As the suburbs burn, airy-fairy Chirac should think back to the Iron Lady

By Anatole Kaletsky (THE GUARDIAN, 10/11/05):

AMID ALL the philosophising about secularism and multiculturalism in French society, some simpler and more relevant aspects of the French riots have been overlooked. Other countries have seen such disturbances — and worse — in the past few decades and much can be learnt from their responses. These responses fall into two groups.

The first group can be described as social engineering: affirmativeaction and desegregation programmes of various kinds. Racial quotas, positive discrimination and programmes such as school bussing may have had damaging unintended consequences in America (and to a lesser extent in Britain), but they did help to prevent a repetition of the persistent rioting that swept through Los Angeles, Chicago, Harlem and Detroit every summer in the late 1960s. One direct consequence of affirmative action was large-scale recruitment of racial minorities into the government and especially the police, helping to reduce, though not completely eliminate, the racism in US law enforcement. The failure of the French police and the French civil service to recruit sufficient numbers of Muslims is perhaps the clearest indication that Nicolas Sarkozy has been right in suggesting that affirmative action of some kind will be needed to overcome the institutionalised racism, whether deliberate or unconscious, of the French State.

The second set of responses may sound insensitive and cynical, but is actually more effective in helping the truly underprivileged and oppressed. This is simply to ignore events such as these riots, at least as a social policy challenge. To “tough it out” was essentially what Margaret Thatcher did in 1981 after race riots in Toxteth, a suburb of Liverpool, were followed by copycat disturbances all over the country — and an outbreak national of soul-searching very similar to the one in France today. But the Government did next to nothing and after two weeks or so the violence simply died out — and was never repeated.

Why was Mrs Thatcher able to ignore the social unrest of the early 1980s? The riots of 1981 marked the low point of the worst economic depression that Britain had experienced since the 1930s. From the summer of 1981 onwards, the British economy began to bounce back. Year-on-year GDP growth recovered from a nightmarish minus 4 per cent in early 1981 to 2.5 per cent a year later and almost 5 per cent by late 1983.

While unemployment went on rising until the mid-1980s, the worst of the shake-out was over and for many people, including the poor and marginalised racial minorities, the rapid growth of the economy, which averaged an unprecedented 3.6 per cent in the seven years following the Toxteth riots, provided new economic opportunities and therefore hope.

In other words, strong economic growth offers the most reliable solution to social alienation — and, contrary to the presumptions of most sociologists and politicians, economic growth helps the poor and the marginalised much more than the rich. The people who are marginalised are the first to lose their jobs in times of economic hardship. For the permanently jobless who depend entirely on welfare, economic recession is often even worse, since shortfalls in tax revenues often trigger benefit cuts. The converse, however, is that the poor and marginalised are quickest to feel the benefit of even a small improvement. While middle-class professionals may not even detect the difference between a 1 per cent and a 2 per cent growth rate, for an unskilled teenager or an immigrant building labourer, that one percentage point can spell the difference between opportunity and utter despair.

If President Chirac and his ministers had any sense, therefore, they would stop philosophising about the ideals of the French Revolution and would focus instead on the practical policies required to accelerate the economy’s growth rate. In doing this, they could hardly do better than recall the policies that pulled Britain out of the terrible recession of 1979-81.

Between late 1980 and 1984, interest rates in Britain were slashed from 17 per cent to 8.5 per cent. As a result of these dramatic rate cuts, the value of sterling halved from $2.40 in early 1981 to just $1.05, giving what was left of Britain’s manufacturing industry an enormous boost. The monetary stimulus from these rare cuts and devaluation was what triggered the recovery of the British economy — far more than Mrs Thatcher’s labour and trade union reforms. Significantly, only one of the great supply-side reforms for which Mrs Thatcher is now remembered was implemented before the economic recovery of 1982-84. This was the sale of council houses and financial deregulation that helped to produce the house price boom of 1982-85.

The labour reforms and privatisations that came later were absolutely necessary to consolidate the recovery of the early 1980s and to prevent it developing into an inflationary spiral; but it was the monetary easing, devaluation and housing boom that got the economy moving. And it was, in turn, the post-1981 economic recovery that created the conditions for Mrs Thatcher to push through her labour market reforms, as well as to defuse the racial tensions of the early 1980s.

The lesson for France should be clear. The French Government must use every tool it can lay its hands on to produce an economic recovery. The strongest and most reliable of these tools are interest rate reduction and currency devaluation. A useful adjunct to lower interest rates would be mortgage deregulation and privatisation of social housing. Selling — or giving away — social housing is also invaluable politically because it gives disenfranchised minorities a direct ownership stake in capitalist society.

Of course, monetary and exchange rate policy today are not in the hands of the French Government but those of the European Central Bank. But luckily for France, the President of the ECB happens to be a Frenchman. In the end he will surely recognise his responsibility. The question is how many more French cities will have to burn before Jean-Claude Trichet recalls his duty to la patrie.

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