Branko Milanovic thinks that the recent French event raises two important issues. The first issue is “new”. Proponents of degrowth and those arguing in favour of doing something dramatic regarding climate change are coy and shy when it comes to pointing out who is going to bear the costs. If they were serious, they should go out and tell Western audiences that their real incomes should be cut in half and also explain to them how that should be accomplished. Degrowers obviously know that such a plan is political suicide, so they prefer to keep things vague and to cover up the issues under a “false communitarian” discourse. The French revolt, Milanovic says, brings this issue into the open.
The second issue is “old”. It is the issue of the cleavage between the political elites and a significant part of the population. Macron rose on an essentially anti-mainstream platform, but his policies have from the beginning been pro-rich – and he deepened the cleavage by berating people for their lack of success or failure to find jobs. It is under such conditions that the recent events took place but, Milanovic argues, the danger is that their further radicalisation undermines their original objectives.
Olivier Blanchard writes that, to trace the deep roots of their protests, one has to go back to the end of communism and the failure of central planning as an alternative to the market economy. So long as growth was strong, the problem was manageable. Then growth slowed down, and inequality and insecurity became more salient. Left and right tried reforms, but failed. Then came Macron, who won by occupying the middle – but also tore the traditional centre-left and -right parties to pieces, leaving only the extreme right and the extreme left as alternatives.
As the economy has not improved much yet, people unhappy with the lack of results do not have the traditional parties to turn to. Some have joined the extreme left or the extreme right, more have become sceptical of any representation. Thus the gilets jaunes were born. But unorganised direct democracy cannot work, Blanchard argues, in a country of 65 million people. The government must convince people that it is hearing them, while making clear that it cannot deliver the impossible.
Jean Pisani-Ferry writes that the analyses of the yellow-vest episode have mostly focused on the distribution of taxes among social groups and places of residence. This is a pertinent interpretation, but longer-term trends should be taken into account. Between 2007 and 2017, GDP has grown by 8% and so has households’ net disposable income. However, once correcting for the composition of households, the increase has been 1% only. The benefits of an already anaemic growth have dissipated before reaching individuals.
To keep France’s climate commitments, the price of carbon will increase from €7 per ton in 2010 to €45 in 2018 and €100 in 2030. This translates to roughly €500 per person each year: the carbon tax is not a second-order issue, but one that is complicated by a context of demographic and economic change. To this, it needs to be added that while France has gained considerably in purchasing power between 1990 and 2000 from globalisation – which has allowed imports from low-cost countries – this transition is now probably over. The growth model will thus need to change accordingly.
Delphine Strauss writes on the FT that the protests have been blamed on rising fuel taxes, but they also reveal how President Macron’s broader tax strategy has backfired. The protesters say the fuel tax rise was the last straw from a president who took office with a promise to help the economically left-behind, but who they say has instead favoured the rich. Citing an analysis by the Institut des Politiques Publiques, Strauss points out that benefits cuts and tax changes in 2018 and 2019 will leave the bottom fifth of households worse off, while the abolition of the ISF wealth tax means that by far the biggest gains will go to the top 1%. Most of those joining the ranks of the gilets jaunes are slightly higher up the earnings scale – workers on lower-middle incomes who do not qualify for benefits but who struggle to make ends meet, after a decade in which real household incomes have stagnated while living costs have risen.
Philippe Waechter instead looks at the impact of the social protests on growth. His baseline scenario for the last quarter of 2018 is growth at 0.4%, which would imply average growth of 1.6% for 2018. For 2019, he does not believe in an acceleration of growth and expects an average of 0.3% per quarter (1.3% for the whole year). The social crisis translates into a risk for households’ consumption and corporate investment, as suggested already by the drop in orders recorded in November. The impact on growth in 2019 could be to lower the average figure to 1% – far from the objective of 1.7% foreseen in the budget law for 2019 – which would take the fiscal deficit beyond 3% of GDP.
Stéphane Ménia recalls the work of Éric Maurin and Dominique Goux on the economic sociology of the French middle class. In the urban segregation that characterises a France subject to limited growth and stubbornly high unemployment – they argued – the middle class fights to preserve the idea of social mobility, although the fear of falling back is never far away.
According to Ménia, the yellow-vest movement is the expression of a sense that all the efforts made are being, or will be, in vain. In this perspective, they constitute the (paradoxical) alliance of a middle class fearing regression and a lower class fearing they will soon be bottom. But, Ménia argues, “the party will be over” soon for the yellow vests, even if – or rather, especially if – the government will concede to their demands. The state can do little vis-à-vis the disappearance of the middle-skilled jobs: it will always have the ability to tax the rich more – but that will not suffice, because what we are facing is an advance crisis of social-democratic redistribution. The best way to raise wages is through growth.
