© The Financial Times Ltd 2014 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
August 29, 2011 7:55 pm
Like all of us, I have watched in recent days as economists and oracles wail a chorus of lament on every screen, in every newspaper. First came the downgrading of the US credit rating, in effect the downgrading of a nation. Then came the stock market crisis. The same thing would soon happen to France, pundits of all kinds claimed. Our era of prosperity was over. Europe was in decline. We were doomed.
Such talk was intolerable. I have run a company for 23 years; I am accustomed to tough competition and downturns. But I cannot simply accept decline. Yes, our countries have been living beyond our means. The social model of western European societies is not sustainable without strong growth. We are trapped by our handouts and welfare support, and the price is unfeasible budget deficits and mounting debt. But France and Europe also have enormous assets. I believe strongly that we can maintain our rank, economically and in every other way.
So what could I do? I took up a pen and started writing. Just as no French government in the past 35 years has been able to resist running a deficit, with the exception of finance minister Thierry Breton (2005-07), no government has truly reformed our country’s abundant and complex social systems and bureaucracies. They may have made sincere attempts but with the exception of President Nicolas Sarkozy’s reform of pensions and the non-replacement of 50 per cent of civil-servants going into retirement, these efforts have not yielded results.
There is fundamental work to be done that can cut our public deficits and, above all, our government expenditure. Cuts in public spending will be painful and, unfortunately, of necessity much will be borne by the programmes’ target populations: the middle class and less favoured people. It seems to me only fair that the most privileged members of our society should take up a heavier share of this national burden. So I called for an additional tax on the rich. I am not a masochist; I do not love taxes. But right now this is important and just.
As I started to write on this issue, across the Atlantic the Sage of Omaha, Warren Buffett, was writing his own article, on more or less exactly the same point. We had not spoken to each other on the subject; we did not read each others’ drafts. Perhaps even more surprisingly, a number of US business leaders joined his campaign; and in France, a number joined my call. So perhaps the tide has changed, as the wailing pundits claimed; but perhaps the new cycle will not be one of decline but of clear-thinking and solidarity.
Clearly any added taxation of the wealthy should be carefully dosed so as not to discourage entrepreneurial flair and the fair reward of success. Also it should be clear that increasing taxes will not resolve public deficits. Such a tactic would be futile – rather like the daughters of Danaus trying to fill a sieve – and could only encourage greater self-indulgence. A resolution of public finances, in France and across Europe, can only be achieved if we revise our social model and institute vigorous reforms, possibly including privatisations, with the revenue dedicated to debt-reduction. It is because of the inevitable ensuing pain that the privileged should also make an exceptional contribution.
Our countries must become more competitive. In the 1990s, French industry had a 10 per cent competitive advantage over Germany because the cost of labour was lower. Today France’s labour costs exceed Germany’s by 10 per cent. They have been swollen by the 35-hour limit on the work week and the burden of social welfare contributions for programmes such as family subsidies – which would be more fairly funded by the entire population, via sales taxes such as value added tax. There is a long list of reforms needed.
Is this a programme of that dreaded word, rigour? I prefer to talk of vigour. Probity in the running of public funds will set an impressive example for the broader population. If the wealthy can endure higher taxes without complaint, the less privileged may feel able to bear the pain that sharp-edged reforms will entail. I never thought I would find myself saying this, but it is time to increase my share of taxes.
The writer is chairman and chief executive of PublicisGroupe and president of the Association Française des Entreprises Privées
Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.