Seen from abroad, the French welfare state is one of the most generous: almost free school and healthcare, inexpensive public transport, numerous safety nets… all financed by compulsory levies that are among the highest in the world. And yet, the French believe that inequalities have increased sharply in recent years and that they do not have any for their “taxes”. How to get out of this paradox? Economist Philippe Aghion, professor at the Collège de France and the London School of Economics, deconstructs the myth of inequalities and proposes a new path for the French model. Mind-blowing interview.
L’Express: In all the polls and opinion polls published in recent times, the French say they are worried about the rise in inequality. Is this diffuse feeling verified by the figures?
Philippe Agion: In fact, there is a huge gap between perception and statistical reality. I know it’s hard to hear, but the French social model is much more redistributive than that of most major developed countries. Contrary to what a majority of French people think, after-tax income inequality has increased very little over the past decade, while it has exploded in the United States, the United Kingdom and also in Germany. The Gini index, a synthetic indicator that measures global inequalities for a given population, is relatively stable.
This perception of growing income inequalities is therefore surprising. I would even say that we have a special and sometimes contradictory relationship with these notions. We will never ask the question of the salary of the footballer and the differences in remuneration between players but, in the company, that of the manager poses a problem. I’ll give you another example: a few years ago, we wanted to create universities of excellence. The idea was to attract high quality international researchers by offering them more attractive salaries. This has led to a real outcry in some places, while the duality that has persisted for years between the Grandes Ecoles and the universities is fully accepted, which is fundamentally unequal. There are inequalities that are accepted and some that are not. Basically, France remains a country that is both very redistributive, which has a passion for equality but also unequal given the persistence of positional rents and privileges (charges of notaries, large body) inherited from the Old Diet.
As if France were suffering from a form of schizophrenia?
Yes… or rather hypocrisy. Another example. Take the Ecole Normale Supérieure. Me, I come from the Normal School of Cachan (now ENS-Saclay), considered less prestigious than that of Ulm. I have seen people on the left asking that we not mix Ulm and Cachan when it came to merging the two schools. As I have seen big bosses on the left say: “We come from the corps des Mines, there is no question of mixing with the corps des Ponts”. There you go, that’s France! Behind this egalitarian passion that marks our social model, the country remains very corporatist.
You say that income inequality is finally stable. Isn’t the problem in the inequalities of heritage which have progressed?
I’m going to be a little provocative, but what’s the problem? By emphasizing inequalities in wealth, we are on the wrong topic. The concern is not so much that there are very rich people and others much less so, as long as the model does not prevent moving from one social class to another. In Sweden, there are families, like the Wallenbergs, who have a very significant heritage, but that does not prevent social mobility. Our social elevator has worked wonderfully for decades. By the system of competitions, and therefore of merit, one could integrate a large school and climb the social ladder. My colleague Roger Guesnerie, a great economist and professor at the College de France, is the son of a farmer from Mayenne! A course like his is unthinkable today, because the public school has deteriorated sharply. This no doubt partly explains the perception by the French of an increase in inequalities, as suggested by the recent work of my colleague Stefanie Stantcheva. Raising taxes, from the very high level they are in France, would not change the situation. The real problem in France is not that of inequalities in heritage but that of the social ladder that must be restored urgently.
You had supported the abolition of the ISF, the wealth tax. Almost six years after its disappearance and its replacement by the IFI, would you say that this is a good reform of our tax model?
Evaluations of the suppression of ISF have been made but they are, by the very admission of researchers who have carried them out, quite incomplete. They only looked at the intensive dimension of these tax cuts, ie what is the effect of this tax reform on the investments of the companies in place. But the study must also bear on an extensive dimension. Have there been more business creations and more returns of tax exiles? In France, we now have more tax returnees than tax exiles and one million companies were created in 2021. In Spain, a life-size experiment shows the beneficial effects of the abolition of wealth tax: in In 2001, the Spanish regions were given autonomy over this tax and the region of Madrid decided to abolish it. Result: lots of people came to settle in the capital, allowing it to earn six times in income tax what it lost in wealth tax. Delete the ISF and go to the flat tax on capital income, it was to put us in tune with the others in Europe.
