My Two Cents on the “Yellow Vests” Movement

In a widely commented televised address President Macron  has made a last-minute attempt to stop the “yellow vests” wave, that is investing France and his presidency. After a dramatic (a bit too much to seem sincere, if you ask me) mea culpa on past arrogance, and a promise to “listen to the suffering of the people”, Macron announced a few changes to the French budget law, to sustain the purchasing power of the lower part of the income distribution. The most important and immediate changes are: an increase of minimum wage (more precisely of the “employment subsidy” that is given to most people working at or around minimum wage): the exemption from taxes and social contribution of extra hours (a very popular measure that had been introduced by Nicolas Sarkozy and later abolished by François Hollande); and last but not least, the repeal of the increase of social contributions for retirees, and the confirmation of the freezing (for at least the year 2019) of the “ecological tax” on fuel. Macron also signaled the intention to backtrack on his vertical leadership style (the président jupitérien); he pleaded for renewed role for intermediate bodies (most notably the mayors and local politicians) in putting in place a concerted effort (a “social compact”) to boost growth and social cohesion.

Will Macron’s announcement appease the uprising that inflames France? Most probably not, because they suffer from an original sin, a contradiction that the President is unwilling (or incapable) of seeing. The yellow vest protest originates from the gas price increase, that affected rural households and farmers in particular? But the malaise has much deeper roots, that are widespread. The French economy feels, after ten years, the full weight of a crisis that has hit very hard the middle and lower classes: Unemployment that fell too slowly  (costing re-election to François Hollande ; austerity that, although less marked than in the peripheral eurozone countries, has reduced the perimeter and coverage of public services and of the welfare system, while increasing the tax burden; and, finally, the reduction of family allocations and welfare in general, which particularly affected the most disadvantaged categories. All of this led to what Julia Cagé, on French daily Le Monde, called “the purchasing power crisis”, that simmered for a long time, before exploding in the past weeks.

Emmanuel Macron has an enormous responsibility for the bursting of the crisis. True, the increase in the tax burden for the middle class is mainly due to François Hollande (under the impulse of an ambitious undersecretary, and then minister of the economy, named … Emmanuel Macron). One might even argue that the budget law for 2019 reverses the trend as that the reduction of some taxes (in particular the elimination of the housing tax for the majority of households, and the flat tax on capital income) has more than offset the reduction in social benefits.

What explains then the fact that the discontent emerges, so violently, just now? The explanation is simple: it is to be found in the approach that the French President pursued since he beginning of his mandate. Like Donald Trump, with whom he disagrees on almost everything, Emmanuel Macron believes in the so-called “trickle down” theory: shifting the tax burden away from the rich is the best strategy to revive growth, because these people are more productive than the average, and invest the extra income in innovative activities. The fruits of higher growth would then percolate to everyone, even those who were initially penalized by the tax reform. From the beginning of his mandate, Macron’s choice to give France a pro-business image was clear, leading to a drastic reduction of taxes on the richest, and making the taxation, for the upper part of the distribution, fundamentally regressive.

The last budget law represents the clearest proof of this approach. The “Institute for Public Policies” has shown (see the figure, taken from a Le Monde article appeared last October) that while the overall disposable income slightly increases, the bottom 20% and the upper-middle class see a substantial worsening of their situation, while the very rich (the top 1%) see their purchasing power increase of 6%.

The problem is, as an increasing body of evidence shows, that trickle down does not work. Favoring the richest does not increase productive investment (it rather tends to boost non-produced asset prices and unproductive consumption), and the impact on growth is both negligible and not shared; these days’ demonstrations stand to prove it. History cannot be rewritten, but the attempt to twist the tax system in favor of the ecological transition would probably have been met with much more enthusiasm, in a country like France where environmental awareness is high, where it not accompanied by the sentiment of increasing social injustice that Macron’s economic policies have deepened.

It is interesting to notice, in this regard, that traditional media have given a somewhat distorted image of the protest movement (which is very hard to clearly decrypt). A group of researchers from Toulouse University uses lexicographic analysis to show that the narrative of traditional media was centered on revolt against taxes (ras-le-bol fiscal), and therefore in contradiction with the request of better public services;  this does not correspond to the message coming from social networks that organized “from the bottom” the movement, in which instead the predominant mood was revolt against social injustice and against the elites that grow richer and richer, while leaving the check for the others to pay. To sum up, a plea for a more equal and cohesive society.

How will this end? It is hard to say. The yellow vests have obtained a partial win, with the freezing of the gas increase, and with the measures announced by Macron on Monday. But it is unlikely that we will see a substantive change of economic policy, precisely because of the President’s views outlined above. He rushed to rule out any reinstatement of the wealth tax, because “in the past unemployment increased even when the wealth tax existed” (a rather unconvincing argument, to say the truth).

If higher incomes are not called to contribute to the effort (towards ecological transition, but more generally towards the financing of the French social model), even the measures just announced will have a very limited impact. The State will somehow have to take back with one hand (for example by reducing public services, that benefit lower income most, or increasing other taxes) what it just handed out with the other hand. The demand for social justice that confusedly emerges from the yellow vests movement will once more go unanswered, leaving untouched the tension that is ripping the French (and not just the French) society.

To meet these needs, a new political proposal would have to put the complex theme of the redistribution of resources in a globalized world at the center of its project. It would be necessary to rediscover the “Regulatory State” which, in the golden years of social democracy (and of the social right), guaranteed social and macroeconomic stability, and thus laid the foundations for investment, innovation, and growth. That role is more difficult to define in a globalized world in which individual States have limited room for maneuver, and in which therefore international cooperation, however difficult, is now the only way forward. But this challenge can not be avoided if we do not want movements such as those of yellow vests to fall prey to nativist autocratic populism.

 

(This is the translation of a piece I published in Italian on the Luiss Open website)