Tag Archives: france

Is France being let down?

Is France going into a deflationary spiral? Some economists — a minority, admittedly, but a growing one — fear it might be. If so, the consequences for France, for the eurozone and ultimately for the UK, would be serious indeed.

In 2013, inflation in France averaged just 0.9%. For January 2014, the estimate is lower still, just 0.7%. As the respected French columnist Christine Kerdellant said recently, ‘If this isn’t deflation, then it’s certainly disinflation.’

Things are heading the same way across Europe. In January, UK inflation dipped below the Bank of England’s 2% target for the first time in years, despite the supposedly “strong” economic recovery, which would normally be expected to add to inflationary pressure.

Few people, I think, realise how serious deflation is. Falling prices sound nice, but they’re never good news for long. Just ask Japan, which took two decades to recover from the deflation of the early 1990s. Even a small bit of deflation can be catastrophic, especially in a modern economy where reaction times are faster, panic spreads quicker, sacking people is as easy as pie, and everyone’s up to their eyeballs in debt.

Once prices start to fall, people stop buying. Why shell out for that new computer or holiday when it will be cheaper next week or next month? People stop investing. Why buy that expensive piece of kit when it might well be cheaper next year, and when the price you get for whatever you’re making or doing is falling. People stop borrowing. Why take out a loan, when the real value of the debt will get bigger not smaller?

Inflation erodes the value of debt, helping over time to make it more manageable. With deflation, this process goes into reverse, inflating the burden of mortgages and loans.

Companies, seeing the price of their products fall, may try to recoup their losses by cutting wages or laying off staff, triggering another vicious downward swing in the spiral. Confidence drains away, uncertainty takes grip. Pretty soon, everything starts to fold.

If deflation takes hold in France — or any other eurozone economy — the only way to avoid this vortex will be for the European Central Bank to effectively start printing euros (and perhaps, as Ben Bernanke suggested for the US, dropping them over Paris and Marseille from a helicopter). France desperately needs looser monetary policy to counteract the tightening of fiscal policy imposed on François Hollande by the international markets and Eurozone rules.

But with a single currency and open borders, there’s no way to flood France with euros without also flooding Germany. It’s one big bath and there’s only one tap. Germany wants the tap turned off. And with the ECB, what Germany wants, Germany usually gets.

Deflation in an economy as big as France’s could put at least as much pressure on the euro as Grexit or any of the other crises which have threatened to blow the single currency apart in the last five years.

Germany’s antipathy to even mild inflation is often attributed to the hyperinflation of the 1920s. But it’s worth remembering that it was Heinrich Brüning’s disastrous policy of deflation in the early 1930s that led directly to Hitler’s rise to power.

Baudelaire and our destructive obsession with change

‘The shape of a city changes too fast, alas!, for the heart of mortal man,’ wrote Charles Baudelaire in one of his most famous poems, The Swan. Baudelaire wrote it around 1859, when many of the narrow old streets of Paris were being bulldozed by Napoleon III’s henchman Baron Haussmann to make way for the grand boulevards we see today (though not the boulevard that bears Haussmann’s name, which dates from the reign of Louis XIV).

Charles Baudelaire: destruction isn’t always creative.

Like Baudelaire, many artists and writers have an ambiguous attitude to change: often voiciferous in demanding socal and political reform, but just as often lamenting the loss of traditional ways of life and old, familiar places, especially those remembered from childhood.

Baudelaire had stood on the barricades armed with a stolen pistol (it was just a pose really, he didn’t do much) during the revolution of 1848 which eventually brought Napoleon III to power. He hated the bourgeois values of his own upbringing, and despised the French establishment – both personified in the form of his loathed stepfather General Aupick. But in The Swan, he laments that ‘the old Paris is no more’ and compares the new city to ‘an empty tomb’, and himself to a captive swan, pining for it’s ‘native lake’ and unable to drink from a dry gutter.

As Baudelaire’s poem shows, ceaseless change is nothing new, especially in the city where the engine of capitalism fires on all cylinders. Full-blooded capitalism really came to France with Napoleon III – a spivvy property developer masquerading as a politician – but the French never took to it as enthusiastically at the Brits. It’s one of the reasons why when you go back to Paris, even after several years, your favourite bar or restaurant is often still there, sometimes even with the same staff. In London, nothing on the high street endures for more than five minutes before it is replaced, ‘under new management’ or somehow made-over into something different. This process seems to have acceleated since our return to turbo capitalism in the 1980s.

Many people on the left are embarrassed to oppose change – of almost any kind – for fear of being branded ‘conservative’. After all, isn’t progress supposed to be about change? And isn’t innovation the motor of cultural and economic life? In Britain, and increasingly in France too, no politician – left or right – can afford to be against change. In the UK, every area of public life has been constantly ‘in reform’ for at least 20 years. Perhaps we’ve lost sight of the fact that not all change is good, and that innovation and change are not the same thing.

In the 1940s, Joseph Schumpeter coined the term ‘creative destruction’ to describe the way free-market capitalism requires ceaseless change – that goods, services, companies and even people are disposable and transitory – in order to generate the constant demand for new production on which the system depends. Left unfettered, this results in a world where consumers must never be satisfied, care and craftsmanship are for the birds, and work itself has no intrinsic value, since nothing endures and nothing should endure.

The philosopher Bernard Stiegler, who is director of innovation (note the title) at the Pompidou Centre in Paris, has written about how this ‘structural obsolescence’ in the things we buy and the things we produce, in the organisations we work for and the environment around us – makes people feel disposable themselves, to the point where they ‘lose the sense of existing’. It’s a more extreme and generalised version of Marx’s ‘alienation’, where we are not only estranged from the means of production but from the things that we own (workers in Marx’s day didn’t own much), the places we live in and, ultimately, from each other. We become, like Baudelaire, strangers in our own city – ‘exiles’ like Victor Hugo, to whom Baudelaire’s poem was dedicated.

At the root of this, is the little value we now place on work itself. In 1995, in his final speech to the UN, François Mitterrand warned against a world in which speculation ‘ruins in a few hours the work of millions of men and women’. This is – perhaps already was – the world we live in.

In a recent series of articles in the Guardian calling for ‘a new capitalism’, the British economic commentator Will Hutton was making similar points when he argued that ‘uncommitted tourist shareholders’ and the linking of director’s pay to short-term share price performance ‘have allowed a madhouse to develop’, where ownership and branding changes constantly but there is little real innovation. Shareholders have little engagement with the companies they own and the company itself has become ‘nothing more than a network of short-term contracts’.

In this environment, where no one has any patience or takes any long-term responsibility, there is little investment and precious little innovation. It’s hardly surprising that no one takes any pride or care in the products they make or the services they offer. After all, everything that’s here today will be gone tomorrow.

‘No game changing improvement in British investment and innovation is possible without a return to engagement, stewardship and committment,’ writes Hutton. ‘The company has become a dysfuctional organisational construct that needs root-and-branch reform.’

The effects of all this are not just economic, but social, cultural and even psychological. Constant, meaningless change leaves us feeling rootless, emotionally destitute, disorientated, even nauseous. Only people with substantial assets can afford to buy some permanence and stability in their lives. According to Stiegler, this has lead to the ‘general depressive state’ afflicting working people in most Western societies.

‘Paris changes! But nothing in my melancholy has stirred!’ wrote Baudelaire. Wandering among the ‘new palaces’ springing up on the site of the old neighbourhoods of Paris, with his ‘dear memories heavier than rocks’, he felt even then that nothing of real value was being created.