Christophe Guilly writes that France, as with all western countries, has changed in a few decades from a system that economically, politically and culturally integrates the majority, to an unequal society that, by creating ever more wealth, benefits only the already wealthy. The change is down to a model where employment is increasingly polarised. This comes with a new social geography: employment and wealth have become more and more concentrated in the big cities. The deindustrialised regions, rural areas, and the small and medium-size towns are less and less dynamic. But it is in these places – in “peripheral France” – that many working-class people live. Thus, for the first time, “workers” no longer live in areas where employment is created, giving rise to a social and cultural shock.
So if the hike in the price of fuel triggered the yellow-vest movement, it was not the root cause. The anger runs deeper, the result of an economic and cultural relegation that began in the 1980s. At the same time, economic and land logics have locked up the elite world. This confinement is not only geographical but also intellectual. The point of the gilet jaunesis to ensure that its wearer is visible on the road. And whatever the outcome of this conflict, the gilets jaunes have won in terms of what really counts: the war of cultural representation. Working-class and lower middle-class people are visible again and, alongside them, the places where they live.
Simone Tagliapietra and Georg Zachmann write that the gilets jaunes movement represents an interesting case of what risks becoming an increasingly frequent trend in Europe, as environmental and climate policies continue to be strengthened towards achieving the targets assumed under the Paris Agreement. Should policies be crafted without an extensive consideration of their distributional consequences, there is a risk of a social backlash against decarbonisation. In order to avoid this risk, it is crucial that governments put fair policies in place. Decarbonisation can be achieved through different policy pathways, and some of them are better at minimising the impact on low-income households.
For instance, putting carbon prices on aviation can reduce emissions without majorly affecting the poor. Lump-sum transfers to the most vulnerable segments of the society could allow for an increase in fuel taxes without compromising social acceptance. Public programmes to improve the energy efficiency of social housing can actually make low-income households better off in various ways. And not providing industry with tens of billions in terms of free-emission allowances from the budget gives governments more fiscal space to compensate their populations for increasing fuel and electricity prices.
On the same note, Grégory Claeys, Gustav Fredriksson and Georg Zachmann have a paper out on the distributional effects of climate policies. They focus on the impact of specific climate policies on households with different income levels, and argue that households with lower incomes are affected differently by individual climate policies (compared to higher-income households) because they: (i) face budget constraints that lead them to prefer different consumption baskets; (ii) have higher discount rates/feature borrowing constraints that prevent them from procuring more efficient durables; (iii) Have different skill endowments and hence wages; and (iv) earn less income from capital and land.
Climate policy tools – such as carbon taxes for different fuels, certain mandatory standards, subsidies and regulatory tools – can be regressive. For other climate policies, such as trade policies, public investment and agriculture policies, the effects are less clear. And for fuel taxes on aviation, for example, the effect might be progressive.
Martin Sandbu writes that while we have long talked about the free-rider problem in environmental policy, we have missed the potentially much greater obstacle of political polarisation in the age of populism. There are solutions. The most promising is the carbon “fee and dividend” approach advocated by climate scientist James Hansen. This would levy duties on fossil fuels and redistribute the revenue in equal per-capita amounts to all residents, creating a permanent direct cash stream into everyone’s pocket, protecting the most vulnerable while rewarding anyone for reducing their carbon intensity.
The same principle can be operated between states, returning revenues from emissions trading schemes to countries on an equal per-capita basis. On both levels, the amount could be tilted to favour those with historically high carbon-dependence to recognise the greater adjustment required from them. Such a scheme puts distributional consequences at the centre of environmental politics and policymaking – and thereby the tricky issue of respect for people already under pressure being asked to somehow give up their way of life. Any alternative proposal must do the same.
Writing after the French government cancelled its planned fuel tax hike in the face of massive protests, Bernard-Henri Levy wonders whether the yellow vests realise that they bear the heavy responsibility to avoid placing themselves in the tradition of paranoid nihilism and polluting their ranks with political vandals. The yellow vests are at a crossroads. They can be bold enough to stop and take the time they need to get organised, following a path not unlike that of Macron’s own La République en Marche!, which also had right and left wings. But if instead the yellow vests allow passionate hatred to win out over genuine fraternity, and choose wrecking over reforming, they will bring only chaos, not improvement, to the lives of humble and vulnerable people. The yellow vests, Levy says, must choose: democratic re-invention, or an updated version of the national socialist leagues; a will to repair, or the urge to destroy. The decision will hinge on the historic essence of the movement.