The Welfare State in France

October 5, 1953

PARIS—Every economic discussion in France begins and ends with the political problem. If France could once get a stable government, great economic reforms would be possible and therefore it would be worth discussing them seriously. But as long as the political problem remains unsolved, economic discussion remains largely academic and controversialists deal in sweeping generalities rather than in any scrupulous study of the facts.

Take for example the case of wages. France is seething with labor discontent. One is told again and again that the French workers are shockingly underpaid but meaningful statistical comparisons are seldom even attempted. Here are a few for what they are worth: Wholesale prices in July of this year were about 25 times as high as in 1938. The cost of living in Paris was about 23 times as high as in 1938. Average hourly wages in 1952, however, were only about 15 times as high as in 1938.

This comparison, on its face, seems appalling. But the wage figures do not include the heavy social-security benefits. From the standpoint of the employer, these social payments are formidable. They total, on the average, 43 percent of his payroll. This total is made up of such individual items as family allowances, social insurance, workman’s compensation, and a wage tax. But while all this adds tremendously to the employer’s labor cost, it does not correspondingly help the individual worker, whose immediate income depends more on his family status than on his skill and effort. In April of this year, for example, the average wage of unmarried workers was 5,780 francs a week, whereas the average wage of a worker with a dependent wife and two children was 8,410 francs a week.

France has been trying to do, in short, what Italy also has been trying to do. It has been trying to transform the wage mechanism into a huge social-security system. But when a man with a couple of children gets 45 percent more than a bachelor, mainly because of a family-allowance system, the incentive to acquiring children becomes greater than the incentive to acquiring a skill. To put it another way, the incentive to reproduction becomes greater than the incentive to production. Such a system does not help the whole body of the workers; it hurts them instead. It is based on the false assumption that only “distribution” is of any real importance, and that production is somehow fixed and automatic. It leads to many bitter quarrels over exactly how an inadequate cake ought to be sliced and to neglect of the real problem of increasing the size of the cake.

It is the consensus of informed opinion that even when social benefits are included, an unmarried worker is worse off than he was before the war, although a man with three children is better off today. Such a system underpays and discourages the young at the outset of their career, precisely when their income is likely to be lowest anyway.

It should be obvious from the statistics that the workers in France are paying for their own social security. This is merely what economic theory would have led one to expect. But the fact is widely interpreted here as a result of the cupidity of the French employer. The explanation is at best inadequate. It ignores the fact, among a number of others, that French employers, as a result of result of many monopolistic protections, do not have to compete very strenuously with each other. If these employer protections were removed, the result might be dramatically different.

I am sorry that space does not permit a discussion of the results of rent control in France, or of the quantitative restrictions on credit. But one summary statement is possible: The cure for the evils brought about by present French welfare measures is not still more radical welfare measures; it is the return to a free market, the revival of competition, the restoration—in a word—of genuine free enterprise. But the crucial question is whether this solution will be applied before it is too late.