Winnipeg Free Press

Winnipeg Free Press (Newspaper) - June 30, 1981, Winnipeg, Manitoba Winnipeg free press. Tuesday june 30, 1981 7 old style economics for France by Hal Piper the Baltimore Sun Paris on the morning after fran Cois Mitterrand was elected president of France All hell broke Loose on the bourse. Most stocks listed on the French Exchange could not even open. Investors were desperate to dump their shares at almost any Price but there were no buyers. Savers were so eager to get their Money out of francs that an ounce of Gold traded to higher in Paris that Day than in London. It was a vote of no Confidence in the socialist who had won the Confidence of the French electorate the Day before. Since then things have settled Down somewhat but most of the Money that fled from French currency and shares in French companies has stayed away. The franc and the bourse have Bot Tomed out but not recovered. The aver age share of Stock is Worth 30 per cent less than before the election and some shares have fallen by 60 per cent or More. The panic was a reaction to Mitter Rand s Label but the continuing depression of the franc and the Stock Market is a More considered judgment on his economic program. The Money men think it won t work. Though it includes plans to National ize France s remaining private Banks and 11 Industrial concerns the Mitter Rand program adds up to perfectly Standard economic Medicine but not what is currently fashionable in the Western world. Mitterrand is a throwback to the keynesian demand fuelled dash for growth that was economic orthodoxy in the United states and Western Europe until it seemed to Stop working. Almost Mitterrand s first act in office was to raise minimum wages and so Cial benefits. He plans to create civil service jobs to fight unemployment. The theory is that putting Money in people s pockets will Start a Cycle of More personal spending More product Ion to satisfy this demand More jobs to produce the goods and More wealth to yield taxes to pay for the whole thing. It All sounds like a text from the Liberal economist John Kenneth Gal Braith who likes to argue that left of Centre governments Are Good for Busi Ness. Most Western countries managed their economies this Way for two or three decades after the second world War. Inflation however eventually be came so persistent that new theories have taken Over the finance ministries of Europe and America. The new orthodoxy not Only in the Reagan administration but in Western Europe As Well is Supply Side stimulation. By cutting taxes and shift ing Public spending from consumption to productive investment Western economies Are trying to create Prosper Ity from the other Side of the Ying Yang of Supply and demand. Short term demand stimuli will not serve to pull Europe out of a recession marked by unemployment and inflation the leaders of Western Europe declared at their common Market Summit in March. The Money men do not necessarily think any More of this formula than of Mitterrand s quasi keynesianism. Though not in panic. Wall Street has been so unenthusiastic about Reagan s economics that the president complained last month that american financiers Lack economic vision. The Bottom line in both judgments Wall Street s of president Reagan and the Paris bourse s of president Mitter that their policies however different in other respects will both prove inflationary. Mitterrand s opponents charge that he has no Way to pay for his program except through deficit spending and that the inflation rate could jump from the current 14 per cent to 20 by the end of the year. According to a Mitterrand economic adviser Alain Boublis inflation is caused by competing social groups each trying to increase their share of the pie of Prosperity. The obvious Solu Tion he says is to bake a bigger pie. The French socialists Hope to fuel an annual growth rate of three per cent immediately and Jack it up to five per cent within two this growth they Hope will Cut unemployment costs and raise tax revenues to cover 80 per cent of the extra billion Mitter Rand s social program will add to government spending next year. More Money will come from new taxes on Bank and Oil company profits and a wealth tax to be levied on All personal fortunes Over three million francs the nationalization program also is designed to play its part. The danger of expanding the Economy is that the French would buy More imports wors ening the balance of payments deficit and burdening the franc. Devaluation could relieve the Strain temporarily by making imports relatively More expensive. Many economists As Well As speculators Are betting on devaluation although Mitterrand presumably would like to avoid giving life to the old Bromide that left Wing governments debase the currency. Another reason to resist devaluation is the billion Worth of francs held by arabs already upset by the new president s socialism his support of Israel and his inclusion of communists in the Cabinet. France will need this foreign capital to balance its payments and cannot afford to have it