The French Consumer Is Alive And Well

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Some good news on the economic front to counter all that bad news on the social one. The French economy grew at an annualised rate of 2.8% in the third quarter of 2005 (or by 0.7% over the prebious quarter). Driving this growth: strong spending by French consumers. At this rate the French economy will be growing at a faster rate than the UK one in 2005.

France’s economy expanded at the fastest pace in more than a year in the third quarter, suggesting European growth is accelerating and providing central bankers leeway to raise interest rates. Gross domestic product increased 0.7 percent from the second quarter, when it rose 0.1 percent, the government said today in Paris.

In the euro region, where France accounts for about one- fifth of the economy, growth probably accelerated to about 0.4 percent in the third quarter from 0.3 percent the previous three months, the European Commission said Oct. 13. This quarter, the economy may expand 0.6 percent, it said. French consumers stepped up spending as oil prices retreated from a record and government-subsidized hiring pushed down unemployment from a 5 1/2 year high.

The French Unrest and the Labour Market

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Morgan Stanley’s Eric Chaney has what I consider to be a very sensitive and perceptive analysis of the economic backdrop to the French urban unrest:

Turning to economic causes, many analysts have pointed to mass youth unemployment as the main cause of the political unrest in low-income suburbs. The numbers are striking: the French unemployment rate reached 21.3% in the 15-24 age bracket in 2004, vs. 13.4% for the OECD as a whole. However, the headline unemployment rate is misleading because, at the same time, the participation rate of the 15-24 age group is particularly low in France: 37.5%, vs. 49.9% in the OECD. Practically, this means that 7.8% of the population aged between 15 and 24 is unemployed in France, vs. 6.5% in the OECD. The difference is not that large. What makes France different from other countries is the very low participation rate of young people, not particularly massive unemployment. In other words, the young in France take fewer jobs than their counterparts in other developed countries……”

“That brings us to a more fundamental point: why is it so difficult to create jobs in France? I have discussed this point in a previous note (“Making France Work”, June 21, 2005). In my view, the causes of the job disease fit reasonably well with the “insider-outsider” model developed by labor economists, provided that it is extended to products and services markets. I will elaborate only on labor market issues, starting with the minimum wage, which I believe is the major hurdle to job creation for young and less skilled workers. However, highly regulated product and services markets, which allow various interest groups to keep markets closed to competition and thus reduce employment opportunities, are another important cause of the job disease……….”

“Originally, the minimum wage was introduced as a protection against excessive employers’ bargaining power (“monopsomy” cases). Over the years, it became a protection against competition from cheap labour. Many studies on French data have shown that a rise in the minimum wage is very negative for employment. Although estimates may differ, they converge qualitatively. For instance, Bernard Salanié (Columbia University) and Guy Laroque (CREST) estimated that a 1% rise in the minimum wage could cost 29,000 jobs (“Une décomposition du non-emploi en France”, Economie et Statistique N331, 2000-1). As a consequence, each minimum wage rise, often seen as a “social measure” in French media, would increase the proportion of people living only on social benefits. This point is particularly important for young and low qualified workers, whose parents are often also unqualified: they suffered twice from the generous increases in the minimum wage in terms of fewer job opportunities for them and their parents and, thus, a lower income for their household.

Europe’s Digital Divide

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“A digital divide has appeared among Europeans, with age, income and education determining whether the continent’s citizens use the Internet”, at least this is the conclusion of a new study conducted by Eurostat on behalf of the EU commission.The largest divide by educational level was found in Portugal, and the smallest in Lithuania, only in the Netherlands did more than half of the retired population use the internet. Only in Sweden (70%), Denmark (64%), Finland (54%) and Germany (51%) did more than half of the lower educated use the internet during the first quarter of 2004, while the proportion of the higher educated who used the internet fell below 50% only in Lithuania (38%) and Greece (48%). Now why do I not find all this particularly surprising?

In the EU25, 85% of students (aged 16 or more in school or university) used the internet during the first quarter of 2004, as did 60% of employees, 40% of the unemployed and 13% of the retired, compared to an EU25 average of 47% for individuals aged from 16 to 74. This divide by employment status is also found by educational level: only 25% of those with at most lower secondary education used the internet during the first quarter of 2004, while the proportion rose to 52% for those who had completed secondary education, and 77% for those with a tertiary education.

Balkans moving forward…

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The European Commission released its annual reports on enlargement yesterday, including a recommendation that Macedonia be recognised as an EU candidate. Eagerly anticipated (including by Doug Muir a few weeks back), but also pretty stunning given the difficulties the region has had, and given the general perception of enlargement fatigue.

However in my view this piece of good news is put in the shade by this morning’s Guardian story about likely Bosnian constitutional reform. Apparently a deal brokered by the Americans, but lubricated by the prospect of EU entry, “would give Bosnia the ‘normal’ trappings of an integrated, non-ethnic parliamentary democracy: a national parliament with full legislative powers, central government and cabinet enjoying full executive power, and a titular head of state”.
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France: some perspectives

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Thanks to Juan Cole I do not have to spend a great amount of time writing and explaining some key elements needed to understand multiculturalism, or the absence of it, in France. I’l give you a few quotes to digest and discuss.

