The evolution of the “French social model” and the Theme Park Hypothesis

It is generally considered that to maintain a respectable level of development, a country must have a sufficiently high level of human capital. In the era of globalization, this implies remaining attractive enough to skilled workers. In France, those social categories have traditionally borne the burden of financing the welfare state through various forms of taxation, with (up to recently) little noticeable effects on emigration. This is because the “French Social Model” was a social compact in which all stakeholders contributed, but also got something in exchange. While skilled workers paid more in social security contributions, their pensions and unemployment benefits were proportional to their contributions. Furthermore they could access some cheap publicly provided goods (especially higher education but also subsidized “culture”) so that overall, even though they were net contributors to the system, there remained some proportionality between what they gave and what they got in exchange.

This social contract is gradually being demolished under the pressure of recurrent fiscal crises and the refusal of successive governments to curtail the welfare state (in facts new redistributive programs are constantly piling up). Attempts to fight unemployment through a reduction in employers’ social security contributions have been matched by raises in the social security contributions of workers earning more than 1.5 times the minimum wage, which has depressed the post-tax wages of college graduates. Child tax allowances for upper-middle class families are being severely reduced, while taxes on capital income, once added together, are becoming nearly confiscatory. There is talk of establishing a ceiling on unemployment benefits, as some complain that high wage earners get “too generous” compensation. More progressivity in pensions is also sneaking in, as less educated workers can retire earlier and pension rights have been enhanced for workers with irregular work history.

Elite educational institutions are increasingly raising tuition fees, in a way generally indexed on  income, without of course any compensating reductions in marginal tax rates. Public spending on education is increasingly concentrated on the bottom of the distribution of income, often with an explicit target on ethnic neighborhoods or rural areas. One can see lavish high schools in those areas with small classes and I.M.Pei style architecture, while bourgeois pupils are packed in run-down central city schools with classes of 35-40 students. Congestion in access to hospitals and increased bureaucratic hassle  make it less interesting for the upper-middle class to use the public health system.

At the same time, the world is becoming more global. Big cities look increasingly alike, are populated by diverse communities (the French population in London is estimated at 200,000-400,000 persons), and tend to offer a standardized basket of goods and services (Starbucks, the gym, Body Shop…). Communication takes place in English. As cultural idiosyncrasies vanish, locational choices will increasingly be motivated by pure utilitarian considerations. Indeed having a grown-up child working in Hong Kong, Singapore or Shanghai is becoming a social marker for the knowledge elite. As the upper-middle class gets excluded from the French social model, it will simply pack and go away. This will negatively impact productivity and living standards, and, since skilled labor will become a scarce resource, the French economy will have to reinvent its specialization structure. With less human capital, how can one prevent living standards to fall down to the level of middle income countries?

A possible survival strategy is becoming a huge theme park — i.e. replacing the skilled labor force, as a factor of production and source of tax revenues, by the unique resource of landscape and monuments. It is unlikely that the Eiffel tower or Versailles could be outsourced to a low tax country. The tourists who come to see them are somewhat captive. Yet they can arbitrage between the Eiffel tower, the Sixtine chapel or the Taj Mahal, so the option does not preclude maintaining competitiveness. To successfully reorganize the country around this theme park activity, changes will have to be made. Issues will have to be solved such as street cleanliness, the proliferation of shantytowns (e.g. next to the “Stade de France”), vandalism, shopping hours, taxi availability, waiting too long in restaurants, english language proficiency of workers, the devastation of the landscape by urban sprawl and wind turbines, and so forth.

It may be argued that making a living as a cultural theme park is a sad fate for the country of Concorde and TGV. Yet it is perfectly congruent with contemporary French mentalities, that are characterized by a paranoid fear of any kind of change, whether economic or technological. As an example, we have recently witnessed an offensive against retail outlets that open on Sundays or after 9 pm, along with a confirmation of a law that prohibits the exploitation of shale gas. The theme park hypothesis is the perfect solution. It allows us to keep up with world economic growth despite the exodus of human capital, by simply raising the prices charged for hotels and sightseeing (as the rest of the world gets richer, people are willing to pay more to enjoy France). At the same time, once the necessary adjustments have been made, society can be freezed into a self-replicating, self-congratulatory environmental and cultural “heaven”, while hopefully enough resources could be generated to leave the “French social model” untouched.