At the heart of our social model, there is the school of the Republic, a formidable tool for social advancement for decades, but which is sick today. Is the situation recoverable?
Of course, and I am deeply optimistic. France has shown many times in its history its ability to recover from its defeats and to transcend them. Jules Ferry’s school is the consequence of the defeat at Sedan: this defeat revealed major shortcomings among the conscripts: they did not understand each other, speaking different dialects, and that’s when we said to ourselves that ‘Young people had to all speak the same language, share the same values and the same basic knowledge of history and geography. So we built a fairly militarized school, the idea being that education should be the same for everyone. This represented significant progress in terms of social mobility and integration. However, in the 1960s, at the height of the Trente Glorieuses, France favored the arrival of new waves of immigrants that it was unable to integrate. Thus we witnessed the emergence of new school ghettos where parents were unable to help their children in their studies. Under these conditions, the uniformity of the French educational system became unequal because it did not allow the children of immigrants to catch up with the level of other pupils.
Today, social determinism is included in the Pisa tests carried out by the OECD: France is the country where academic performance is most correlated with social origin. As there is a deterioration in the level of public schooling, families are fleeing to the private system. There is enormous hypocrisy on this subject: it is often the same people who cry out loud and clear for a return to the ISF and run to enroll their children in private school. We took too long to reform our school, but everything is still recoverable. For example, Finland undertook an educational reform in 1970 which has led to a school that is both very inclusive and very efficient: the school curricula as well as the standards for training and remuneration of teachers are defined at the national level, teachers are well paid and well trained. But a great deal of autonomy is granted to the heads of establishments in the implementation of the educational contract, in particular to organize the individual follow-up of pupils in difficulty.
The French model also means inexpensive public services (hospital, transport, etc.) compared to what our European neighbors pay, resulting in levels of compulsory levies that are among the highest of the major countries. And yet, the citizens have the impression of not having any for their “tax”. How to resolve this paradox?
Not by unraveling everything but by putting the efficiency of public spending at the heart of everything. First, we do not sufficiently evaluate ex-post the policies that we put in place. Then, we do not look at what is done better elsewhere. We don’t have this culture of benchmarking and evaluation. To preserve the French social model, it must be adapted by developing a culture of results. This first raises the question of evaluation bodies. In the United States, the Congressional Budget Office (CBO) does this work. In France, the Court of Auditors does not have the means of the CBO. The evaluation of public policies is becoming essential now that we are moving towards a reinterpretation of the Maastricht criteria, where what counts is not just the total amount of public expenditure but also its composition: it is necessary to reduce the recurring deficits of the State to invest more and better in items such as education, health, innovation and reindustrialization in order to increase our growth potential and accelerate our energy transition.
Social security, pensions, unemployment insurance, social minima… France has a welfare state that many countries envy, but that too needs to be repaired. How ?
Take the example of pensions. To reduce the deficit of our pension system and at the same time guarantee the income of retirees, there is no other way than to increase the working life. A reform that would simply raise the minimum age to 65 would be unfair and inefficient. Unfair because the most qualified individuals (engineers, researchers, civil servants), whose life expectancy is higher than the average, are already leaving working life after the age of 65, and therefore would not be affected by such a reform. On the other hand, this would oblige less qualified individuals, with lower life expectancy, to work longer. In other words, simply raising the legal age to 65 would imply a net transfer of income from less advantaged, less qualified and lower life expectancy categories to wealthier, more qualified and higher life expectancy categories. . It’s unfair, but it’s also inefficient: in fact, we would only affect the least qualified individuals whose social security contributions are lower than those of the more qualified individuals who are not or only slightly affected by this reform. This is why several of us are proposing an increase in the contribution period to 43 or 44 years for all employees, combined with an increase in the legal minimum age to 63 or 64 years to prevent the increase in the duration contribution does not lead to a reduction in pensions for workers who have an incomplete career. The movement of yellow vests has shown that the reform must be fair to be accepted. Now it happens that here what is right is also what is effective.