Louis Gallois is an interesting character. A leading figure of the centre left, he has spent most of his career, after a stint behind the scenes in government, leading massive industrial machines: the SNCF national railway operator, and EADS, the aviation giant that owns Airbus. He also might be the most stereotypically French looking man since General de Gaulle.
This is a man with Socialist sympathies who knows business, particularly international business. It was therefore with some confidence that the government announced that he would take the role of Investment Commissioner and produce a report on competitiveness in the French economy, which would propose measures that the government would use as a blueprint for reforming the economy. Now as leaks and rumours seem to be spiralling out of control, the government appears to be backpedaling on the importance of the report and the media is using it to bludgeon the President and Prime Minister. And it hasn’t even been published yet. What went wrong, and what should the government do?
Suspicion over the report’s contents first grew when the report’s publication date was shifted back several weeks, now to 5 November. Gallois had been meeting with the Prime Minister, Jean-Marc Ayrault, as well as other political parties, unions and business groups. The process was, it was explained, simply taking a little longer than anticipated; a reasonable answer given that every group is likely to have had wildly contrasting views on the problem, not to mention the diagnosis.
Then came the apparent scoop by Le Figaro, a staunchly right-wing newspaper. It published an article claiming to be based on a draft of the report that sent shock waves through the political and media class: a reduction in payroll taxes (in the large part paid by employers) of 30 billion euros, to be paid for by raising the CSG (a payroll and income tax used to finance the welfare and health programmes) and VAT by “moderate” amounts. Whilst not a hugely suprising suggestion (there have been 25 previous reports published since 2005 alone, many of which suggest lightening the load of employers’ contributions, which at close to 50% of salary in most cases, are amongst the highest in the EU). The shift reminded readers of a more dramatic version Nicolas Sarkozy’s final economic policy: the transfer of a chunk of the same payroll taxes to VAT.
Government reverses course
The government, uncomfortable at suggestions of increasing payroll taxes for employees, and staunchly opposed to increasing VAT, began slowly to distance itself from the report. Nevermind that Gallois’s staff denied that the report contained such measures and claimed that the report was still being written. Then, facing accusations that it was burying the report before it was even published, backpeddled awkwardly and emphasised its importance, but admitted that it did not bind the government in the choices it would make (a self-evidence that the government had failed to make up until then).
A second leak this time in the right-wing (see the pattern?) newspaper, Le Parisien, caused further headaches, with the report calleing for the end of the 35 hour working week. Again, the report was swiftly denied by Gallois’s staff, and seemed all the more improbable given statements made by Gallois at a conference last Monday where he pointed out that working hours in France were not, in his view, stifling the country’s competitiveness.
Add to that claims that the report would include support for shale gas mining through hydraulic fracturing (a poisonous subject given the Socialists’ difficult relationship with the Greens who see “fracking” as an absolute evil) and it would seem that the report could have the potential to tear the government apart.
Diagnosing the problem
What went wrong? First, the government oversold the report at its creation. Much like the Simpson-Bowles budget commission in the US, Hollande and Ayrault bet the house on shifting the decision-making process for a politically difficult and complex subject to a commission that could be considered apolitically beyond reproach.
Second, the government should have had a communications strategy for dealing with inevitable leaks or fabrications around the report’s contents. This would have mattered less had the government not seemed to contract-out its policy making process.
Third and most importantly, the government should already have decided what its priorities for reform in this area were.
A question of priorities
What is stark and worrying is that the debate within government over the key measures that are almost inevitably going to be included in the report has been played out in TV studios and press interviews. Minister after minister has given a view on CSG, VAT, non-price competitiveness, working time and so on. Rarely do they concur. Some attempt has been made this week to coordinate the government’s thinking on this subject, with a big ministerial meeting on the subject of competitiveness on 22 October; perhaps it would have been better to leak something resembling consensus from that meeting rather than allow the media to continue to feed on rumours.
The publication of the report and how the government decides what to pick up and what to drop from its recommendations now matters more than ever. Whilst it is important for the government’s image and continued ability to govern (its popularity continues to plunge) it is all the more important for the economy and jobs: unemployment ticked up at the highest monthly rate since April 2009 last month.
Time is not just running out for the government, but also for the French economy, if it is to avoid recession.