The young people from North African societies such as Morocco, Algeria and Tunisia are mostly only nominal Muslims. They frequently do not speak much Arabic, and don’t have “proper” French, either. They frequently do not know much about Islam and most of them certainly don’t practice it– much less being more virulent about it than Middle Easterners. Aware of their in-between-ness, young persons of North African heritage in France developed a distinctive identity. They took the word Arabe and scrambled it to produce Beur (which sounds in French like the word for “butter”). Beur culture can be compared a bit to hip-hop as a form of urban expression of marginality and self-assertion in a racist society. It is mostly secular.

This confirms my own experiences with, for instance, Moroccans in Belgium. They form their own subculture. Hip-hop, R&B, traditional music, track suits, hooded sweat shirts (mainly in France) are some of the more visible aspects.

The French have determinedly avoided multiculturalism or affirmative action. They have insisted that everyone is French together and on a “color-blind” set of policies. “Color-blind” policies based on “merit” always seem to benefit some groups more than others, despite a rhetoric of equality and achievement.

As a bonus, I give you another, unrelated yet thought-provoking, quote from this article on the BBC news site by John Simpson, emphasis mine:

Years of reporting on riots and revolutions have shown me that crowds display a mysterious collective sense which somehow overrides the perceptions and fears of the individuals who make up the mass. And crowds have a remarkable feeling for the weakness of government. There is of course a huge well of fury and resentment among the children of North African and African immigrants in the suburbs of French cities. The suburbs have been woefully ignored for 30 years. Violence there is regular and unexceptionable. Even on a normal weekend, between 20 and 30 vehicles are regularly attacked and burned by rioters.

Go read the linked articles and share your insights and comments with us.

Promises, Promises, But More Than A Technical Detail

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Well the eurozone government deficit problem has hit the agenda with a thud again in the last few days. Yesterday the FT ran a story about how the ECB has decided that it will not accept government paper (bonds) in the future from any country which has not maintained at least an A- rating from one or more of the principal debt assesment agencies. (Dave Altig at MacroBlog has also covered the story here, and Nouriel Roubini here). Today the FT has another story about how Trichet has confirmed the policy, and how the Commission too plans to get tough (well they would, wouldn’t they, since this may now become a credibility auction).

This topic must appear appaulingly technical and yawn-provoking to the non-economist. In fact nothing could be further from the truth. Let me explain a bit.
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Getting Old Before Getting Rich

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This is definitely about to become the new ‘meme’ about China. Actually it is reasonably valid. China’s ‘demographic shocks’ which come principally from the great famine produced at the time of the cultural revolution, and then from the subsequent one-child policy, are undoubtedly going to have significant consequences. Today UK Tory front bench spokesman on Trade and Industry David Willetts has a piece on the topic in the FT (subscription only unfortunately):

One reason for China’s stellar growth is that it is at a demographic sweet-spot. The massive reduction in infant mortality achieved by China’s barefoot doctors in the 1960s and 1970s is now yielding a surge of young workers – an extra 10m working-age adults per year. China’s challenge now is just to absorb them into the labour force. Add to that the massive population flow from the countryside and you can see why wages are low and growth is so fast. There are few pensioners and there are not many children either. The rabbit is indeed in the middle of the python.

If you are frustrated by your inability to read more, and are willing to hack it through a more academic paper on the same theme, then can I recommend “Demographic Dividend and prospects for economic development in China” by Wang Feng, of the University of California Irvine and Andrew Mason, of the University of Hawaii. The paper was presented at the recent (August 2005) UN experts meeting on ageing.

Update: New Economist has a fuller version of the Willets piece online.

Bigotry in Central Europe

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Here’s a post form Reflections on European Democracy that I’ve been meaning to link to for a while.

What I am saying is that the rants of people like Kaczyński, Marcinkiewicz, Lepper, and others against communists and gays are nothing new. They form a direct line with the authoritarian independent pre-war republics and with the communist regimes. The Soviets hated “deviance” of any kind, be it Jewish, gay, handicapped or dissident, because their mere existence spoiled the official myth of (socialist) perfection. Pre-war nationalists and their present ideological heirs hate it for the very same reason.

“Multiculturalism”? As if!

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I’m going to barf if one more person writes that “multiculturalism” has somehow contributed to the riots in France. How exactly you square “multiculturalism” with France’s ban on the headscarf – and the fact that French is, officially, about as un-multicultural as you can get – is beyond me.

If you ask me, I’d hazard to say it’s a complete and utter lack of multiculturalism that had created the situation we have now.
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Oh for those peaceful days of the ’50s and ’60s

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There’s a letter in today’s (UK-based) Daily Telegraph by that famous KGB-defector and media-darling, Oleg Gordiesvsky:

Sir – France always had a cult of revolution. The French public fully supported extremist political parties, Communists and Trotskyists, which had political violence as an integral part of their programmes.

Now they are reaping the fruits of it.

Oleg Gordievsky, London WC1

It’s not so much that this letter is wrong on its facts that I take issue with, it’s the “now they are reaping the fruits of it”, as if until now politics in France had been like a Scandinavian country run by clones of Sir Geoffrey Howe permanently drugged to the eyeballs on Mogadon.
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