The logic and limits of desinflation competitive.(French economic policy from 1983)

How could it be that, starting with a Keynesian-Marxian economic programme, the Socialists decided in 1983, 2 years after coming to power in France, to adopt a diametrically opposed economic policy? The desinflation competitive, which has been maintained for 15 years, comprises an almost classic conservative policy, substituting nominal stability, wage restraint, and public finance discipline for increased consumption, nationalizations, and devaluations. This major shift, in fact, corresponds to the acknowledgement by the Socialists of the new rules of opened and internationalized economies. The desinflation competitive was certainly necessary in the early 1980s to correct severe imbalances. However, it appeared more and more irrelevant and counterproductive as inflation disappeared and unemployment kept on rising. The failure of the desinflation competitive either to bring about disinflation, other than through brutal market adjustments, or to stop the rise in unemployment, reveals the inability of the French Socialists to build up genuine social-democratic institutions and policies.

I. INTRODUCTION

In place for almost 15 years, maintained with an outstanding continuity over five changes of government, the French economic policy labelled desinflation competitive (competitiveness through disinflation) involves such numerous and controversial aspects that it is impossible to cover it exhaustively in a limited contribution. The present paper simply aims at presenting the most general features of the desinflation competitive. The task in itself is not simple since, unlike the old Keynesian economic policy model, the desinflation competitive has no canonic text where its doctrine is clearly set out and may easily be read. Desinflation competitive has no IS-LM model--a lack which indicates its specific nature as an administrative and technocratic doctrine, rather than a properly academic construction. The main task is thus a conjectural synopsis of the desinflation competitive. However fuzzy, this synopsis exhibits, nevertheless, a kind of global coherence which will appear through the priority given to an export-led growth. But coherence does not necessarily mean effectiveness. And scrutiny of the main mechanisms of the desinflation competitive will reveal major weaknesses which help us to understand the unfulfilled expectations of the 1990s. Effective insofar as the first requirement of economic policy was to wipe out inflation, the desinflation competitive became more and more irrelevant and counterproductive once inflation disappeared and unemployment remained the top priority on the economic policy agenda. Although it was well-adapted to nominal targets, the real performance of the desinflation competitive has been dramatically poor. Growth and employment have been its blind spots. And this blindness is all the more paradoxical in that the Left, and especially the Socialist Party, has been the historical entrepreneur of the desinflation competitive. The paradox is even more challenging in the French case in that one should recall how far from social democratic was the bold initial programme upon which Mitterrand was elected to the presidency of the Republic. How could it be that a Keynesian-Marxian programme advocating a boost in popular consumption and nationalizations eventually became an almost canonic conservative economic policy? Presenting the desinflation competitive, then, requires that light be shed on the historical sequence which has led to this unexpected conversion.

II. THE PROGRAMME COMMUN OF 1981: A KEYNESIAN-MARXIAN STRATEGY

Viewed from 1998, the desinflation competitive is now so deeply rooted in the French economic landscape that one could be tempted to think that the main issue is not so much how the governments of the 1980s could so suddenly adopt a neo-liberal orientation, but how a strategy like the initial programme commun could ever have been envisaged! The early 1980s seem so far from us now, that recalling the economic logic of this programme seems to be a task for an historian.

The economic plan of the socialist party coming to power was merely the expression of the global political strategy of the union of the Left (socialists and communists) expressed in the programme commun,' and from which resulted the election of Mitterrand in 1981.(2) The economic flavour of the programme commun is clearly Keynesian and Marxian.

Keynesian first, because the crisis opened in the early 1970s was too recent to have led to a serious questioning of the inherited intellectual routines of the Keynesian period. Certainly, Barre's economic policy, especially between 1978 and 1981, can be viewed as the first steps towards the neo-liberal policies of the 1980s, but the Keynesian paradigm still remained very prominent in the politicians' minds, and particularly within the Left. The economic diagnosis performed by the union of the Left about the crisis was unsurprisingly Keynesian, therefore: the rise of unemployment was seen as an effect of a slow-down in final demand. The problem could be solved by a boost to both private consumption and public investments. Consumption could be fostered by a rise in the legal minimum wage, but also by a significant plan for recruitment of civil servants--the two instruments at the disposal of the government. The socialist government was all the more inclined to apply such a strategy in that the economic experts consulted by the party during the electoral campaign were forecasting a world recovery of the business cycle, from which the French economic policy could benefit! The sequel shows us what to think of this prophesy by `experts'.

