Saturday, June 18, 2011

The return of protectionism in France

From left and right, politicians in France are positioning for the presidential election, and one recurring theme recently has been the return to some protectionism, arguing that France would be far better with huge import taxes and preference for French products. Arnaud Montebourg and Marine Le Pen, who are basing their policies on some of the same economists(Jacques Sapir, see below), are some of the figureheads. So let us look at some stuff to see where French politics is going.

Arnaud Montebourg published a book called, where he says that
Le monde a fait fausse route, la mondialisation est devenue sa déroute
BOOM! Let's be protectionist, but in a poetic way. That's the French way. In a recent show on France Culture, he mentioned that the 30 Glorieuses happened in an "absolute protectionism". This struck me as incorrect, but I have no source for now, so I can't say anything.

His favorite economist seems to be Jacques Sapir. This economist advocates, for instance, for the purchase by Air France of Airbus planes only. The argument is that Boeing is favored in the US, and this utterly unfairly

L'affaire Air-France KLM est-elle le prélude à un retour du protectionnisme ?

Les gouvernants savent qu'il faudra revenir à des formes de protectionnisme, de patriotisme économique. En même temps, ils ont les mains liées par certains accords relatifs au commerce mondial. Or, ceux-ci ne sont pas symétriques. Dans l'aéronautique par exemple, la notion de libre concurrence cache mal les subventions régulières, faites aux Etats-Unis pour des gros contrats. Sur celui des avions ravitailleurs, le Buy American Act a ainsi été appliqué. Bien sûr, cela n'a pas été dit formellement. Mais à la fin, le groupe Airbus a renoncé à contester encore une fois ces contrats parce qu'il savait que le résultat serait toujours le même. En réalité, les Etats-Unis n'ont jamais appliqué la "two way street" : nous achetons du matériel américain mais vous allez acheter du matériel européen.
Yeah, that's not exactly what happened, and it is REALLY hard to defend Airbus more than Boeing in this case. The WTO ruled that Airbus benefited from huge export subsidies:
Overall, the panel concluded that the United States had established that the effect of the specific subsidies found was (i) displacement of imports of US LCA into the European market; (ii) displacement of exports of US LCA from the markets of Australia, Brazil, China, Chinese Taipei, Korea, Mexico, and Singapore; (iii) likely  displacement of exports of US LCA from the market of India; and (iv) significant lost sales in the same market, and that these effects constituted serious prejudice to the interests of the United States within the meaning of Article 5(c) of the SCM Agreement.  However, the panel concluded that the United States had not established that the effect of the specific subsidies found was (i) significant price undercutting; (ii) significant price suppression; and (iii) significant price depression.  In addition, the panel concluded that the United States had not established that, through the use of the subsidies, the European Communities and certain EC member States cause or threaten to cause injury to the US domestic industry.

Not that the WTO was partial in its findings:
A separate 850-page ruling by the W.T.O. in April found that Boeing had received at least $5.3 billion in improper United States government subsidies to develop the 787 and other jet models, giving it an unfair advantage over Airbus.

And there are solutions to defend against the evil mondialization if competition is unfair, within the WTO framework:
The W.T.O. defines two broad categories of subsidies: those that are “prohibited” and those that are “actionable” — that is, subject to legal challenge or to countervailing measures like punitive tariffs. Prohibited subsidies are those that are specifically designed to promote exports or to encourage production using domestically made components. 

Now, on the question of whether the Buy American Act was actually used, this is not true, or at least it demands far more than a quick quote. If your argument is based on this, you might want to provide facts. Indeed:
William J. Lynn III, the deputy defense secretary, said Boeing was “the clear winner” under a formula that considered the bid prices, how well each of the planes met war-fighting needs and what it would cost to operate them over 40 years.
After weighing all the factors, the Pentagon determined that Boeing’s bid was more than 1 percent below that of its rival, the European Aeronautic Defense and Space Company, Mr. Lynn said. If the bids had been within 1 percent, the Air Force would have considered 92 additional requirements for the plane as a tiebreaker, and some of those were widely thought to favor the larger EADS plane. 

The bottom line is that if Arnaud Montebourg's economic program is based on what Jacques Sapir says, I will look twice to be sure it's credible.  I might make a post focused on mondialization in general later.

Now, let us turn to Marine Le Pen and the Front National's program. First, this article on Rue89 was a really good summary of why the FN program is, well, bad, and probably completely unconstitutional. Pick one, say, on immigration:

  • "Supprimer les « pompes aspirantes » en réservant les aides sociales diverses et les allocations familiales aux seuls Français et en réinstaurant, dans le cadre de nouvelles dispositions législatives, la préférence nationale pour les prestations sociales". This is probably because foreigners are a drag on the economy,  because they contribute positively  to the economy and reduces the deficits on social spending, according to the Drees
  • "Rétablir nos frontières en sortant de l’espace Schengen."

On foreign policy(where it appears that our policies have been "aligned with the US" since 1993):

  • "Sortir de l'OTAN", because as we've seen in Libya, France can do it alone. Actually, this is unfair, since the FN wants to have a non-inference policy, so that makes it consistent. 
  • Retrait de notre participation aux juridictions pénales internationales qui entretiennent les plaies des conflits passés et comportent une part importante d’arbitraire.

And on economic policy, where Jacques Sapir makes an appearance:

  • Exiting the Euro(the document is quite awesome. Apparently, the new Franc would be worth... 1 euro. Because, yes, of course, the franc will have the same value as the Euro. Wow.). 
  • This includes a "competitive devaluation as the USA and China are doing today". And go back to the gold standard. Well, something better: the "polymetal" standard (gold, silver, platinum). On this, a bit more details: the gold standard has done wonders for France before WWII, as all economic historians know(see graph here p28). Eichengreen and Irwin argued that France was part of the reason the Depression lasted so long, because countries remaining on the gold standard took protectionist policies to defend the value of their currency. Liaquat Ahmed, in the critically acclaimed Lords of Finance, describes the asymmetry caused by French protectionist policies Doug Irwin has better: 
France caused the Great Depression France increased its share of world gold reserves from 7 percent to 27 percent between 1927 and 1932 and effectively sterilized most of this accumulation.  This “gold hoarding” created an artificial shortage of reserves and put other countries under enormous deflationary pressure

  •  The bottom line is that the gold standard is really bad: the value of your currency depends on random discoveries, in a recession, you typically need to raise rates, etc.... But you know, it's only been shown 70 years ago.
  • Apart from exiting the Euro, the other economic measure(yes, there are only 2, apparently) is to renationalize everything (note also the recent interview of Segolene Royal to l'Express, where she mentions that had she been president "Yoplait would never have been sold to the american financiers", aka General Mills, because yogurt is probably a strategic industry and a public service)

(The others are not relevant to this post, but have fun with Justice(or what it thinks "Justice" means))

The bottom line: I am not confident that the debate is going to be good in the next year. Also, Jacques Sapir.

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