The comments by Monsieur François Baroin, the head of the French Central Bank, stating that any downgrade of the French Economy’s AAA Credit Rating should be preceded by a similar downgrade of the United Kingdom, has been discussed in the media in terms of the ongoing rift between France and the UK, over solidifying the Euro.
Yet this highlights two significant issues that go to the heart of the worlds response to the Global Financial Crisis:
Firstly, the French case that Britain’s economy is enduring slower growth whilst maintaining a greater deficit, is essentially valid and highlights that while predictably, both right and left of the political spectrum, have sought to blame the other for the crisis and chart a route to recovery which conforms ideologically to their own perspective, the case for either, remains essentially unproven.
While Britain has sought to rapidly cut public spending and shrink government, the French system has remained substantially unchanged by comparison. While Britain, may yet rapidly out perform France over the coming decade, it may yet stagnate further.
The economic reality of the two countries is that despite considerable divergence of approach since the 1980’s, they have continued to remain roughly competitive with one another during this time. While in Britain the prevailing conflict tends to be between the urge to devolve power from the state and the urge to centralise, the French system is essentially, Europe’s most centralised. Those committed to the right and left of the political spectrum, too often ignore the reality that neighbouring economies of essentially differing but competing models will often remain competitive with one another and perform similarly in a global context. Neither the British or the French can claim to have systematically out performed the other over the last 30 years, despite Britain having adopted consistently a more business friendly approach. Ultimately, in not protecting her Manufacturing industries as the French have done, Britain has effectively centralised economic power on the City of London, while failing to diversify her industry.
Figure taken from the Daily Telegraph Website; Friday, 16th December, 2011: http://www.telegraph.co.uk/finance/financialcrisis/8960403/Frances-finance-minister-Francois-Baroin-Its-better-to-be-French-than-British.html
Secondly, while the reasons for the focus on the French Credit rating as opposed to that of Britain is unclear, it seems likely that the fact that britain retains the Pound and thus the freedom to act in isolation to protect her credit rating will play some part.
Taken together, both Britain and France are non-convergent but neighbouring economies who therefore tend to retain roughly equal economic wealth despite divergent long-term economic and state strategies. The decline of Europe in global terms encompasses both the UK and France equally, reducing the noticeable effect of any single economic system in all but the long-term. However, in the absence of economic convergence, the french will continue to be disadvantaged because their economy lacks the fiscal independence to buy up bad debt.
In general, however, the problem for Britain and France is the overall decline of Europe as an economic force compared to Asia. In particular, trade deficits and thew transfer of economic reserves to other regions ultimately threaten both economies ability to act independently. In this context, any smugness the british or French governments might occasionally endulge in when comparing their respective financial performance is irrelevant to the global picture and unhelpful when looking at the merits of economic convergence.
In this respect, there is justification in pointing out that the European welfare state model is unaffordable and contributes to a dependency culture which renders Europe less competitive on a global scale.
However, as the Occupy Wall Street protests have demonstrated, there is genuine pain and anguish which in large part, has evolved into the populous being disenfranchised by and isolated from the economic system and subsequent crash.
Ultimately, if the economies of Britain and France are to compete during the next century, they will need to carry their populations with them. Capitalism works principally through its appeal to base instinct. We all, become richer. The current economic crisis is complicated by the highly visible injustice of a corporate and financial sector elite effectively avoiding responsibility while the middle and working class bear the brunt of the transfer of risk from the private sector to the State sector. This impotence and the pain associated with reduced ambition and opportunity, is compounded by a financial system which is effectively too complicated for the average person to navigate or make work for them.
While the average person will accept that there are winners and losers to any system, in a democratic culture, it is imperative that the system adopted is accessible and works for the conspicuous majority. What will not work is if the economic system remains unreformed to the extent that the average person is required to live under but not benefit from a prevailing economic orthodoxy. In that event, both Britain and France as well as other western economies, will struggle to counter increasing popular apathy and stagnation as well as an unwillingness on the part of the population to embrace the longer working hours or reduced protections which might redress relative economic decline.
So far, conservatives are a long way from recognising that this challenge exists; let alone embracing it. In Britain, the Conservative Party has tended to concentrate on the absence of financial regulation which, it says, allowed the economy to boom out of control. In France, this view is generally agreed with, but in both cases, there is a collective amnesia at the extent to which the centre right embraced the Greenspan regulatory mantra in the decade leading up to the financial crisis. Moreover, it is noticeable, that the Conservative Party has proved unable to avoid blaming the international financial outlook for Britain’s own sluggish economic performance.
Five years into the global economic stagnation, there is little evidence that any political group has yet seen the need to ‘re-democratise’ economic policy to make it work for the average person. The political movement which finds a way of doing this, may well reap the rewards electorally both in their country and its neighbours.