearance of socialists, with very similar party programmes as in 1980-s, the economic justification, although probably correct in the long-run, did not cause the Right victory in 1985.
In this essay, I will first give an overview of what was the Mitterand Socialist experiment. I will then look at three possible reasons for its failure: economical, political, and changes in the cleavages of French society. To determine the relative importance of these factors I use two types of evaluation results, first comparing France internationally to other countries with Socialist failures in Europe, secondly, examining the reappearance of the Left under Jospin.
Mitterand’s PS party came to power at the end of 1970-s having lost twice to an ever-weakening Gaulist and UDF union. It is not surprising then that they won an overall majority straight away, however, still forming a coalition with communist PCF. Mitterand’s economic policy was expansionist, Keynesian. The idea was to spend lots of borrowed government money to create new jobs and boost the economy. Once you spend the money on some workers, they will go and spend it on further goods, which will eventually bring about a multiple increase in GDP, at least in theory. In practice the inflation started to appear, which made the French economy uncompetitive abroad. Thus, the Frank had to be devalued, further accelerating inflation. It was clear by 1984 that this cannot go on forever. So Mitterand had to reverse the expansion plans, in order to curb inflation. This brought about rising unemployment, loss of popularity, and PS electoral defeat in 1985.
The economical reasons for failure, then were the wrong Keynesian policies. These are tightly connected to inappropriate welfare policies. Namely, they make the aggregate supply (the labour market) very rigid. If people have benefits, they do not need to work, furthermore, when they do work benefits are withdrawn creating a marginal tax rate of near 100%. Keynesian policies further the aggregate demand schedule, which depicts equilibrium relations between price level and income. When the price level is high, economy is uncompetitive worldwide and thus aggregate demand is lower. After the oil price shocks of 1973 and 1979 the economy could be depicted graphically:
Originally you start of with q1 and p1, and you think your AS is flexible. After a shock, you think you can have a bit of Keynes and get back to p2, q1 with a little bit of inflation. However, actually you will end up in q2 p3 with no increase in output and lots of inflation. The output will not increase due to crowding out effects of high interest rate (state competes for investable funds). So the problem for France was in supply side, making the labour market flexible (horisontal AS curve) should have solved the problem.
Inflation has the property that once it is there, people will expect it, and as they have used to increases in their real wages they will demand even higher wage increases. With internationalisation and global capital markets, this is translated to even higher interest rates and loss of competitiveness. In order to stay at the European Union and fulfil the criteria, France was forced to abandon the full employment dream. It was domestically viewed as sacrificing France well being for Europe and was politically very unpopular. It ignored the fact that France was no longer isolated – its trade barriers and competitive devaluations spurred retaliation, and the only way out was with an international agreement.
All this theory was translated to political reality by the eventual economic downturn. Right wing promised sound economic management for long-term and won the office easily. Furthermore, it can be argued that the collapse of communist regimes and Soviet Union added to the unpopularity of the PCF in France. Public still associated them with PS, however, they had left the alliance in 1984. This meant that the left was fragmented before the elections, giving Right a better chance.
The issue can be looked from a personal perspective. The Socialists, although substantially reformed by Mitterand, were still in a rather rigid structure not able enough to adapt to the changing world economy.
Finally, from the long-term perspective, one can expect the support for the left to decline because the cleavages in the society are changing. Blue-collar workers, the traditional left wing supporters are replaced by high-earning service sector workers, who will object to high marginal tax rates. Furthermore, as the basic needs of individuals are satisfied they will often turn to post-materialists, supporting green and ecological movements, but these are normally allied with the socialists.
Normative and qualitative evidence of the socialist experiment can be very useful. However, there is some positive evidence available as well: namely by looking at how the Keynesian demand management has done internationally and what has changed in socialism over the past 10 years in order to make it reappear again.
Keynesian demand management did fail largely in western economies during 1970-s. It was replaced first by monetarism and later by inflation targeting from independent central banks. Furthermore, the welfare state has been capped together with privatisation to cut back government involvement. Initially this resulted in the rise of inequality and unemployment. However, over the years situation has become markedly better. In UK, for example, the unemployment is now twice as low as in France, and its privatised industries are much more competitive abroad. By opting for the Right with ideas similar to Thatcher, the people of France might have indicated that the socialists’ failure was purely due to economical reasons.
However, the socialists won the majority in National Assembly again in 1995. If they would be like the New Labour in Britain, with its modern economic management, that would indicate the continuity in the welfare and state reforms. However, looking at the statements by Lionel Jospin, it seems that France is back to Keynesian management. This supports the political reasoning that French were just fed up with economic downturn and socialists were too fragmented in 1985. Whether New Socialists are indeed different from New Labour, or was it just their political campaign to get back to the office remains to be seen.
Although the Socialist Experiment was interrupted in 1985, it will continue, if Jospin keeps its election promises. Thus, its temporary failure was due to political unstability arising from the downturn in business cycle and not from the will of the French to adopt a completely new way of looking at the state – individual relationship. If, on the other hand, Jospin adopts the New Labour policies, socialist experiment failed due to long-term unstability of Keynesian policies.