Liberte, Egalite, Frugalite: France's New Finance ChiefStewart Toy
As ideas pour from his hyperactive brain, Alain Madelin sounds like an intellectual godchild of Margaret Thatcher or Ronald Reagan. He hates big government, worships free markets, and thinks taxes should be cut to the bone. So how--nom de Dieu--did Madelin become economic czar of France, that stronghold of protectionism?
In a reassuringly moderate Cabinet, named on May 18 by newly elected President Jacques Chirac, Madelin, 49, is the maverick. His post as Finance & Economy Minister is traditionally France's most powerful after the Prime Minister, Alain Juppe. Given Madelin's combative personality, many think he may work even bigger changes on a rigid economic system than Juppe. "Madelin represents innovation," says Christopher Potts, chief economist at Chevreux De Virieu, a Paris brokerage firm.
SPARTAN SPENDER. Madelin's presence is partly a political payoff. Gaullist Chirac owed jobs to Madelin's centrist Republican Party for its help in electing him President. Yet Chirac, whose own views are vague, became intrigued with Madelin's economic ideas and adopted many of them in his campaign. These include faster privatization, lower social security taxes on corporations, and spartan state spending.
The new finance chief loves to cut spending. As Industry Minister in 1986-88, Madelin trimmed his own budget without being asked and even floated the idea of abolishing his ministry. He also slashed aid to ailing companies, letting a shipyard close rather than prop it up with taxpayers' funds. "Protectionism," Madelin argues, "dissuades companies from improving their products" and "produces rising unemployment." For France, that's revolutionary talk. He also blames government for the recent spate of French business and political scandals: "Corruption is proportional to the power of the state," he says.
Yet Madelin faces a fight with a public that's not ready for Thatcherism. Many think he'll also clash with Juppe, a consensus politician. Labor unions are already challenging his first planned privatization--of steelmaker Usinor Sacilor. It will be far tougher to sell off public services such as France Telecom.
Soon, Madelin's commitment to free markets will be put to the test by familiar French pleas for industrial aid. In the state-owned aerospace industry, for example, privatization candidate Aerospatiale wants a $2 billion cash injection, while engine builder Snecma seeks $1.2 billion. Philosophy aside, such payouts would drain state budgets and hurt the franc, which has weakened since Chirac's election because of devaluation fears. Many Chirac backers think he should loosen the franc's rigid link to the German mark, to cut interest rates and create jobs. That was Madelin's view two years ago. Now, he defends le franc fort, arguing France's economic fundamentals are strong enough to support the policy.
MINIMUM WAGER. Son of a Communist auto worker, Madelin was drawn toward the opposite camp. As a young man, he founded the far-right Occident group and fought leftists in the streets during France's 1968 student revolt. He turned more moderate in the 1970s. A lawyer by training and a voracious reader, his office is heaped with books and magazines. His house in Brittany contains 20,000 books. Madelin loves to quote two gurus: free-market economists Milton Friedman and Friedrich A. von Hayek.
Yet Friedman wouldn't like all of Madelin's ideas. Claiming sympathy with the working class because of his humble origins, Madelin backs the monthly subsidies of $400 per worker that Chirac plans to pay companies that hire the hard-core unemployed. He applauds a major hike in the minimum wage, announced by Juppe on May 23, which many economists think will hamper job creation.
Juppe's speech quickly hurt the franc, with traders wondering how the government will pay for these initiatives. The next day, Madelin assured reporters that Chirac would cut the deficit and support the currency, without offering any details. Madelin can only dispel the uncertainty about the government's program by proving that he has the courage of his frugal, free-market convictions.