A Talk With France's Point Man For A Market Economy
Finance Minister Dominique Strauss-Kahn is a champion of France's New Economy. A lone centrist in the leftist coalition of Lionel Jospin, he is the government's point man for creating a more market-friendly France. But he faces major challenges. With government spending at 53% of gross domestic product, the French state sector is still bloated and urgently needs overhauling. Strauss-Kahn, widely considered a potential front-runner for prime minister in 2002, spoke about his goals with Paris Bureau Chief Gail Edmondson and European Regional Editor John Rossant.
Q: The macroeconomic numbers in France are looking good. Can it last?
A: Last fall, the general idea was that the European economy and the French economy would go through a deep slowdown, linked to the Asia crisis. My thinking was that we'd soon be back on track--and that is what has been happening now for the last three months or so. We're on track for 3% growth. Partially, it's the euro. Two to three years ago, a lot of skeptics said we would respond to the slowdown as we did in the 1980's, increase public expenditures while tightening monetary policy. We did the opposite: decreased the public deficit while having a rather lax monetary policy.
Q: How worried are you by the strong dollar and the huge U.S. trade deficit?
A: It's true, Europe has a large trade surplus and the U.S. has a big deficit. In the long run we have to see a more balanced situation. But this is the price to be paid for the leadership of the U.S. economy in the world. So the U.S. trade deficit might be reduced, but not eliminated. That will only be the case if Europe becomes the dominating economy of the world in the next decade.
Q: German and British policymakers complain that France is not moving fast enough on structural reforms.
A: This idea of France not moving quickly enough is an outdated, old-fashioned U.S. cliche. The reality is that the French economy is moving and growing much faster than Britain, Germany, and Italy, and not only last year but this year and more than likely next year. We're moving rapidly to diminish the deficit. From June, 1997, through the end of next year we will have created one million jobs in the private sector, not the public sector. That's five times the rate of job creation in the 1970s, six times that of the 1980s. Unlike the conservatives who were in power before us, our idea is to use economic growth as a tool to reform, not the other way around.
Q: But most change seems to have taken place in the private sector, while the state role remains heavy.
A: The problem is that the state needs to be more efficient, and it is getting more efficient. We had a heavy, static state unable to move. I think we are moving quickly now. In 1995 and 1996, the previous government tried to privatize a couple of banks. The unions were in the streets and the government withdrew. Since June of 1997, we have accomplished an enormous amount with the support of the unions.
Q: There have been huge, unprecedented hostile takeovers in French finance and industry. How far will that go?
A: Maybe it's unprecedented, but this is after all a country of revolutions, perhaps. The BNP bids for Societe Generale and Paribas and the Total-Elf merger illustrate that we are a country where nothing moves for 10 to 20 years, and then everything changes in six months.
Q: There's a debate about how much capital flows around the globe will need regulation. What's your view?
A: Nobody argues that we have a world driven more by market forces. But if globalization means the extension of free markets, it also means we need more rules. As for the IMF and the role of the private sector, we have to have them on board. When private capital flows are three or four times public flows you can't say you'll solve the economic problems of a country without involving the private sector.
Q: Who is to blame for the economic debacle in Russia?
A: It was a bad idea to think that an economy like the Soviet economy could quickly become a market economy, so those who tried to implement that were wrong. But it's easier to say afterward. You can't change people's behavior overnight. A closed economy, whether an emerging economy or Russia, cannot be dropped in cold water overnight and told to swim. On the other hand, if going too fast was an error, to stop the reforms now would also be wrong.