NO WAY TO RUN A RAILROAD

Overseas visits are always instructive – they provide a fresh insight into the workings of economic principles within a different framework. The consequences of human action will, of course, vary by reference to circumstances – but the natural laws determining those outcomes are, in themselves, always and everywhere the same. 

Our regular visits to France over the past 40 years have always been instructive and our latest post-election (French, that is!) trip was no exception. It was obvious for years that declining economic growth under Francoise Hollande’s socialist regime heralded nothing so much as a one-way ticket to economic oblivion – and it is supremely ironic that the party dedicated to protection of proletarian rights should be brought down by its own attempts to shift France’s institutionally entrenched labour laws.

In an earlier instalment of Economic Perspectives I explained the economic consequences of persisting with existing protectionist working practices, in particular with laws that might well have been drafted for the explicit purpose of guaranteeing unprecedented levels of unemployment, such as the imposition of various employment imposts that collectively equate to 70% of the take-home pay of the majority of workers. Coupled with that are prohibitive “awards” imposed on any employer who dares to terminate an employment.

Barriers to employment

Could any more effective barrier to employment be invented? Is the record level of French unemployment any wonder? The cost to small business, the natural engine of growth in any economy, of these insane laws is simply unsustainable.

I have previously referred to the labour practices of France’s giant public sector enterprises, notably Air France and SNCF, its nationalised railway network. The budgeted annual income of SNCF (in terms of sterling equivalent) stands currently at £7.2 billion, while budgeted expenditure is precisely double at £14.4 billion. The budgeted annual government subsidy, borne by taxes of course, is £9.6 billion – a classical (but fully budgeted!) recipe for every economic ill in the book.

That’s at the macro-level. Here’s a cameo of the micro: the basic salary of a TGV driver on retirement (at 50) is £47,000 – to which must be added a year-end bonus; work bonus; journey bonus; TGV bonus; coal bonus; overtime; and an untaxed “away-from-home” bonus. Consequently, a 40 year-old TGV driver receives, on average, a net salary of £60,000. Oh, and his standard working week is 25 hours.

And don’t forget – he and his entire family enjoy free health care and, naturally, free travel. The poor SNCF office workers, by way of compensation, receive a “lack-of-bonus” bonus! [No – I am not making this up!] And by the way, SNCF accounts for 1 % of all jobs in France – and 20% of all strike days lost.

Employees of Air France similarly enjoy pay levels that are excessive by comparison with any market-determined norms in the private sector, and the curious doctrine of “acquired rights” guarantees that there will be no change.

Protectionist economics, writ large

Even after 14 years at the helm, Francois Mitterrand was unable to wring modest reforms in a patently unworkable system. Friends recall the outcry from the political left when reform was attempted and the civil chaos that followed: street riots, blocked autoroutes, burning tyres, no mail deliveries, uncollected garbage.

This resistance to change persists. In the quarter to June 2016 growth in the French economy came in at zero, lower even than any of the smaller Eastern EU member states. True to form to the very last, one of Francois Hollande’s final acts was to save 460 jobs at the Belfort factory of Alstom, the manufacturer of TGV trains, by placing an order for still more TGV trains.

The irony did not occur to him: the jobs were being axed because there is already a surfeit of TGV trains. Why pay those workers to produce even more? As has been shown countless times, government expenditure is simply not susceptible to any form of rational economic calculation.

The final agreement reached between SNCF and the government was that SNCF would pay 475 million euros for 15 new double-deck TGV trains instead of spending 150 million euros on renovating its older TGVs. The result is that SNCF must now incur 325 million euros of new debt for trains already surplus to requirements, to be financed over a lengthy repayment period – otherwise more realistically called the “never-never”!

The sane alternative (which, by definition, was never considered) was to remove the myriad impediments to employment and free movement of labour that litter the French ‘Code du Travail’. Upholders of free trade recognise the imperative of its application to labour as much as to goods and services.

Emanuel Macron has swept to power on the strength of his determination to bring about the relevant reforms by a process of detailed and unhurried negotiation with the unions (even threatening a referendum on labour reform if necessary). The union chiefs, this time round, may recognise that they lack the populist support that they have previously been able to summon. Their traditional negative stance whenever confronted by the prospect of reform may this time be replaced by a dose of overdue circumspection – or even listening!

The UK too

The UK’s privatised, but recklessly franchised, rail network has much in common with SNCF in the context of strikes and general disruption on any handy pretext. Indeed, South Eastern and Virgin Trains have announced that in their new bid to retain their franchise they are enlisting support from – yes - SNCF!

Well, with so much in common, why not? SNCF has little to teach Southern Rail in the misery stakes: 300,000 passengers a day have endured more than a year of disruption, cancellation of journeys, staff shortages and strikes called by unions ASLEF and RMT, that are now balloting yet again for more strikes over drivers’ pay and an overtime ban on driver-only trains. 

The UK’s Transport Secretary, Chris Grayling, has this to say about the latest round of rail franchise bids: “We want passengers to be at the heart of everything that the new operator does, enjoying modern, spacious trains on a more punctual and reliable service. We will listen to what passengers say in the current public consultation and we will seek to make changes and improvements only with their support.”

Said, apparently, with a straight face.

Franchise bids pouring in

Meanwhile, bids for the UK’s most lucrative rail contracts are pouring in - not only from UK companies but from infrastructure giants in Hong Kong, Italy, Japan and Netherlands too. Who can blame them when every franchise is an unrestrained bonanza, benefiting everyone except the passengers? After all, even blatant breaches are pathetically ill-defined in the contracts and penalties, still less forfeitures, are rarely, if ever, invoked.

Quite aside from its endless litany of transport fiascos, the UK can rival any country as a plunderer of the public purse in pursuit of projects that no sane privately owned business would countenance.

For all the pretence, it is in the nature of government to be utterly incapable of reaching even the simplest business deal on terms that do not finish up as a massive drain on taxpayers’ resources.

This applies to taxpayer-funded public works everywhere: ECB and IMF zillions blown on infrastructure dreams – such as 13 new Spanish airports at which no plane has ever landed, Portuguese motorway toll systems so technically sophisticated that sensible drivers avoid them like the plague, and the grant of Greek building licences that must include earthquake-proof clauses to justify funding, but are too costly to implement – explaining the acres of pillars protruding from foundations that will never provide bases for actual houses.