Modernizing France or Dismantling its Social Contract? Macron's Reforms

Abstract

This case uses France's labor market and regulation reforms in 2018 to illustrate how deregulation and labor market reforms can affect an economy's potential GDP. The case discusses President Emmanuel Macron's efforts to boost economic growth through economic liberalization, focusing on small- and medium-sized enterprises. The material allows for an examination of the effects of regulation on labor policy. If implemented, would the reforms boost broadly based growth? Would lowering taxes and regulation continue to boost France's economy, or would it unnecessarily put France's social safety net at risk? Excerpt UVA-GEM-0164 Rev. Jan. 15, 2020 Modernizing France or Dismantling Its Social Contract? Macron's Reforms After a decisive victory in May 2017, Emmanuel Macron became France's youngest president in modern history at age 39. His background in investment banking and government finances made it almost certain that economic reform would be high on his agenda. Indeed, he soon began implementing a variety of policy and industry reforms with the goal of easing or eliminating staid rules in areas such as taxation, employment, and regulation. In June 2018, Macron sought to further boost economic growth with a new round of economic liberalization, this time focusing on small and medium-size enterprises (SMEs). A former member of the Socialist Party, Macron began shifting toward the political center during his previous post as minister of the economy, industry, and digital affairs—a shift capped by his formation of the En Marche! (now La Republique en Marche!) party in 2015. Presiding over a parliamentary majority, Macron boasted considerable sway over his country's policies and institutions. But there had been blowback to many of his efforts, with political opponents on both the left and right arguing that Macron's reforms went too far, undermining France's longstanding social safety net and catering to the interests of the rich at the expense of the poor. In late 2018 and early 2019, violent street protests exploded across the country, including an attack on a Paris government building instigated by the so-called Yellow Vests and men dressed in black. Roads were blocked, bonfires were lit, and skirmishes with security forces were widespread. These upheavals coincided with uncertain Brexit negotiations in the European Union (EU), drawing increased scrutiny to Macron's ambitious reform plans to make France daring again alongside neighboring EU countries such as Germany and the United Kingdom, as well as overseas competitors like China and the United States. Would his reforms receive the needed support from other politicians, businesses, and the general public? And if implemented, would the reforms boost broadly based growth and help reverse Macron's dismal approval numbers? In late 2018, Macron capitulated on some of his least popular reforms, such as a gasoline tax. He also raised the minimum wage, though he remained committed to many other labor market reforms. So, observers wondered, was Macron surrendering? Or was he simply making a tactical retreat? . . .