Although France was one of the founding members of the European Economic Community, the potential benefits of membership of an integrated European economy divided opinion from the outset. On two occasions, in 1992 and 2005, the French public was consulted directly in a referendum on proposals to deepen integration through treaty changes. The first referendum was held on 20 September 1992 on the question of completing the single market and preparing for monetary union (EMU) under the Treaty of Maastricht. On that occasion, on a large turnout of 69.7 per cent, a narrow majority (51 per cent) voted in favour. The second referendum, on the question of ratification of a constitution for the European Union (EU), was held on 29 May 2005. On a similarly large turnout of 69.4 per cent, 54.7 per cent voted against. All other treaties starting with the Treaty of Paris setting up the European Coal and Steel Community (ECSC) signed on 18 April 1951 were approved by a majority in Parliament.

Attempts by historians to separate the effects of European integration from all the other factors influencing the performance of the economies of member states since 1951, and to quantify them, have proved to be very difficult indeed. While it is not possible in a short chapter to analyse the full range of issues that membership of the EEC/EU has involved for the French economy, the aim of this chapter is to summarize some of the most significant ones. These are: the European Coal and Steel Community (ECSC); the European Economic Community (EEC) and its com-mon agricultural policy (CAP); the European Single Market; and the Economic and Monetary Union (EMU).

THE EUROPEAN COAL AND STEEL COMMUNITY

The proposal in May 1950 to place the coal and steel industries of France and the Federal Republic of Germany under the supervision and control of a common High Authority was a French initiative designed to achieve two main objectives. The first was to maintain the consensus within France that the Monnet Plan had achieved, while the second was to build a positive relationship with the new Federal Republic of Germany.

In 1947 a young geographer in Jean Monnet's planning commission, Jean-François Gravier, published a best-selling book entitled Paris et le désert français, to highlight the economic disparities between the capital city and the rest of metropolitan France. At that time income per capita in the Seine department of Paris was 80 per cent higher than the national average, while in the poorest parts of France – Brittany, Corsica, the south west and outside the cities in the southern Alps – the average per capita income was less than 75 per cent of the national average. Even worse was the fact that levels of inequality had been increasing rather than declining in the interwar period. After the war the consensus was that it was the central state, with its national plans to promote economic development, that was best placed to correct such disparities. However, disillusionment with the direction that national planning had taken under de Gaulle, illustrated by the sporadic outbursts of violence in the poorest regions, most notably Brittany and Corsica, by groups demanding some devolution of power or complete independence from France, led the Socialist party to consider the question of devolution.

The contraction of large parts of the manufacturing sector from the late 1970s onwards, which was as much a regional as a national economic problem, since most of the industries in question were located in the north and northeast of the country, added urgency to the debate. Under legislation passed in 1982 the new Socialist government promised to introduce local democracy by devolving power from the central state. The question was how much power and to which level of subnational government.

At that time there were 36,500 municipalities (communes) in France and 100 departments. Rather than merge the municipalities, as Denmark and Sweden opted to do, the Socialist government added a new layer of subnational government, that of directly elected regional councils. By 2015, regional inequalities in metropolitan France were judged to have reached their lowest level for 100 years. Average incomes in the Seine department were 35 per cent above the national average, falling to 27 per cent after income tax.

As we saw in Chapter 4, the greatest inequalities after the Second World War were between those living and working across a range of sectors and activities in Paris and those working in the rest of the country, in what Gravier referred to as the French “desert”. Even in that desert there were distinctions within the agricultural sector between the large arable farms in the north and the Île-de-France, which employed paid labour, and the small family-run, mixed farms elsewhere. There were also distinctions between those working in industry, mainly in the north and northeast of the country, and those working in the service sector, spread across France. It was the rapid growth of the economy and the movement of millions of people out of low-productivity jobs into higher productivity ones that led to a rise in living standards and a reduction of the gap between Paris and the rest of the country. It was when growth rates slowed down after the mid-1970s and the tens of thousands made redundant in the traditional industries could not find alternative employment in the expanding service sector that inequality began to rise and mass unemployment became a structural problem. Although it was never as high as in the neighbouring countries of Italy and Spain, unemployment became a persistent problem for France, peaking at 10.8 per cent of the active labour force (2.8 million) in 1997, and reaching a new high of over 3 million people in 2015. On the other hand, income inequality levels, although rising from the 1980s onwards, were also lower than in Spain and Italy, and were much lower than in the United States and the United Kingdom. In this chapter we shall analyse the record of the French government in addressing the main forms of interpersonal inequality over the period since the “30 glorious years” came to an end.

