The economic policies of Emmanuel Macron

Five years ago, the emergence and then the election of Emmanuel Macron came as a surprise. It should not have. His success was the result of luck and talent for sure, but also of deeper forces which will continue to shape French politics for years to come.

In 2017 in France as elsewhere, people had become increasingly disillusioned with either the right-wing or the left-wing version of social democracy, the mix of market and state control. They did not think either side had delivered, be it on inequality or on growth. On the right, Nicolas Sarkozy had ended his mandate with his popularity at 36%. On the left François Hollande, who replaced him, ended his mandate with his popularity at 22%.

The French were looking for an alternative. What Mr Macron saw was that the left and the right were in effect “brownfield”’ political sites, with heavy legacies that they could not fully shed. The left was too focused on redistribution, and not focused enough on creating opportunities. The right was more market-friendly but came up short on fighting inequality. A new player unimpeded by such legacies could define his policies more freely, taking ideas from the left and the right, and offer a better programme. He soared to victory.

A formerly disruptive candidate, he looks a bit more mainstream this time around. When looking at his proposals, however, it is striking how similar they are in spirit to those of five years ago. There is some irony here: the 2017 programme was supposed to emerge from a large popular consultation—which indeed took place–but its similarities to Mr Macron’s programme today suggest how much he shaped both to his own liking. Many of the promises laid out five years ago have been enacted. But not all: the reform of the retirement system has been pushed to the next quinquennat (five-year term).

Has Mr Macron adapted his economic plans since he last hit the campaign trail? Of course. The gilets jaunes protests that began in 2018—which started over an increase in the fuel price, but which became symbolic of discontentment with Mr Macron—put geographical inequality on the political map. Accelerating global warming has made ecology much more prominent. Covid-19 has shown that more must be done for health-care workers. Lower interest rates have made debt reduction less of a priority than in the 2017 programme. But the general direction has not changed.

Like so many leaders, he wants to tackle inequality and to boost growth. His economic plan for doing so rests on two main pillars. The first holds that the way to fight inequality is not only through redistribution, but through more equal opportunity. This perspective may be common in Anglo-Saxon economies, but it is more radical in France where inequality has been traditionally tackled through a combination of higher marginal taxes and a generous benefit system.

Mr Macron’s answer has been to invest broadly in education. A very visible measure has been the decrease in class size to 12 students per teacher in priority zones in disadvantaged areas. But perhaps the main achievement of the past five years has been a continuing deep reform of professional training, a focus on life-long learning; a doubling of the number of apprenticeships and better career advice in schools to help pupils to choose the right careers. More is promised in the 2022 programme: greater autonomy for schools to innovate and improved status and pay for teachers who will be incentivised to train more.

What Mr Macron has not yet dared touch (nor have any of the other candidates) is a serious reform of the inheritance tax, even though transmission of wealth is the major factor behind lasting inequality. In France as elsewhere, the tax is widely perceived as a case of double taxation, and is extremely unpopular. It should be completely rethought instead as a transfer system from advantaged children to disadvantaged ones, focused on donations not just at death but throughout life. The funds should be explicitly allocated to help disadvantaged children through additional education or to start a business. But inheritance-tax reform is seen in France as a third-rail issue, and neither Mr Macron nor his competitors have dared to go there.

The other pillar of his economic plan is that a more dynamic economy requires a lower tax burden on firms, more incentives for people to work and more incentives to innovate. This is not a very original line in Britain or America, but a more unusual one in France. During the past five years, the corporate income tax has been decreased from 33% to 25%; the promise for the next five years is the reduction of ''production taxes’’ (those taxes which are unrelated to a firm’s profits). A reform of unemployment insurance has tightened the rules, and the 2022 programme promises a more automatic delivery of the minimum income, coming however with an obligation to get training or work. The new programme also includes an increase in the age of retirement to 65 years, an unpopular announcement which will cost him at the polls but is a marker for more reform to come.

As part of his plan for growth, Mr Macron has worked for the past five years to slow down France’s deindustrialisation. He will continue to do so. In rather French Colbertist fashion, industrial policy is aimed at encouraging research and development in specific sectors, which are seen as the vectors of innovation. Given a mixed past record with such projects in France, it would probably have been better for Mr Macron to rely on a more horizontal model of funding, with less emphasis on picking winners.

Is the programme very popular? After a very brief honeymoon in 2017, Mr Macron’s popularity has declined, although at 42% today, it is a bit higher than its predecessors at the same point. Has Mr Macron found the optimal combination of measures to protect and stimulate? Probably not. Is he more on the right than on the left, an eternal subject of discussion in France? One can argue. But as is likely, if Mr Macron is re-elected, policymakers elsewhere should follow the French experiment closely.

Olivier Blanchard is an economist and a senior fellow at the Peterson Institute for International Economics, a research organisation. He was the chief economist at the International Monetary Fund between 2008 and 2015.

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