His words are rare and always measured. It remains no less severe when necessary. For L’Express, the Nobel Prize winner in economics, Jean Tirole, came out of his reserve to point out France’s ills: inability to thoroughly reform the State, cumbersome administrative management, inefficient public spending… But the first Between them remains the long descent into hell of our educational system, a crucible of increasingly strong and unbearable social inequalities. An interview as a guide for political and economic decision-makers concerned about the future of France. Here is the second part of this great interview.
First part of our interview >> Jean Tirole: “Without excellent education, France runs the risk of being downgraded”
L’Express: The government promises the end of “whatever it takes” and this only results in the next finance bill (PLF) in a handful of billions of euros in reductions in public spending. Lack of political courage or problem of method: has budgetary rigor become a mission impossible in France?
Jean Tirole: Our public debt has increased from 20% of GDP in 1980 to 115% today. The debt repayment burden could even exceed the National Education budget, the largest budget item, in the coming years.
What can the government do? The lack of a majority and the confrontational nature of the political debate, with little search for compromise, certainly poses a problem as the pension reform has demonstrated. But ultimately we are collectively guilty, and not just the populist parties who denounce “austerity” and propose budgets that could possibly bring the IMF to Paris (if they implement their electoral promises, which Meloni has so far not could do in Italy), but are not (yet) in charge. High debt implies a lack of resilience and a loss of sovereignty.
The fact is that public spending has increased from 46% to 58% of GDP, that no budget has been balanced for fifty years, and that very few people are upset about it; moreover, the various initiatives such as the organic law relating to finance laws in 2001, then, following the report of the Pébereau commission, the reform plans of the last three presidents have had little effect. We have the economic policies we deserve.
A profound reform of the State should be carried out, starting with a simplification of the administrative maquis, eliminating the millefeuilles of local authorities and the granting of social aid and preferential rates, duplication in the central administration, the elimination of the clause of general competence of local authorities, etc. We must then define missions rather than how to fulfill these missions. All this while avoiding at all costs a simplistic planer policy, reducing expenses in a uniform manner.
Given our level of public debt and with the rise in interest rates, the debt burden will increase dangerously in the years to come. Can a new sovereign debt crisis sweep Europe and France in particular?
The economist cannot answer this question precisely, linked to market confidence and future macroeconomic shocks – the last fifteen years have seen a financial crisis, European crisis, Covid, Ukraine; What does the future hold for us? There is no magic number; a debt of 60% may be unsustainable for one country, another can easily support 150%. The notion of “excessive debt” is specific to each country. On the other hand, there is relative consensus on the factors that can make debt dangerous. It all depends on the growth rate (a country which grows at a rate lower than the rate of its borrowings has more difficulty repaying its debts), the percentage of debt held domestically (a sovereign default has a high internal cost if this percentage is important, which explains why the markets have so far not been much worried about Japan’s massive, but internal, debt), the country’s capacity to increase the tax burden (this capacity is much higher in the States -United as in France for example), the maturity and legal regime of the debt, the dominant political lobbies, the possibility of bailout by other countries…
The long period of very low interest rates since 2008 has brought a lot of breathing space to our economy. But it removed responsibility from public authorities, who had access to cheap money. There is no magic money unfortunately.
We must prioritize spending for the future and preserve our social protection system while reforming it to restore the right incentives. On the other hand, we must manage to reduce operating expenses, which have increased considerably, for example with the explosion in the number of civil servants and our lack of will to reform the territorial administrative system. As the Governor of the Bank of France, François Villeroy de Galhau, points out, where the problem lies is the combination of the highest public spending in the world for a public service of average or even mediocre quality (as for education). We are not at the “efficiency frontier”. The French often confuse public service with expenditure allocated to public service, and it is not at all the same thing.
Let us therefore take the example of countries with a social democratic tradition, such as Sweden, Canada, or Germany, which in the past have faced similar problems in difficult economic circumstances and have straightened out their public finances without compromising service. audience. But this requires that the observation be shared by the electorate. We will also have to rely on the accountability and autonomy of public agents, real managers invested with a clear public service mission and accompanied by an obligation to achieve results.
You underline the drift in debt and public spending as well as the inability of successive governments to initiate a profound reform of the State. But what about the level of compulsory deductions? Isn’t that also a blocking factor?
In reality, taxation is largely a societal choice. We can imagine different models of society: one with a lot of taxes and a remarkable public service, and the other where taxes are low but services are poorly developed. The economist that I am does not have to decide between these two models. It is a democratic choice. What is wrong in the French case is the combination of a very high level of taxes and a quality of public service which leaves much to be desired. But do we still have a choice, in a world very open to foreigners? Capital, people, and even businesses are very mobile. If we want to keep our researchers, our most innovative start-ups, and our businesses, we inevitably have to make compromises… even on the subject of taxation. Unless we succeed in limiting tax competition between countries. This is why the ongoing OECD-led negotiations on a global minimum corporate tax are so important.
In the commission on France’s economic challenges that you chaired with Olivier Blanchard in 2021, you supported the creation of a carbon tax to finance part of the ecological transition. Other economists, like Jean Pisani-Ferry, recommend different solutions and in particular a tax on large fortunes. What do you think ?
The carbon tax has the advantage of generating significant and immediate revenue. But what should they be used for? For some, they must be used to offset the negative effects on the income of the poorest households. For others, they must make it possible to finance cutting-edge research and disruptive innovations in green technologies. What is certain is that carbon taxation will not be enough to finance these two transition-related expenses. Moreover, the longer we wait, the more insufficient it appears. I believe that the technological solution will be crucial. And I have hope in science, provided that we put the resources into it and use it effectively. Look what happened with the Covid vaccine!
In your opinion, should we one day return to the pensions issue and dare to switch towards a universal system? Is this still possible?
I don’t think this is relevant in the current context. But the subject will come back to the table. I hope that the French will not focus (for or against) on yet another parametric reform, designed to save the pension system for a few years, and will be keen to fight for a real reform establishing a single system and therefore points, automatic adjustments and other measures recommended in the report on future challenges (5). The system must become both fairer and more sustainable.
Where are the main risks in the global economy today?
The risks are numerous. Climate disruption, the distribution of wealth and societal risks in the age of artificial intelligence are among them. But ultimately, I believe that science and reason will allow us to face these questions. The arrival in less than a year of highly effective vaccines against Covid-19 is a tremendous message of hope: with political will, we can overcome obstacles. The real danger is not in environmental or technological risks, however existential they may be. It is found within ourselves, in political polarization, growing illiberalism, inward-looking, the end of multilateralism, and geopolitical tensions.
Precisely, in terms of disruptive innovation, you mention artificial intelligence. How does this technological revolution differ from the great technological breakthroughs of the past, such as the steam engine or electricity? Is a Schumpeterian process possible?
For two centuries, our societies have been affected by major technological progress that creates and destroys jobs. And yet, we still have jobs… So that’s not the point. The big difference is the phenomenal speed at which artificial intelligence is developing and will revolutionize our daily lives and our way of working. We are going to experience a major social upheaval because many employees will either lose their jobs or have to reorient themselves very quickly.
However, the state of our public finances does not allow support that meets the challenges because we will not have sufficient room for maneuver to facilitate transitions, cover social expenses and train people. A complete review of our training system, which is currently very weak, is a priority.
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