INCOME INEQUALITY

During the early 1980s, when many OECD countries were following the example of the United States and cutting taxes and public spending, the French Socialist government did the opposite. It increased income taxes on middle and high earners while introducing an entirely new tax on wealth to help fund its nationalization and expansionist public spending programme.

The 30 years after 1945 were the longest and most stable period of growth in measured French history bringing to an end years of economic decline. Immortalized by the French economist Jean Fourastié as the “30 glorious years” (trente glorieuses), they were also a time of rapid structural change and economic development. Millions of people moved out of low-productivity jobs in agriculture to work in the industrial and ser-vice sectors. The protective walls of tariffs and quantitative restrictions that had long shielded producers from international competition were gradually dismantled as France participated in the European Economic Community (EEC) and in the trade liberalizing rounds of the General Agreement on Tariffs and Trade (GATT) and of its successor the World Trade Organization (WTO). The direction and economic importance of trade also changed, shifting away from the former slowly growing colonial markets and towards the expanding markets of the EEC. What was traded also changed, with France for the first time running a surplus in some agricultural products and foodstuffs as well as in transport equipment and some manufactured goods. Much of this altered after the mid-1970s, when the postwar boom came to an end at the same time as the developed economies moved into recession. In the 40 or so years since the mid-1970s, growth in France, as in other developed economies, has slowed down and employment in industry and agriculture has shrunk, but the service sector has expanded rapidly. With a return of women to the labour market on a scale not seen since before the First World War, the service sector was unable to absorb the millions of men left unemployed as a result of the contraction of industry and agriculture. At the same time, the cost of redistributing income to offset some of the growing inequalities in society led to a tax burden that was higher than anywhere else in the developed world.

Such momentous changes over a lifetime have stimulated considerable debate among historians but little consensus over the causes. What is undisputed is that what happened after 1945 reversed the long period of economic decline that contributed to the shocking surrender of France in 1940.

We have seen in the previous chapter that one of the purposes of the postwar reforms was to democratize economic policy-making in France in order to provide a wider range of groups with the economic security that governments of the Third Republic had failed to deliver. This was to be achieved by changing the structure of the economy according to a national economic plan. While the new postwar state was committed to intervening in the economy rather than continuing the combination of economic liberalism and protectionism that had failed to guarantee the living standards even of the agricultural sector under the Third Republic, the instruments and objectives of such an intervention changed over time.

What is clear is that there was nothing automatic about the way in which the French economy caught up with the more technologically advanced economies after the Second World War. The aim of this chapter is to analyse and, based on national accounts, measure how well the French economy performed over the whole period 1945–2018, before focusing on the performance in each of the four sub-periods identified in Chapter 2.

OVERVIEW OF THE PERFORMANCE OF THE FRENCH ECONOMY, 1945–2018

Growth

In contrast to the behaviour of the French economy in the nineteenth century and in the interwar period that had led historians to conclude that for better or worse France was following its own path to economic development, after 1945 it participated fully in the boom experienced across western Europe. Growth rates averaged 5 per cent per annum over the period 1950–73 compared with 1.5 per cent in the period 1870–1913. By 1973 per capita GDP was above that of the United Kingdom and was closing the gap with the United States, the technological leader (up from 48 per cent in 1950 to 73 per cent in 1973).

The postwar boom came to a sudden end in the international recession of 1973–75 but it hit the French economy later and was of shorter duration than the OECD average. Along with the rest of the developed world, the French economy suffered a second recession in 1992–93 and a third in 2008–09.

The long and acrimonious Brexit negotiations between the British government and the European Commission representing the 27 member states of the EU succeeded in uniting all the main political parties in France in opposing a similar French exit from the EU. If this seemed to be a ringing endorsement of President Macron's unwavering support for the Union, the Front National, renamed the Rassemblement National in June 2018 by its leader Marine Le Pen, made clear that its change of policy towards membership of the EU was conditional on the latter adopting a protectionist policy in its trade with the rest of the world, and ending the free movement of labour within the European Single Market. With protectionism on the rise across the world, Le Pen's policy was increasingly popular in France, where a growing number of voters were happy to blame the persistently high unemployment and rise in poverty and inequality on immigrants and imports.

