Neoliberal reformers often call France’s welfare model an unsustainable burden on private enterprise. But in recent decades, public aid to firms has almost tripled as a share of GDP — showing how state interventions increasingly prop up private profits.
French president Emmanuel Macron (C), Minister for the Economy and Finances Bruno Le Maire (L), Prime Minister Elisabeth Borne, and General Secretary of the Conseil National de la Refondation (CNR) Francois Bayrou at the second plenary session of the National Refoundation Council in Paris on December 12, 2022. (Gonzalo Fuentes / AFP via Getty Images)
The French state is often painted as a sprawling, interventionist machine — and not only by foreign observers. Free-market critics complain that it overtaxes business and stifles private sector growth, all for the sake of funding an unsustainable welfare model. It’s a claim that’s driven a series of recent “reform” projects, in the name of modernizing France’s economy.
In her new book, economist Anne-Laure Delatte shows that the French government does indeed plays a big role in the economy — but not quite in the way the neoliberals claim. Published this May by Fayard, L’État droit dans le mur (The State Headed for Disaster) shines a light on the regressive nature of French tax policy — and, thanks to analysis of previously overlooked data, the inequities of French public spending. Delatte’s work shows how Paris doesn’t just fund social programs, but pours billions of euros a year into tax credits and tax breaks for big business, putting itself “at the service” of the private sector.
In between sessions at La France Insoumise’s late-August summer school, Delatte spoke to Jacobin’s Cole Stangler about the kind of interventions the French state is making — and what alternative fiscal and monetary policies might look like.
Cole Stangler
Why did you write this book?
Anne-Laure Delatte
As I write at the beginning of the book, I’d noticed how strong a certain anti-state discourse is among very politically engaged people. I was thirteen in 1989 when the Berlin Wall fell. For me, the state is synonymous with governing. The state is extremely important! And I was very surprised to see many activists and a younger generation who don’t believe in the state anymore. I wanted to unpack the reasons why citizens no longer have this faith. And what I found is that the state turned its back on citizens.
Cole Stangler
You manage to break down a few different myths in this book about the role of the state in the French economy, starting with taxation.
Anne-Laure Delatte
We have this narrative in mind that French companies are overtaxed. That we have a problem with competition and that we’re not competitive by European standards, especially compared to Germany. I wanted to see if it this was true.
I broke down taxes paid by households and taxes paid by companies. And first off, what I found is the majority of fiscal revenue comes from households. That’s the first point, which isn’t so surprising from an economic point of view, but it’s interesting from a citizens’ point of view. The biggest contributors to the public purse in France are households, not companies.
What I also found is that taxes on businesses — the production tax and the corporate tax — have remained stable in recent years. Meanwhile, tax increases have landed on households. More precisely, the VAT [value added tax] remains the largest source of tax revenue.
Cole Stangler
Which is an extremely regressive tax, as poorer households spend a higher portion of their income on it.
Anne-Laure Delatte
Yes. I know sales taxes aren’t paid everywhere in the US, so people might have varying degrees of familiarity with this tax. But this is really the least progressive type of tax possible.
Just to deconstruct the familiar narrative, we have a budget minister who was talking recently about “French people who pay taxes.” I mean, everybody pays taxes! What he meant to say was “French people who pay income taxes.”
But I think it’s interesting to point out that the biggest contribution comes from households and that the biggest contribution within households is VAT.
Cole Stangler
In the following chapter, you look at spending. To ask a question that is also the title of the chapter, “Who benefits from state spending in France?”
Anne-Laure Delatte
I wanted to look into what we call “public aid” — to companies, in particular, but households, too. To do this, you have to look at the tip of the iceberg, what we call “subsidies,” which is easy. But you also have to look at the lower part of the iceberg — at data that hadn’t yet been gathered. This is what we refer to as “tax breaks” and “tax credits.”
Why hadn’t this been quantified before? This information can be found in annual parliamentary budget reports that explain what’s to be done with public money, but it doesn’t appear in the national accounting record. That’s because, by definition, tax breaks refer to revenue that’s not coming in — they’re not hard expenses. As opposed to tax credits, which are considered spending [in accounting terms]. We did our research under this broader definition of state spending.
We can see an increase in public aid to firms, from 3 percent of GDP to 8 percent in the span of forty years.
In this respect, we did an immense amount of data collection that nobody had done since 1979. And what we found is that public aid to households has remained stable throughout that period, representing around 5 percent of GDP [gross domestic product]. A large amount of this benefits the most well-off. For example, one of the biggest expenses is the tax credit for domestic work — this can apply to [households that employ] nannies or housecleaners. In other words, it’s not the poor who are benefiting from it.
When it comes to companies, it’s quite impressive. We can see an increase in public aid to firms from 3 percent of GDP to 8 percent in the span of forty years. Here, we accounted for all the various fiscal and social exemptions, because France is really the champion of exempting [income-earners from] social contributions. To put it simply, we finance our social protections with mandatory contributions — this is the French social contract. We pay into funds that finance social protections. The problem is this tends to increase the cost of labor. As a result, since 1995, we’ve allowed exemptions in order to lower contributions. We’ve attempted to lower the cost of labor to make it more competitive, but at the same time, that’s left us with fewer resources to finance our social protections.
I think really the story of the book is that the state has turned, to place itself at service of the market. Historically, the French state has been interventionist, embraced planning, and built important social protections. We’ve now completely adopted the neoliberal model — through the European Union, in large part — and told ourselves, “If we help companies, companies will help us.” Doing this has reduced the resources coming into state coffers.
Cole Stangler
France has adopted a neoliberal model, but less wholeheartedly than the UK or the US. At the same time, there’s this strong welfare state that still persists.
