The Real Problems of France

October 8, 1951

PARIS—To a visitor who, like myself, has not been in France since 1947, the improvement in the physical appearance of the country, and in the better neighborhoods of the cities, is in some respects striking. Much of this physical improvement must no doubt be attributed directly or indirectly to American economic aid. Yet the EGA program, as at present conceived and administered, seems largely irrelevant to the real problems that confront France today. These problems might be grouped under three main headings: (1) lack of confidence in the government, (2) lack of confidence in the currency, and (3) lack of incentives for new enterprises and for expanding production.

1—When a Frenchman talks about necessary fiscal or economic reforms, he is apt to add resignedly that they would only be possible under a government with a majority dependable enough to give it reasonable security of tenure and courage. But the French vote for a multiplicity of warring political parties and become collectively disgusted with the overall situation they have collectively created.

Much has been written about the great effect of Marshall aid in turning the tide against Communism in Europe. In France, the statistical proof is not impressive. In November 1946, the Communist vote came from 28.6 percent of the French electorate. In the elections this June the percentage was still 26.5. How much credit Marshall aid can claim even for this reduction of only 2 percentage points is doubtful. For in the light of all that has happened in the intervening four years, no French voter has any excuse for still believing the old myth that Soviet Russia is a great peace-loving nation or that the French Communist Party has the interests of France primarily at heart.

2—The Frenchman’s lack of confidence in his currency is hardly surprising. He has seen the franc decline to one-twentieth of its purchasing power in 1938. He has seen it decline since 1914 to one-seventieth of its former value in terms of the dollar and to less than one- hundredth of its former value in terms of gold. No one should be astonished to learn that the former French habits of saving have largely disappeared and that the kind of saving that does take place is more likely to go into gold-hoarding than into government bonds.

Today the franc is under new pressure of several different kinds. One is the rise in world raw material prices, owing to American rearmament. Another is the increased strain on the budget for increased French armament. A third is the continuing deficit in French socialized industries (of more than 90,000,000,000 francs, for one example, in the nationalized railways in the 1951 fiscal year). A fourth is the political pressure for adopting “l’échelle mobile”—“the moving ladder,” or sliding scale, whereby the legal minimum wage will automatically follow prices upward. A fifth is the persistence of a low-interest-rate policy under which the volume of money and bank credit have continued to expand by 554,000,000,000 francs, for example, from June 1950 to May of this year.

3—Finally, as a result of the whole network of exchange controls, import quotas, tariffs, price controls, allocations, social-security deductions and payments on a huge scale, and the cartelization of business, there has been a great distortion of productive incentives, a growing lack of correspondence between effort and reward, and heavy obstacles to the appearance or success of new enterprises.

I have space to cite only one example. Price-fixing in wheat is unfortunately one of the chief reasons why France’s wheat production since the war has been persistently lower than the average production in 1934–38.

The major problems of France today, in short, barring the menace of Russia, are problems of internal policy. They can be lightened, of course, by continuance of American military and economic aid. But they can be solved only by a courageous recognition on the part of the French that a halt to the present inflation, and the restoration of economic freedom and production, will come primarily only through their own efforts.