The Cure for French Malaise: Cut Worker Pay


Spanish protesters who evidently aren’t reading the Washington Post. (Photo: Reuters)

With an unemployment rate at just over 26 percent and regular street protests against government austerity policies, it’s hard to imagine anyone holding up Spain as a model.

But here’s Howard Schneider, writing in the Washington Post (1/16/13), doing just that–warning France (unemployment rate: 9 percent) that it had better shape up and be more like Spain:

As France’s socialist government raised taxes on the wealthy and threatened to nationalize a steel plant last year, neighboring Spain reveled in the news that exports were rising and several auto plants would be expanded by their owners.

It was a small sign of what could become a defining trend in the euro zone. The most troubled nations, including Spain, have slashed wage costs and overhauled labor and social rules in an effort to become more competitive.

So France is talking about nationalizing a steel plant and raising taxes on millionaires–the wrong way to do it, evidently. Spain is on the right track–becoming more “competitive” by slashing “wage costs”–otherwise known as how much workers get paid.

As Schneider writes:

There is mounting pressure on France to do the same–or risk falling behind in Europe’s struggle for economic revival. The government of new President Francois Hollande has veered between promises of reform and sometimes fiery attacks on corporate interests and the rich, a fact that has worried public officials in Washington and elsewhere about the direction of the euro zone’s second-largest economy.

Spanish quarterly GDP growth (TradingEconomics.com)

See how ‘competitive’ Spain is? (TradingEconomics.com)

The assumption here is that Spain’s harsh “medicine” is working. The only problem for the Post is that they can’t seem to find any evidence to that effect–the anecdote about auto plants expanding is all you get. After just barely beginning to recover from the devastating 2008 economic crisis, Spain’s GDP has been contracting for the past year. But the Post is focused on things in France that have  “worried public officials in Washington and elsewhere”–like “attacks” on the rich.

The article is a crystal clear example of how corporate media cover the economy, when the facts don’t matter as much as what are consider to be the “right” policies–and media have decided, against all available evidence, that austerity is the right answer for what ails Europe. 

As Schneider puts it:

As neighboring countries retool their labor laws, trim social benefits and overhaul Europe’s social contract, they may be forming a new baseline France will have to match.

In other words: “Hey–there’s a race to the bottom. Hurry up or someone else will beat you to it!”

About Peter Hart