As the Covid-19 pandemic began to spread across the world it revealed and widened inequalities both within and between countries. Not only did it expose differences in income and living and working conditions but it deepened the division between the digital and the non-digital economy, thereby revealing the extent of European dependence on the US technology giants that had been its main beneficiaries. There was no European equivalent of Google, Apple, Facebook or Amazon. This was blamed by the French government partly on the tax privileges enjoyed by the US multinationals and partly on the failure of the European Commission to address the problem. Long before the outbreak of Covid-19, indeed since 2013, the French government had been campaigning to win the agreement of the other EU member states to tax the big tech companies in the countries where they made their profits rather than in those where they were headquartered. However, since European tax policies require unanimity, the French were unsuccessful. When Apple and the government of the Republic of Ireland won their appeal against the Commission's demand for a repayment of tax, and with the US opposed to any change in the way that the firms were taxed, the European Commission was unwilling to risk starting a trade war with the US by pressing the case, preferring to leave the issue to the OECD to negotiate.

Appendix

It is regrettable how little the British know about the economy of a neighbouring country in which so many chose to have a second home, retire or simply visit before the United Kingdom left the European Union. A common assumption is that the French economy is based on agriculture and industry, unlike the more modern, service-based British economy. With high taxation and an inflexible labour market, it seemed understandable that many young, educated French people should escape the high unemployment in their country to work in Britain, and in London in particular.

In 2014, when the Socialist government of François Hollande was in power, a leading British economist wrote that what he found to be the most interesting question about France was not why it was doing so badly but rather why it was doing so well in spite of operating “some extremely destructive policies”. In fact, before the Covid-19 pandemic struck, the service economy in France made the same contribution to value added as in Britain (about 80 per cent). The two countries also had about the same size of population (around 66 million), and similar levels of GDP and per capita income. Where they differed was that the service sector in France employed about 75 per cent of the active labour force whereas on some counts it employed 85 per cent in the UK. Unemployment in France was for many years much higher than in the UK, but levels of labour productivity were also higher in France. One of the biggest differences between the two countries, however, is that, since the 1980s, the government in France has consistently raised much more in taxation than Britain, in order to redistribute the gains made from closer integration into the European Union to those who did not benefit to the same extent. As a result, France, while not without its problems, has a more equal society than the UK.

When in 2018 I was invited by Agenda Publishing to write a history of the French economy since the Second World War, I happily accepted the challenge. Unlike my previous archive-based work, this book was to be based on published sources.

Of the many changes that transformed the French economy after the Second World War, one of the most marked was the new interventionist role played by the state. In contrast to the laissez-faire economic liberalism of the Third Republic, which had responded to the demands of a narrow but sizeable agricultural lobby group, and to the authoritarian management of Vichy that had served the interests of the German occupation forces and the Nazi war economy, the postwar state was to serve the interests of a much wider range of groups in France demanding economic as well as political security. Under a series of reforms enacted between 1944 and 1948, the structures and instruments that would enable this newfound scale of state intervention in the economy were put in place. Some were inherited from the structures introduced by the Vichy state; others reflected the political aspirations of the resistance groups. Together, the reforms included an extension of the nationalization programme begun under the Popular Front government to include coal, electricity, the main deposit banks, the remaining privately owned firms in the aero engine industry, the Renault car and truck maker and all the air transport companies. These nationalizations were in line, in terms of both the type of industries targeted and the method of implementation, with those introduced in other European states. Where the French were different was in creating a system of indicative planning that, unlike the Soviet system, was designed to operate within a parliamentary democracy. The entire apparatus of state intervention that was put in place was designed to make economic policy-making more democratic than had previously been the case.

It was not just the economic liberalism of the Third Republic that was swept away after 1945, but the entire constitution. Although it had been set up in response to French defeat in the war with Prussia and had survived the First World War, the Third Republic was now associated with decline and defeat. That there would be no return to it in any shape was confirmed by the results of a referendum held five months after the end of the war in Europe.

