Saturday, October 9, 2010

France Needs Economic Liberty

Frontline has a good article highlighting France's pension crisis. Not that I agree with the article's leftist slant, but it does clearly illustrate the bankruptcy that's the socialist welfare state, and should be a signal to the United States to get its own welfare system in order.

France, like the rest of Europe, is facing a demographic crisis that threatens to imperil its pension system.
The hole in the public pension system has come about because France has an ageing population where there are more pensioners than active workers who pay into the pension fund. If not tackled in time, the present system is expected to ratchet up losses to the tune of 50 billion Euros by 2020. In 1945, when the system was introduced, there were roughly four workers for each retiree in France; today the ratio has shrunk to 1.5 workers per retiree.
Assuming demographic trends remain unchanged, the French government wants to raise the retirement from 60 to 62 for the short-term, eventually raising it to 67 by 2018. This will put France on par with the rest of Europe. Of course, France can add more workers in the short-term by increasing immigration; or increase the birth-rate in the long-term. But given the anti-immigrant sentiment in France, the short-term solution is not an option.
Two factors have upset this balance: the fact that longevity has increased – the life expectancy for men is 85 and for women is 87 now – while the birth rate has dropped. The age pyramid in the developed world has been inverted, with old people far outnumbering the young. At the same time, technological advance has meant that in many industries men have been replaced by machines, leading to persistently high rates of unemployment and placing an additional burden on state-funded unemployment benefit schemes.
The writer blames high unemployment not on France's anti-business policies but on capitalism's obsession with replacing human beings with technology for the sake of more profit. This is typical leftist dogma Frontline is known for.

Naturally, France's trade unions are opposed to any reforms. They agree changes are needed to keep the system solvent, but the sacrifices need to be made, not by them, but elsewhere.
"We are opposed to Sarkozy's specific proposals because they are unjust. We understand that because of changing demographics the system has to be changed, adapted and we accept that. What we reject is this particular reform. The government is adamant about raising the retirement age. But other solutions can be found. Sarkozy has consistently given tax breaks to his rich friends and business supporters. We can look at other means of financing. This proposal is unjust because it penalises two categories of workers who find themselves on the lowest rung of the ladder – manual workers and women,” said Francois Chereque, the leader of the CFDT, one of France's eight major trade unions.
Raising taxes in a country where taxes are extremely high seems suicidal. Soaking the rich is always a populist theme, but punishing those with capital to invest in jobs is hardly productive. Capital will go where there is money to be made, not taxed.
“"I am a 52-year-old divorced mother of four. My husband had a modest job and it was a struggle to make ends meet. I abandoned my job to stay home, to cook and clean and bring up our children. Six years ago I returned to work. My age meant that it took a long time to find a job, and as an office cleaner I make barely 900 euros a month. I am tired, used-up, paid less than my male counterparts. In this situation to ask me to carry on until 67 is an ignominy."
I feel for this woman, but its France's statist economic policies that are to blame. Its anti-business environment make creating jobs difficult in a country with a history of chronic high unemployment. Not only are the unemployed not working, thus not contributing to the pension system, but are themselves receiving generous welfare benefits. It's a doubly-whammy that is clearly unsustainable.

What France needs is a free-market economic regime with less regulation and taxation and more pro-growth policies. What France needs is more freedom.

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