World

France uses Group of Seven presidency to issue sobering message urging a revamp of capitalism

by William Horobin

Bloomberg

France is sounding an alarm for the world’s advanced economies: Capitalism is tearing them apart.

President Emmanuel Macron and his Finance Minister Bruno Le Maire are using France’s presidency of the Group of Seven to argue that the system fuels inequality, destroys the planet and is ineffective at delivering goals in the public interest. The country has already experienced some of the fallout firsthand in the yellow vest movement that erupted late last year.

They’re pushing a reinvention that includes minimum global taxes and higher levies on tech giants like Amazon and Facebook. There are echoes of that in the self-proclaimed democratic socialists in the U.S. and firebrand Congresswoman Alexandria Ocasio-Cortez, who last week said “capitalism is irredeemable.”

“If we don’t invent a new capitalism, absurd economic solutions will win over and sweep us straight into recession,” Le Maire said in an interview late last month.

A key example for him is Italy, where the populist government came to power riding a wave of public anger. It quickly threw out the rule book on fiscal responsibility, sent bond yields higher and confidence lower, helping to push its economy into a slump.

At 49, Le Maire is the youngest finance minister among his G-7 counterparts. His grand ambitions also involve combating income inequality, empowering governments to intervene in the economy, and forcing companies to be socially responsible and share more of their profits with workers.

While some measures of income inequality have declined, the IMF says that reflects growth in many developing economies. Many still feel they aren’t getting a decent share because of pay disparities, huge wealth concentration and levels of in-work poverty.

Le Maire’s call to arms reflects a panic spreading in Western democracies about voter anger. The next sting could come at European Parliament elections in May, when euro-skeptic politicians are set to make further gains.

“Capitalism works when many people have a chance at doing reasonably in the market,” said Raghuram Rajan, former governor of India’s central bank, who’s written a book on “communities” and rethinking capitalism. “We wasted 10 years since the financial crisis not really focusing on these things and hoping that one stimulus after another will somehow elevate growth.”

In France, the government’s knee-jerk response to the yellow vests was to throw money at the problem, but there’s also been a realization that that alone won’t cut it.

Macron, barely polling ahead of Marine Le Pen’s far-right National Rally, started what he called a national “grand debate” that’s taken him and his ministers around the country to hear people’s concerns.

“You can’t fight populism with promises of more of the same,” said Societe Generale chief economist Michala Marcussen.

Le Maire has miscalculated before. Two years ago, as a presidential hopeful for the center-right Les Republicains, he proposed a version of Germany’s low-paid, part-time contracts known as mini-jobs, which he believed would at least get people into work and bring down unemployment.

That, he now acknowledges, was an error. He crashed out of the presidential primary with less than 3 percent of the vote.

So now he’s championing policies that bring meaning to work. A bill in the legislature aims to revamp a profit-sharing system invented by Charles de Gaulle, and could also force companies to publish average salaries to expose inequalities.

“If we want capitalism to hold together work must be better-paid,” Le Maire said. “There comes a moment when workers won’t tolerate it any longer.”

Alongside changing relations between labor and capital, Le Maire also wants a rethink of links between state and capital.

But that comes with contradictions: He wants to clip the wings of global tech giants, while overturning competition law to allow the creation of European champions. Le Maire’s view is there’s little choice if Europe doesn’t want to be dependent on U.S. or Chinese giants.

“To finance this new capitalist model, we lack money, it’s as simple as that,” Le Maire said. “It’s very nice to say we’ll be able to change the Chinese, but I think it’s above all the Chinese who will change us.”