The 2016 referendum on membership of the European Union revealed a Britain fractured along generational, educational, class and regional lines. These cleavages presented substantial electoral problems to the main political parties, but for Labour they also posed an existential challenge.

This chapter explains how the Labour Party led by Jeremy Corbyn responded to these electoral and political challenges and will argue that the party's slow and erratic process of developing a policy that responded to the results of the 2016 referendum and to the tortuous process of withdrawing from the EU contributed to the party's disastrous results at the 2019 general election. In addition, the chapter will argue that the difficult process of agreeing to a “Brexit policy” exposed Labour's divisions and its existential and ideological crisis that had been brewing for the previous two decades.

Three key dilemmas explain Labour's slow, erratic and ultimately unclear response to Britain's decision to leave the EU: (1) the leader's ideological stances and statecraft; (2) electoral considerations; and (3) party cohesion. Seen in this light, Labour's slow response to these dramatic events reflects the challenges faced by power-seeking political parties that need to trade off permanently the not always compatible goals of promoting an ideology, winning elections, maintaining organizational cohesion and ensuring the survival of the party (Panebianco 1988; Harmel & Janda 1994: 248; Berman 2006: 11).

This trilemma was manifested in Labour's response to Brexit. If Corbyn's leftwing Euroscepticism informed most of his slow and indecisive responses to the various challenges the party faced, Brexit also presented Labour with electoral and ideological dilemmas. With an overwhelmingly pro-Remain membership, Labour was becoming a party of the young, educated, urban and cosmopolitan middle classes and was, as a result, more distant from its working-class historical electoral base, which was concerned with immigration and tended to gravitate towards socially conservative values. This diverse but divided electoral base was bluntly expressed in Labour's political geography: 70 per cent of Labour-held seats represented Leave areas (Hanretty 2016).

The size of the recession caused by Covid-19 is changing the way economists and policy-makers think about economic policy. The first few months of 2020 saw many economic policy boundaries being breached. In the space of a few months, the Federal Reserve, which is responsible for US monetary policy, almost doubled the value of its balance sheet assets, from about $4 trillion to $7.5 trillion, through a record issuing of trillions of dollars and, for the first time, direct lending to the private sector through the Main Street Lending Program. Before the pandemic, the Fed lent only to the banking system. In the UK, the Bank of England opened up a direct credit line to the UK Treasury, disregarding concerns over monetary financing of the government budget, actions historically perceived as very risky for central bank independence and, therefore, for the control of inflation.

These are just two examples that form part of a more general trend, in which the unprecedented economic crisis brought about by the pandemic has resulted in central banks intervening assertively with seeming little concern about whether their actions were risking financial soundness and might affect their ability to control inflation. In other words, these actions would seem to threaten the central banks’ independence and even their very existence. The interventions have been enabled by continued low levels of inflation that have persisted over many years, and which have been exacerbated further by the pandemic.

The ability of central banks to act forcefully – a luxury not afforded to central banks in many emerging economies – has emboldened those who support the idea that central bank printing presses should run to finance government spending, as the supporters of modern monetary theory and certain politicians have claimed. Recently, many governments have benefited from the exceptional support offered by their central bank in the purchase of trillions of government bonds, enabling them to offer unprecedented fiscal support to the economy. It is estimated that the US budget deficit in 2020 will be the highest in its post-war history at close to 15 per cent of GDP. Australia, Germany, Japan and other countries are predicted to reach similar deficit levels.

In the following, I will use simple concepts and notation to clarify a few details on the functioning of budgetary constraints.

