Can the French Cut Welfare?
Sarkozy touches the troisième rail.
Jun 21, 2010, Vol. 15, No. 38 • By CHRISTOPHER CALDWELL
Recently Le Monde interviewed Raymond Soubie, an adviser to President Nicolas Sarkozy. He told an astonishing story.
Soubie was working for then-prime minister Alain Juppé in 1995 when the nation underwent weeks of disruptive and violent strikes against reforms of the welfare state. As France veered towards major unrest, Le Monde wrote,
This is why France’s welfare state has always been as unreformable as it is unsustainable. It is not that reform is opposed—the hint of the shadow of a reform is met with civil disturbances. And yet, almost a month after the Sarkozy government issued proposals for modifying France’s implausibly generous retirement benefits, the reforms are still given a good chance of passing.
The worldwide financial crisis has put France under dire fiscal pressure. The country is going broke in two ways, as Ernest Hemingway once put it: gradually and suddenly. The gradual aspect is that France’s ratio of workers to retirees has been falling for decades. France had more than 4 workers per retiree in 1990, but now has around 3, and the figure will sink to about 1.5 by 2050. That will mean at least a $120 billion annual fiscal shortfall. The sudden aspect is that the ricketiness of the euro has forced countries in the eurozone to begin putting their fiscal houses in order. They have committed to bringing their debt back to 3 percent of GDP by 2013. France is not the least responsible budgeter in the West. Its 2009 deficit was 7.5 percent of GDP, well below the 12.3 percent in the United States. But that is small consolation. Getting back to 3 percent will require a savings of $115 billion over the next three years.
The problem with France’s social security system is not that it pays employees too much. The average retiree gets paid about 54 percent of the salary he got during his working life, which is better than some European countries, worse than others. (French public employees do much better than private ones.) The problem, rather, is the absurdly early ages at which French people retire. When France first began to suffer permanent double-digit structural unemployment in the 1970s, its leaders had the idea that getting people to retire early would “make room” for younger workers. The unemployment problem would be solved not by increasing the numerator but by shrinking the denominator. In 1983, President François Mitterrand lowered the retirement age to 60.
The results were dramatic, but they did not include a fall in the unemployment rate. And while the official retirement age is 60, public-sector unions have won special consideration for “active” jobs. Firemen, prison guards, and policemen—but also railroad workers, customs officials, and sewage workers—can retire as early as 50. So retirement can, without exaggeration, take up most of a person’s adult life. The average Frenchman collects retirement benefits for 24.5 years. The average Frenchwoman collects them for 28. Only 13 percent of French people aged 60-64 are in the workplace. Early retirement has various knock-on effects, too: Retraining workers for high-value-added jobs has been the obsession of Western governments of left and right for two decades. But what employer would be so foolish as to pay for a major retraining of a 47-year-old worker who is eligible to retire at 51?
The trail France must follow has been blazed by her neighbors. Germany, where the retirement age is 65, recently voted to raise it to 67 by 2029. Britain will raise its own retirement age to 68 by 2046. And yet, when Sarkozy’s government hinted that a retirement age of 62 might be acceptable, trade unions hit the roof.
Ordinarily, that would be the end of the story. Sarkozy is calamitously unpopular. His party took only 26 percent of the vote in the most recent regional elections. What is more, there is a tradition in France of describing welfare programs as acquis—acquired things, done deals. Once enacted, a welfare benefit becomes a new constitutional right, an essential and nonnegotiable component of what it means to be a human being. The French view of welfare cuts resembles the House of Saud’s position on apostasy. An Ipsos poll published in early June found just 14 percent of French respondents said they would accept a rise in the retirement age.