Bad news for Hollande as austerity bites

Hollande's focus on cutting deficits with revenues hasn't saved him from the downsides.

The French economy is on the rocks, in a move which threatens to derail president Hollande's economic reforms. The Observer's Kim Willsher reports:

The French leader has been hit by soaring unemployment figures, further factory closures and job losses, and plummeting popularity on top of growing fears that he and his Socialist government are failing to address the country's problems. Members of the opposition right-of-centre UMP have accused them of being "amateurs".

The news is bad, both for Hollande, and for proponents of revenue-side austerity. It is probably too soon to write-off the effects of the controversial 70 per cent tax rate – the pernicious effects of which are supposedly flight of high-net-worth individuals, rather than just a retardation of growth per se – but at the same time, it is clear that Hollande's agenda is, at best, no better than Sarkozy's was.

Despite the unpopularity of those revenue-raising measures amongst the economic elite, a meeting with members of various international organisations today – including the IMF and OECD – will reportedly focus on supply-side reforms "to improve France's competitiveness on the world market and restore confidence at home and abroad". The French labour market, with its ring-fenced working hours, worker protections, and strong unions, is frequently seen as being counter-productive to economic health.

The other major reason why the OECD and IMF are unlikely to press too hard on the question of high marginal tax rates is that, despite the fact that it has led to Hollande's government being seen as a standard-bearer for the left, they still fit very strongly into the narrative of "austerity".

The socialist government has made much the same pledges to be "realistic about the deficit" and practice "fiscal restraint" as we are used to hearing from all the parties in the UK. Where it has differed is in the method by which it has tried to reduce the deficit, focusing on increasing revenue rather than decreasing spending.

While this has driven some economists, like GWU's Veronique de Rugy, mad, it is a perfectly fair application of the principles behind austerity. What it also does, though, is expose the contradictions between those who genuinely desire to reduce deficits, pay down debt and "win the confidence of bond markets", and those who have used those as a convenient excuse to argue for shrinking the state.

Whether-or-not revenue-based austerity is as effective as spending-based austerity, however, it is clear that both are austerity. To those who have argued that, in a recession characterised by depressed consumer confidence and low aggregate demand, the state needs to temporarily push for deficit-funded spending, the bad economic news for France is yet more evidence in favour.

François Hollande. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Show Hide image

Leader: The angry middle

As a sense of victimhood extends even to the middle classes, it makes Western democracies much more difficult to govern.

Two months after the United Kingdom’s vote to leave the European Union, it remains conventional wisdom that the referendum result was largely a revolt by the so-called left behind. Yet this is not the full picture. Many of the 52 per cent who voted Leave were relatively prosperous and well educated, yet still angry and determined to deliver a shock to the political system. We should ask ourselves why the English middle class, for so long presumed to be placid and risk-averse, was prepared to gamble on Brexit.

Populism has long appealed to those excluded from political systems, or from a share in prosperity. In recent years, however, its appeal has broadened to young graduates and those on above-average incomes who also feel that they have not benefited from globalisation. The sense of middle-class victimhood has become a major strand in Western politics.

In the United States, middle-class anger has powered support for Bernie Sanders and Donald Trump. The former drew his activist base mostly from young liberals. And while Mr Trump’s success in the Republican primaries was often attributed to a working-class insurrection against “the elites”, exit poll data showed that the median yearly income of a Trump voter was $72,000, compared with a national average of $56,000. (For supporters of Hillary Clinton, the figure was roughly $61,000.) It is not the have-nots who have powered Mr Trump’s rise, but the have-a-bits.

In the UK, similar forces can be seen in the rise of Jeremy Corbyn. Indeed, research shows that three-quarters of Labour Party members are from the top social grades, known as ABC1. About 57 per cent have a degree.

Mr Sanders, Mr Trump and Mr Corbyn have very different policies, ideologies and strategies, but they are united by an ability to tap into middle-class dissatisfaction with the present order. Some of that anger flows from politicians’ failure to convey the ways in which society has improved in recent years, or to speak truthfully to electorates. In the UK and much of the West, there have been huge gains – life expectancy has risen, absolute poverty has decreased, teenage pregnancy has fallen to a record low, crime rates have fallen, and huge strides have been made in curbing gender, sexual and racial discrimination. Yet we hear too little of these successes.

Perhaps that is why so many who are doing comparatively well seem the most keen to upset the status quo. For instance, pensioners voted strongly to leave the EU and are the demographic from which Ukip attracts most support. Yet the over-65s are enjoying an era of unprecedented growth in their real incomes. Since 2010, the basic state pension has risen by over four times the increase in average earnings. 

Among young people, much of their anger is directed towards tuition fees and the iniquities of the housing market. Yet, by definition, tuition fees are paid only by those who go into higher education – and these people receive a “graduate bonus” for the rest of their lives. Half of school-leavers do not attend university and, in a globalised world, it is their wages that are most likely to be undercut by immigration.

However, we should not be complacent about the concerns of the “angry middle”. The resentment exploited by Donald Trump is the result of 40 years of stagnant median wages in the United States. In Japan and Germany, median wages have not increased in the past two decades. In the UK, meanwhile, the median income for those aged 31-59 is no greater than it was in 2007, and those aged 22-30 are 7 per cent worse off, according to the Institute for Fiscal Studies.

To compound the problem, the wealthy keep getting wealthier. In 1980, American CEOs were paid 42 times the wage of the average worker. They are now paid 400 times as much. In the UK, the share of household income going to the top 1 per cent has more than doubled since 1979. Because of our hyperconnected, globalised media culture, we see more of the super-rich, fuelling feelings of resentment.

As a sense of victimhood extends even to the middle classes, it makes Western democracies much more difficult to govern, with voters oscillating between populists of the left and the right. The political centre is hollowing out. Rather than pander to the populists, we must do more to quell the politics of victimhood by addressing the root of this corrosive sense of grievance: entrenched inequality. 

This article first appeared in the 25 August 2016 issue of the New Statesman, Cameron: the legacy of a loser