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A Peek Behind the Figures of European Standards of Living

par Mathieu Bédard
mercredi 1er juillet 2009.

Article published exclusively on the Institut économique Molinari’s website.


It is quite widely believed in America, and The Economist has recently been supportive of this view, that Europe benefited from some government interventions that have both successfully relieved Europeans of unsightly market outcomes and allowed them to enjoy a higher standard of living. While some numbers and official figures from NGOs do perpetuate this illusion, careful scrutiny does not seem to confirm that France, a country often cited as an example, has figured a way to repeal natural economic laws yet. The unintended consequences of government intervention in France are more insidious than what figures can tell, and the current crisis might show it more clearly in the near future.

Truth is, even in France people are led to believe that they’re living a social utopia, and tales of a post-apocalyptic sci-fi America are used to defend its 3211 pages thick, 3500+ articles long labor code, a work week capped at 35 hours and a minimum wage so high that 13% of French worker were on it in 2007. Even before the current crisis, French unemployment was near 8%, figures that would make it seem like France is in a perpetual recession according to US unemployment rate levels.

The large scope of the French government achievements could make it seem that a higher rate of unemployment and slower growth is a fair offset. Some might even argue that some ghostly "society" has chosen for the French people that they should work less, or earn less money, as a trade-off for spending more time with their family. However, there is a reality beyond those numbers that macro-figures alone can’t express. And this reality isn’t pretty.

Reality is that, despite making tenured contracts mandatory for long-term employment, 60% of the French think they, or someone from their family, could be homeless in the near future, suggesting this apparent stability is nothing but an illusion. What isn’t easily expressed by macro figures is that a high minimum wage leaves those with a lower productivity unemployed. To succeed, one needs then to be well connected or to cheat the system. So it shouldn’t be a surprise that 50% of the French answering the 2002 International Social Survey Program answered "to get to the top, you have to be corrupt," against 20% of Americans. Concentrating on some general aggregates such as unemployment and growth enshrouds those facts.

While some international observers do agree that the French labor regulations are not per se an increase in standards of living, but rather hindering standards of living increases, few will question the French healthcare system. Considered an El Dorado by some, France’s healthcare system is actually an unsustainable mess on the verge of collapse.

The first effects of nationalizing healthcare insurance are regularly commented by American analysts. What happens a few years down the road, when this political "generosity" has expanded the costs of healthcare beyond what can be supported by governmental budgets, is less covered. In the long run, there is no increase in standards of living to be had with nationalized healthcare.

The French system, running on a multi-billion yearly deficit (projected to be €9.4 billion this year), has seen its share of devastating cost containment measures. After various new taxes, some deductibles have been expanding quickly. Not only are several drugs delisted from coverage, but those who would have the insolence of taking an appointment directly with a specialist, without prior generalist physician’s bureaucratic approval, will face largely reduced reimbursement payments. The next step in this cost containment mess is to control and command the settling of private physician offices. Independent physicians will soon have to jump through the bureaucratic hoop and set shop where officials deem their presence necessary.

It might be true that the French government’s intervention in capping the work week has effectively increased the time the French devote to leisure, or that nationalized medicine has indeed allowed universal health insurance coverage, but that’s only one side of the coin. If you take into account the grim unintended consequences of forceful intervention of the government, one can see that these interventions are not increasing, but stifling standards of living.

*Mathieu Bédard is a Researcher at the Institut économique Molinari.

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