Legendary British statesman David Lloyd George once said, “a young man who isn’t a socialist hasn’t got a heart”.
It is impossible, as an empathetic human being, to ignore the emotional appeal of socialism or to ignore the fundamental allure of altruism. It is perhaps for this reason that the history of the last one hundred years has been largely characterized by the struggle between market capitalism and socialism.
Last week, Francois Hollande reminded us why reality is far more complex than a simple adherence to an abstract moral responsibility when he announced an effective U-turn in his economic policies. Hollande, the first socialist president of France in over 25 years, characterized populist politics with measures such as a 75% top payroll tax. He claimed that he was an enemy of finance, and that redistribution and heavy government spending were the solutions to France’s social and political woes. In a total revision of his policies, he announced last week that he was going to scale back government spending by $50 billion and reduce the tax burden by $30 billion due to France’s third quarter contraction of 0.1%. He realized that he could not have socialism and growth.
The contradiction between short-term economic equality and growth is an unfortunate reality. The integrated nature of the global consumer and labor markets make it almost impossible to facilitate the protection of laborers without sacrificing competitive advantages. Measures such as the 35-hour work week in France make it an unattractive place to do business relative to Asia or the United States. It is for these reasons that the socialist government was unable to fulfill any of the economic commitments it had made during the election. Naturally, however, the rhetoric of immediate equality made voting for the socialist government the morally palatable option. Now France is reeling from an 11% unemployment rate while Hollande faces a 21% approval rate. These statistics hint at a reality that we have seen time and time again – socialist economic policies do not yield growth. They make for great speeches and rallies but when push comes to shove the world economy is far too competitive for anyone to sacrifice productivity without paying dearly for it.
Navigating the popular desire for equality and the apparent moral superiority of political economics as opposed to free market economics is a challenge in a democracy. This is especially true in a context where the political class does not produce someone with the courage and leadership to turn an economy around. The job of a president is not to satisfy the people with populist measures, it is to rally the country around difficult policies that will not jeopardize the country’s economic outlook. It is a good sign, however, that the current administration has had the courage to see its failure and pivot its strategy. France’s future looks much brighter today than it did in the days following President Hollande’s election, when France saw one of the biggest outflows of capital in its history. Socialism and growth are polar opposite forces; beware of the man who sells them hand in hand. Hopefully the French people will take this as a lesson learned, just as they did 25 years ago.
I almost forgot – the end of David Lloyd George’s quotes reads : “The old man who is a socialist hasn’t got a head”.