However, it would be somehow misleading to take a purely `Keynesian' view of the union of the Left's economic programme, which had two sides. If its demand side was certainly important, the supply side had not been completely neglected--and here comes what could be called the `Marxian part' of the programme commun. Besides the analysis of the lack of demand, the programme commun also performs a diagnosis in terms of the structural weaknesses of the industrial system and of a trend loss of competitiveness. The nationalization plan made up the supply-side response of the programme commun. One cannot underestimate the breadth of this programme: 36 private banks, two investment banks, and 11 major industrial firms were nationalized in 1982, raising the public-sector share to 24 per cent in terms of total employment, 32 per cent in terms of business output, 30 per cent in which could arise a transformed system of terms of exports, and 60 per cent in terms of `wage-labour nexus' (Boyer, 1988), anew set industrial and energy investment (Hall, 1988). The rationale of this programme was in fact threefold.

(i) Rescuing the largest firms that had been driven into bankruptcy by the failure of private share-holders. It is conceivable that without state intervention, major firms, such Saint-Gobain and, especially, Rhone-Poulenc, could have disappeared.

(ii) Performing with political authority the restructuring of the industrial system, forming `national champions' in order to increase competitiveness. The fer de lance policy was, in fact, a vertical integration strategy, aiming at building fully integrated industrial groups in the high technology sectors. In line with a long-standing French tradition, state intervention was viewed as a necessary substitute for a failing private entrepreneurship.

(iii) Finally, nationalized firms also had the task of providing privileged places where `new' social relationships could be experimented with. From this perspective, nationalizations could be interpreted as the attempt to develop a seed from of capital-labour relations.

III. FROM THE FAILURE OF THE PROGRAMME COMMUN TO THE DISTRESS U-TURN OF THE DISINFLATION COMPETITIVE

The expansionary economic policy was launched very rapidly after the election victory of 10 May 1981. The purchasing power of the SMIC (the minimum wage) increased by 10.6 percent in 198 1-2, compared to a rise of only 3.3 per cent in 1979-80 (Hall, 19 8 8). The public recruitment programme created 110, 000 jobs in the civil service. The whole set of measures resulted in a 2 per cent boost to GDP. But the experts were wrong, and there was nothing like a world recovery to support and reinforce the French economic policy. The expected growth rate upon which the 1982 budget was built was 3.3 per cent, whereas the actual rate ended up at 2.3 per cent (Figure 1). France was boosting its economy while almost all its partners were adopting restrictive policy stances. This isolated stimulation taking place in a low-growth international context and upon a weak national industrial basis logically led to a deterioration of the economic indicators. The public deficit reached 2.8 per cent of GDP in 1982 and 3.2 per cent in 1983 (Figure 2). It is worth recalling that, at that time, such an imbalance in public finances was considered as a tremendous drama in France, most of the political commentators claiming that the whole country was driven into insolvency. Viewed from the 1990s, this catastrophic 3.2 per cent can seem quite enviable! The external deficit, too, increased significantly, at 2.2 per cent of GDP in 1982. And despite the stimulation plan, unemployment was still rising (Figure 3). The extra public expenditure mainly benefited France's commercial partners. Moreover, faced with an increase in their costs, firms engaged in severe restructurings from which massive firings resulted. The Prime Minister, Mauroy, claimed to fight `on the side of the 2 million unemployed', but this symbolic threshold was broken in 1983.

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The deterioration of the macroeconomic situation was feeding a crisis with both monetary and political aspects.

(i) Monetary Turmoil

The beginning of the socialist policy had already brought two devaluations in 1981. The franc was all the more under scrutiny in that the French economic strategy was strongly diverging from the stance adopted in other countries--and because the left-wing government was suffering from prejudice against it in the international arena. …