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Christopher Mahoney
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I spent eight years at Bank of America in New York (1978-86) covering Wall Street, then moved to Moody's Investors Service where I worked for 22 years, covering banks, sovereigns and corporates. I chaired the Credit Policy Committee for four years. I retired in 2007 as vice chairman.
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  • France Rises Above Economics 2 comments
    Jul 22, 2012 12:45 PM

    He tells the French it is OK to love equality and social awareness more than success and money...
    Hollande refuses to be made a prisoner of the constantly-invoked "harsh realities" of freewheeling capitalism, which are supposed to justify highly inegalitarian economic policies...
    The French are wise to have elected a leader who makes his appeal to his countrymen's republican social values rather than to their disappointed economic ambitions.
    "Can the Socialists Fix France (and Maybe Europe)?"
    Commonweal, 13 July 2012

    You have to love the French Left. Their Marxist economics have always been hard and masculine and, above all, rigorously scientific. They have harnessed dry socialist theory to the practical management of a modern industrial economy. They write about "concrete" matters such as agricultural collectivism or the development of heavy industry, always in a scientific manner, and always without sentimentality or pity.

    Those who would call attention to the rather unattractive human consequences of 20th century socialism would be accused of bourgeois sentimentality and false consciousness. The task of building socialism is not a tea party, and inevitably, many will suffer in the historical struggle.

    But look at the French Left today. When confronted by a real economic crisis, one as simple as third-grade arithmetic, they disdain the "harsh realities" of capitalist economics and embrace the economics of "equality and social awareness". In other words, when communists exterminate entire classes, that's the cost of history. But when markets demand fiscal discipline, that is heartless. The French Left has gone from being the party of harsh reality to being the party of squishy sentimentality and wishful thinking. As ever, ideology triumphs over mere facts.

    The Socialist Party now rules France. The people of France voted against the nominally capitalist party and voted Socialist, the party of equality and social welfare. This is the France that finances itself in foreign currency, has a big fiscal deficit, high debt ratios, high unemployment and almost no growth. High debt, big deficit, high unemployment, no growth: those are facts; they're not negotiable; they cannot be "redefined". France must either demonstrate to the bond market that she can stabilize her debt ratios, or she will eventually lose market access and default. What difference does it make that these facts are "harsh"? Can Hollande select a different set of facts?

    But France has rejected austerity, and intends to raise the minimum wage, increase government spending, lower the retirement age, and build the socialist state, all paid for by levies on the "rich". The more France spends on socialism, the more it plans to tax the rich. Those are "socialist values".

    The harsh realities of capitalist economics may matter elsewhere, but not in France. Those laws have been suspended because the socialists have a vision that goes beyond mere economics.

    I can think of one reason why the French don't understand capitalist economics: because it isn't taught there. The academic discipline of postwar capitalist economics is anglosaxon, not French. In the anglosphere, we are taught about neoclassicism, Keynesianism, monetarism, the Chicago School, and the other attempts to explain the workings of a capitalist economy.

    In a French university, "economics" consists of the socialist critique of capitalist economics*. The postwar French intelligentsia studied, not growth or the business cycle, but how to combine the best parts of capitalism and communism (voila: socialism!). If you go to a bookstore in Paris, you will find thousands of heavy volumes on the defects of capitalism; you won't find one book that explains modern capitalist economics, except in translation.

    When was the last time that a French economist won the Nobel prize? I can't find any (unless you count expatriates). The Nobel prize in economics goes to the anglophone, not the francophone.

    Today, the ruling political party in France is not capitalist, it is socialist. That's not a blazing insight, but it might explain why France is distinctly uncomfortable with topics such as "competitiveness", "real wage growth", "structural rigidities", "debt ratios", and "fiscal discipline". Those are foreign terms that are used to impose the anglosaxon world-view onto France.

    I remember when I was a bank analyst in the 1980s, trying to explain credit ratios to European banks. They would deny their applicability to Europe because credit ratios are "American". European banks couldn't be understood using "American ratios".

    I see that today in France. There is a prevailing sentiment that capital markets are an alien concept and a part of the anglosaxon conspiracy. The markets are "harsh" and "unforgiving", as if there were an another way for a country to borrow trillions of euros.

    This much I do know: when France blows up, it will be blamed on capitalism, not socialism.
    *If you think I exaggerate, read this:

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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  • FFA
    , contributor
    Comments (5) | Send Message
    Hi mahoneyct, I just saw your article and would like to add a few observations regarding the French socioeconomic reality. In France there is a somewhat informal ideological hegemony of socialist-like ideas regarding economic policy. Although France since the WWII has only had two socialist governments (Mitterrand in the 80s and now Hollande) the Left is voicing more its opinion in economic matters than the Liberals/Rightists. One reason is that French society is much more hierarchical than the American one, so people from middle to lower income classes were always feeling somewhat threatened by a reduction of the welfare state. That being said, and although being a more socialist like economy compared to Anglosaxon ones, France has managed to be an important exporter of goods & services and the government has taken care of protecting the labeling of specific national products (whine, champagne). I don’t think a US champagne producer can actually label his product as Champagne. Moreover, France has some of the highest productivity per hour rates in the world, if not the highest. That being said, France needs some key structural reforms, but the key to the success of these reforms is to communicate them correctly to both the people and the businessmen/investors etc.
    30 Jul 2012, 04:07 PM Reply Like
  • Christopher Mahoney
    , contributor
    Comments (1313) | Send Message
    Author’s reply » Despite its leftist ideology, France has been doing something right since 1945. It is a "successful country". But France prospered under the monetary policy of the Banque de France, which included periodic devaluation vs the DM. Now France is on the DM and can't devalue, hence the need for fiscal discipline. It will be interesting to see if the new Socialist government can keep the confidence of the bond market.
    8 Aug 2012, 10:24 PM Reply Like
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