Anne-Laure Delatte
Of course. When you criticize public spending, one of the first reactions you can get is, “Wait a second, France spends 60 percent of its GDP on public spending, we’re one of the countries that spends the most.” It may seem paradoxical to say the French state is neoliberal, as ultimately there’s a lot more public spending relative to GDP than in the US or the UK.
We have very solid social protections in France. But what I’m talking about is something dynamic — it’s that we’re in the process of unwinding these social protections and this social contract that relies on public services. It’s very different than the United States. We have public services that don’t exist in the US. We’re starting at a higher level and we’re unwinding things. We’re maybe not yet at the level of the US but that’s the direction we’re headed.
Cole Stangler
Are we seeing similar tendencies play out when it comes to monetary policy?
Anne-Laure Delatte
The data I gathered for the book shows that the Bank of France intervenes as much today as it did after World War II and during the [postwar] period of economic planning. That’s a very important point. We have a Bank of France that intervenes a lot. In particular, it loans a lot of money to the treasury. The difference is that today, it’s doing so on secondary markets, whereas before it was doing it directly. But in the end if you look at the sums, the graph has a U-shape.
What does that mean? We’re in a completely different system. Before, it was the financial arm of state planning. There was a planner and the Bank financed planning. It’s not similar today.
Today, why does the Bank of France go out on the market and buy up domestic sovereign debt and why does it loan to companies? It’s truly at the service of financial markets to provide liquidity and to ensure that financial intermediaries can keep doing their job, which is to finance companies. When it buys up public debt, it’s not at all to help fund public services, it’s to ensure that these funding channels remain high-quality. It’s a totally different philosophy.
[Buying up public debt] can allow the state to borrow at low interest rates, but there’s this ideology behind it, which is at the service of companies: it’s important not to have too much debt, it’s important not to have a deficit, it’s important to have balanced budgets. We’re not really taking advantage of this [form of intervention] — or rather we’re taking advantage of it to lower taxes instead of doing supplemental public spending.
Cole Stangler
To get back to a question you raised earlier, a swath of the Left is not interested in being in government. But if the Left were to take state power, what are some of the solutions you suggest?
Anne-Laure Delatte
We can’t forget about the state. If we don’t have the state, it will be against us. It’s not neutral. Public action today is not neutral — it contributes to an environmentally dirty economy. What the data also shows in the book is that all these subsidies and credits benefit companies that pollute a lot. With a state that’s at the service of the market, our taxes are financing pollution and actions that are devastating to the climate. That’s why it’s important to think about state power — we’re talking about so much money. Inaction is not being neutral. It makes things worse.
If I could imagine a state that doesn’t push us “toward disaster” it’d be one that selects which firms to aid in function of carbon emissions. Today, we distribute money to companies with huge carbon footprints and don’t ask for anything in exchange. At the end of the day, maybe it does make sense to help companies finance their environmental transition, but in this case there need to be conditions. We need to select companies and make aid conditional on real results in terms of the ecological transition.
With a state that’s at the service of the market, our taxes are financing pollution and actions that are devastating to the climate.
There should also be transfers. We’re going to need to transfer money toward less dirty modes of consumption. For example, all the money we give to the aviation sector — we could take a lot of that and put it into trains instead. And if we did that, we’d be able to open up smaller lines and considerably reduce ticket prices.
Another focus is having less fear about the public debt. The state can easily borrow money, so let’s take advantage of that! We can’t be reckless — of course there should be a certain amount of rigor but that’s not what we have today. (We have a significant amount of public debt, but the government doesn’t stop talking about cutting taxes.) In any case, I wouldn’t be in favor of cutting the debt. I think we can either stabilize it or increase it. We should expect the debt-to-GDP ratio in a lot of developed countries, including the United States, to be around 150 percent by 2025. Let’s get over this fact and use our finances for the environmental transition and to protect citizens from the effects of climate change.
Cole Stangler
If the Left in France ever came to power and said “OK, the debt isn’t a problem,” would this hurt the state’s ability to borrow and the government’s ability to implement the policies it’s been elected on?
Anne-Laure Delatte
I joked about this at a panel earlier. I told the economist Michaël Zemmour who said exactly this that he was being “the reactionary uncle.”
The way I responded was twofold. When Giorgia Meloni was elected prime minister in Italy, everyone said she would be punished [by the bond markets], but in fact, the interest rates have not increased — even though Italy is a country perceived as riskier than ours. This is reassuring the sense that one can think: “OK, investors aren’t so attached to political risks.” But it could also be false, in the sense that investors may understand that Meloni — like [Marine Le Pen’s] Rassemblement National here in France — is very friendly with business. Investors are smart. They understand that these figures are very neoliberal. Maybe this could be viewed as proof that their programs are favorable to business.
The other argument is that, like I was saying earlier, we need high-quality public debt. It’s a stable asset. There are a lot of institutional actors — banks, insurance companies, etc. — that need to have debt and that need to have French government debt on their balance sheets. If French government debt started to deteriorate, it would put a lot of risk on the balance sheets of a lot of institutions. I don’t think that the European Central Bank — even if they don’t like Jean-Luc Mélenchon or the radical left — would take the risk of not protecting against speculation. They’d put into place what they did during the COVID-19 pandemic, the Pandemic Emergency Purchase Program, which involved buying tons of government debt. French debt is also a big part of European debt, which is also on the balance sheets.
They’d want to avoid a situation like in 2012 — we’d have banks and governments in a downward spiral and we’d be putting our banks in danger over a political [disagreement].
Cole Stangler
In other words, France is “too big to fail”?
Anne-Laure Delatte
Yes. They wouldn’t let us fail. In “too big to fail,” there’s the idea of interdependence, so yes. There’s interdependence: everybody relies on the quality of our debt and we depend on investors. I don’t think that they’d let us collapse.