A growing fiscal deficit can be financed by increasing taxes, reducing expenditure or increasing the amount of money in circulation

The government deficit can be written as follows:

where Dt indicates the government deficit at time t. Ct g are current public expenditures, It g those for investment, while Tt represents the total revenue. The government also has debt that involves interest expenses; Lt bg is the debt of the government to the central bank (for example, with QE of recent years, the central banks of the main countries of the world have purchased large amounts of government bonds); Lt cg is the debt placed with commercial banks, investment funds and the public, that is, the debt not held by the central bank. This debt pays an interest rate equal to i, so that the product between (Lt bg + Lt cg) and the sum of the two debts indicates the annual cost of the debt in terms of expenditure for interest (note that the symbol “·” indicates the operation of multiplication between two terms). The government usually also issues debt in foreign currency Lt fg whose interest is indicated by i. E represents the exchange rate translating the debt issued in foreign currency in the domestic currency. For example, if the debt is issued in dollars and the government deficit is expressed in euros, it represents how many euros it takes to buy a dollar (at the time of writing, it requires fewer euros to buy a dollar). Mt represents the money issued by the central bank and (Mt −Mt−1) its variation. It basically indicates the share of the deficit that can be financed by the printing of currency (“seigniorage”). In writing the budget constraint in this way we are assuming that the central bank pays its profits to the state coffers, as usually happens even in countries where the central bank is independent.

I start by analysing monetary and credit policy, because, however unpalatable it may be, banks – or rather credit – are fundamental to the functioning of economic systems. National banking activity is controlled by a central bank, which regulates the liquidity in the economic system and, indirectly, the flow of credit. As a child, I was fascinated by the idea that “someone” had the power to print money. This someone is the central bank, which has the power, it seems, to create wealth out of nothing. It is no coincidence that the creation of value from nothing has fascinated over the years many politicians, and even the film industry, for example it is the focus of the successful Spanish television series La casa de papel, and the famous 1956 Italian movie about forgers La banda degli onesti.

Credit appears to have magical qualities because, by creating money, the central bank is able to provide liquidity that allows the high-street banks to lend to entrepreneurs and consumers. Leaving consumer credit aside for the moment, what is remarkable is that credit enables entrepreneurs to invest, create new products, develop new activities and increase production. However, there is no “magic potion”, just the reality of the money printed by the central bank. This money that is created (printed) is used for central bank loans, which, eventually, must be repaid to the central bank.

The attraction of easy credit

To introduce the subject of credit, I will use the example of a small country that straddles northern Europe and Russia. What is interesting about this country is that it is one of the few in the world whose economy is still organized on a five-year plan and mostly follows the classic Soviet-style approach. In this system, the central bank is not independent and, thus, the political authorities directly control the management of credit. For the last 20 years, the country has often used credit to excess to support the national construction market and to make the economy grow.

Traditionally, the Labour Party has been hesitant to acknowledge the power and authority of the leader (McKenzie 1963: 297). After an often painful modernization process, the party now accepts that “leaders do matter” for the party (James & Buller 2015). Leadership of Labour has always been a “complicated phenomenon” (Morgan 1987: 4). Attempts to evaluate party leadership have tended rather predictably to focus on the leadership's ability to win elections. Across the 28 general elections held since 1918, Labour have won 11, and only eight with majorities. Of Labour's 14 leaders, just three have won elections outright: Attlee, Wilson and Blair (Gamble 2017). Only rarely – in 1945, 1966 and 1997 – has Labour built a large winning coalition. Gamble characterized Labour as a party with several cycles of victory, defeat and rebuilding, as between 1931 and 1951, 1951 and 1979, 1979 and 2010, made up of an arc including defeat and major victory, then loss and a process of rebuilding (Gamble 2017). The problem, famously labelled the “progressive dilemma”, is one of uniting the anti-Conservative coalition while still remaining wedded to Labour values (Marquand 1999; Gamble 2017). Added to this has been the inability of Labour to renew itself in power; as Harold Wilson put it: “If you rattle along at great speed, everybody is too exhilarated or too seasick to cause any trouble. But if you stop, everybody gets out and argues about where to go next” (quoted in Smith 1964: 193).

Labour, as McKenzie pointed out, only gradually came to recognize that the original chairman of the party was indeed a potential prime minister, sowing the seeds for the “reluctant leadership” narrative as a key part of the Labour discourse (Gaffney 2017). For a centre-left collectivist party, Labour holds a paradoxical attitude to its leaders (Diamond 2016: 21). Labour “venerated the collective idea” and was uncomfortable with personalized leadership, and yet it has at times perpetuated an individualized “cult of personality”, supported by the “evocation of former heroes”, so that the collective story of Labour becomes one of the “triumphs and defeats of individuals”, interwoven with an occasional theme of betrayal (Morgan 1987: 1; James 2015).