Economic Reflections 2

31 July 2016

BLINDNESS OF FRENCH LABOUR LAWS

When I was recently on holiday in the South of France the socialist government of Francois Hollande was obliged to take the unusual step of by-passing democratic means of getting his labour reform measures into law. He resorted to the rarely invoked “executive power”, to force through changes in labour laws against the stolid opposition of those on the left of his party and the labour unions - and in this way he cut through a year-long impasse in the National Assembly.

 Left-wing fury was in evidence in the form of national strikes and riots near us, in Montpellier, where police had to resort to firing rubber bullets to restore a restive peace.

 The law reforms sought by the government are designed to introduce flexibility that will encourage employers to hire more people, but the labour and student unions are unmoved by what they see as an attempt to weaken worker safeguards.

 Why would mature students oppose reforms that will make it easier for them to find jobs when they finish school? A friend in the Languedoc has four daughters in local schools. The children relate how their teachers keep telling them that enterprise is bad because it engenders exploitation. It will take exceptional children to resist this mass indoctrination, to open their eyes and ears, and see this pernicious propaganda for what it is.

 Penal employment taxes

 During the same holiday in the Languedoc we spent time with the owners of a flourishing wine-producing enterprise in the Muscat region. It engages hundreds of workers in the vines during the picking season, all of whom are happy to be self-employed and therefore do not have standard employment contracts. The owners told us that the cost of taking on workers as “employees” would be prohibitive – not because the wages they demand are too high, but for two other reasons.

 First, the application of exorbitant employment taxes, insurances and other surcharges of various descriptions. To illustrate this point, we were told that to put 100 Eu in a worker’s pocket it costs the employer 170 Eu. In other words the additional charge to the employer equates to 70% of net pay. 

 Secondly, dispensing with the services of an employee triggers entitlement to a wholly disproportionate level of compensation, far too complex to set out here, which the employer must bear.

 This goes some way to explaining why there are such persistently high levels of unemployment in France. Yet the intractable stance taken by workers’ representatives, notably the communist CGT trade union, is simply entrenching a situation that is wholly antithetical to their own members’ interests.

 Particularly hard-hit are small and growing businesses petrified of taking on much-needed labour because they simply cannot face the punitive financial impact of an economic downturn that might require them to lay off staff in order to remain viable.

 The decision of M Hollande and M Valls, his Prime Minister, to ram a reforming provision through Parliament without a vote came after months of having to make concessions and compromises as a means of manoeuvring between the hard-line left in their party and the centrists who recognise the need for more business-friendly policies. An example of compromise, forced on the government by intransigent unions, was to drop a key early provision that would have limited the size of payouts that labour tribunals may make to dismissed workers. Employers’ representatives now claim that the Bill has been so watered down that they no longer support it.

Take a case in point:

 The case of SNCF

 SNCF is the French nationalised railway company.

Translating euros into £s at 1.25 Eu to the £1, its annual revenue approximates to £7.2 billion, yet its annual budget (the amount it is permitted, indeed encouraged, to spend), is £14.4 billion - exactly double its total revenues! To compensate (and more) for this yawning gap, the state subsidy is £9.6 billion.

Not included in the above is the financing of pensions (borne by taxpayers) at £11..2 billion. Unsurprisingly, financing the resulting debt mountain costs £1.6 billion, again out of taxes.

So much for the macro. Now the micro :

A train-driver’s basic annual salary at commencement of career : £21,120, rising to £30,720 (or £47,000 as a TGV driver) on retirement.

PLUS : (i) end-of-year bonus ; (ii) work bonus ; (iii) journey bonus ; (iv) TGV bonus ; (v) coal bonus (vi) holiday gratuity ; (vii) annual bonus ; (viii) overtime ; and (vix) away-from-base premium (non-taxable).

The effect of all this is that a 40-year-old TGV driver receives a NET annual salary of over £60,000.

NOTE ALSO:

Working week – 25 hours

Retirement age – 50

Plus Free healthcare

Plus Free rail travel for drivers and their families

And - for SNCF office workers who don’t qualify for above bonuses, SNCF has created a ‘lack-of-bonus’ bonus !

Also noteworthy : SNCF represents 1% of all jobs in France, but their workers account for 20% of the total number of annual strike days !

We can see the same same syndrome of entrenched attitudes operating at Air France, the national airline, where the concept of ‘acquired rights’ has instilled total resistance to change in working practices. As a result the airline is now being crippled by a strike of cabin crew, just after the damaging ‘industrial action’ by its pilots, whose rewards are grossly excessive by any standards. It’s just a matter of time before all these puppets reap what their unions have sown, and Air France collapses into bankruptcy. And it won’t help to say ‘I told you so !’

After 14 years of Mitterand’s socialist government he tried, with Prime Minister Juppe, to introduce reforms to retirement age, pensions etc, until the government was forced to climb down after the country was brought to a standstill – autoroutes blocked, no mail delivered, train crews on strike and rubbish bins not collected. Neither Sarkosy nor Chirac were able to dent the intrasigence.

The malaise is pervasive

There are violent demonstrations in France every week against the socialist government’s attempt to give employers more flexibility over working practices to encourage them to take on some of the vast number of (particularly young) unemployed.

In the quarter ended 30 June 2016 the eurozone currency bloc of 19 nations expanded by a mere 0.3%, half of that of the previous 3 months. France, of course, was the weak spot with growth down from 0.7% to zero. The shock shortfall was blamed – you guessed it – on strikes ! (Spain, by contrast, continues its rapid recovery with four consecutive quarters of growth. But then Spain has an unfair advantage : it has not had a functioning government since last October !)

It is not surprising that many French citizens despair – they believe that France is unreformable, and heading for collapse and chaos.

Such is the prevailing blindness and deafness of the lemmings as they hurtle towards the cliff-edge. And although SNCF and Air France are convenient cases-in-point, the same situation applies equally in other countries with high unemployment levels – up to 50% youth unemployment in Italy, Portugal and Greece. It is not that there is nothing for them to do – on the contrary, employers would be desperate to engage affordable labour, but in all these countries employment-based taxes, insane labour laws and resulting working practices create civil strife instead.

This is the shape of the ‘protectionist’ endgame. It destroys that which it purports to protect.

The amount of turmoil and suffering that necessarily precedes a change towards sanity is unquantifiable. All we can say with certainty is that this patently unsustainable edifice will topple when the instincts of the real sufferers, the people, tell them unequivocally that enough is enough. That much, history vouchsafes.

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