The original article is available here: Des inégalités destructrices | Les Echos
By Paul FABRA
Published on Sept. 21, 2007 at 01:01
Must I confess that I never saw myself writing an article to denounce "inequalities"! Not that I ever denied their existence, but the phenomenon did not appear to me, in itself, as constituting an obstacle to the gradual and general rise in the standard and quality of life in the countries of Western Europe and North America. On the contrary, to a certain extent. It is normal that in a dynamic society where free enterprise is one of the most powerful and obvious drivers of economic progress, significant disparities in income and wealth arise; it is also normal, up to a point, that these are perpetuated through inheritance across generations. Finally, and most importantly, experience also shows (particularly in France and in certain Scandinavian countries held up as models) that the obsession with equality generates a diffuse social pressure contrary to the spirit of liberty.
However, the conditions under which this problem arises seem to have completely changed. Are we, in France, at the forefront (along with the United States) of crossing a threshold beyond which the appropriation by a small minority of an exorbitant share of the national income hinders the flourishing of society and curbs the improvement in the purchasing power of the great majority, an improvement observed throughout the history of capitalism? Has a gaping fissure opened in the system?
The most accessible synthesis—though one where a major gap remains unfilled—of the ongoing painful debate on purchasing power can undoubtedly be found in the publications of the ‘Conseil de l'emploi, des revenus et de la cohésion sociale (CERC)’. This unit, composed of around twenty people, six of them full-time, is chaired by Jacques Delors (general rapporteur: Michel Dollé). The distinguished merit of the CERC reports, particularly its 7th report published at the end of 2006, is to make the scholarly work of INSEE (the French National Institute of Statistics and Economic Studies) readable for any citizen of good will and to draw clear and measured conclusions from it, although, alas, often dramatic ones.
The increase in wage disparities between manual workers (the expression is not the CERC's) and managers is a relatively new phenomenon in France. "The main factor of inequality," says the CERC, "is the duration of employment over the year." The alternation between periods of employment and periods of unemployment experienced by many employees "reduces their annual salary" and "this reduction is not always mitigated by the 'deferred salary' that the unemployment benefit constitutes." Thus, employees more or less condemned to intermittent work could receive an average earned income 11 or 18 times lower (depending on whether they are male or female) than that of a full-time worker. Jesus observed with satisfaction that the worker of the eleventh hour is paid as if he had worked all day. His needs are not changed by the duration of his work. A thesis that the great classical economists, Adam Smith (1728-1790) and his successor, David Ricardo, made their own.
A whole section of the presidential program on "professional social security" (a term coined by the CGT trade union, which is its true inspiration) comes close to this evangelical vision. The loss of a job would be treated as an accident along the way during which the victim would lose practically none of their income. The main idea, or at least the one presented as such, is to provide adequate support for an active search for new work. Applied in a French context, doesn't such a system (also dubbed "flexicurity" in the Danish style) risk provoking a new and formidable escalation of widespread welfare dependency? The Sarkozy-style answer: we will change the context.
What is radically new is the disproportionate remuneration granted to a few thousand people: the mixed managers, both employees and shareholders of the new capitalism: "Whereas," writes the CERC, "Rockefeller had once advocated in the United States that the salary of company executives should not exceed 40 times that of their workers, the average salary of an American CEO rose from 85 times the average employee's salary in 1990 to 500 times in 2000. The trend has been similar in Europe, and particularly in France".
The fundamental change in the situation originates from the sharp turn taken by the financial markets at the turn of the 1970s and 1980s. Traditionally, they were driven by the attraction of regular dividends increasing (at least in principle) at the pace of the concerned enterprise's development and the ambient economic growth. Today, they are driven by the frantically prepared expectation (through share buybacks, mergers and acquisitions, etc.) of surplus values. These surplus values are now equated with "value creation." In reality, they constitute a "voucher" for existing goods and services which they generally did nothing to produce! That said, the national accounts record them as surplus values, not as capital income.
Yet, it is precisely these surplus values that have allowed a small class in society to mobilize enormous purchasing power. This purchasing power has entirely escaped the sharing described by the national accounts of "value added" (the total income of economic activity, so to speak) between the two main claimants: the owners of capital and the employees. INSEE and the CERC describe this sharing as stable over the long term, roughly 60% for employees, 30% for enterprises (depreciation, interest payments, shareholder remuneration). If surplus values are taken into account, the "capitalists" receive significantly more, and this to the detriment of the former. The seesaw effect operates through the inflation of the purchase price and cost of renting housing.
Where do the, so to speak, supernumerary funds that caused the enormous real estate bubble (including, of course, in France) come from? Where does this major factor in the loss of purchasing power for many households and their forced migration away from workplaces come from? Financial surplus values are the origin. The irony of history is that we are becoming aware of it just as the bubble, hit by the credit crunch, threatens to deflate.
PAUL FABRA