moved into dollars instead. The longer term elements of Mitter Rand s strategy to reduce imports in clude an Energy conservation drive and increased government planning through direction and nationalization. The idea is by channelling credit through the state monopoly on Banks to manipulate investment to increase France s share of markets both at Home and abroad. The French government already has More extensive Powers Over the econ omy than other european govern ments. Indeed one banker was quoted As saying that nationalization would change nothing in reality. Already no big business decision is taken by French Industry without the implicit or explicit approval of the that is clearly a minority View As the Stock Market plunge has shown. Although France s experience with nationalization has been More favourable than that of other european countries air France and Renault the Auto maker actually return profits under state control Many of the firms on Mitterrand s nationalization list Are lame ducks whose takeover is planned As much to prop up employment As to direct Industrial policy. France prospered better than most Western countries during the seven year reign of Valery Giscard d Estwing but unemployment has climbed to 7.6 per cent and is Mitterrand s first priority due to a Low birthrate during the first world War comparatively few workers Are retiring today. Meanwhile baby Boom youngsters from the de Gaulle Era Are moving into the Job Market. The conjunction of these trends Means that Mitterrand will have to create about jobs a year just to Stop unemployment from going any higher. Hence the plans to stimulate the Economy. Mitterrand also Hopes to spread the work about by reducing the workweek from 40 to 35 hours by offering a fifth week of paid vacation and by reducing Francois Mitterrand makes world Money men a Little jittery about France s economic future the retirement age to 60 for men and 55 for women. But these measures would add to companies labor costs without improving productivity. Combined with the Rise in minimum wage the added Bill for labor could Rise by 12 to 22 per cent according to one study. This would be a recipe both for inflation and for worker layoffs and business closures. American and other foreign firms with offices in France fearful that France May be becoming too expensive an operating location Are rumoured to be considering moving away. Most however probably will give Mitterrand a Chance. With a handsome majority in the National Assembly Mitterrand has a free hand to steer his program through without Compro Mises. But most of his advisers Are not regarded As doctrinaire ideologues. In deed Jacques Delors the economics minister won his spurs in the conservative Cabinet of the gaullist Jacques Chaban Delmas and Only joined the socialists seven years ago. The two men who will play the Grea test role in nationalization plans Pierre Dreyfus the minister of Industry and Jean Legarrec state Secretary for expansion of the Public sector also Are highly regarded in the French business Community. Their appointments reflected a mod Erate shift i the Mitterrand Cabinet. The transitional Industry minister Louis Joe regarded As a doctrinaire marxist had been one of the reasons the financial Community had worried about Mitterrand in the first place. In the new Cabinet announced last week Joe was dropped. High court delay has Ripple effect Ottawa is tempting to read a great Deal into the supreme court s announcement that it will not Render a decision on the constitutional Resolution this month. Of course the supreme court never indicated that it would produce a Deci Sion this month. A june Date was first mentioned by prime minister Trudeau and was Oft repeated by several ministers. It was apparently based on the length of time that the supreme court has taken on other constitutional issues in partic ular the ruling on the constitutionality of incomes and prices controls a few years ago. Even a Layman might View the pres. Ent constitutional Resolution which incorporates a charter of rights to be somewhat More Complex. The fact that the decision will not be rendered until August or later does not mean there is serious disagree ment among supreme court justices on the issues. What it does mean is that the prime minister s objective of having the Constitution Patriate and the charter of rights in place by july 1, cannot be achieved. Ottawa diary Peter Thomson it also Means that certain Ministeri Al assistants who wagered that the july 1 deadline would be met have lost their Money. The slippage from Trudeau s target Date actually started last fall when the. Government had to extend by almost two months the Public hearings of the special Senate House of commons joint committee on the Constitution. A second major blow came in april when partly because of the conserva Tive s procedural filibuster Trudeau agreed to defer debate until the supreme court had rendered a decision on the Appeal by eight provinces against the Federal government s uni lateral action. Now canadians face the Prospect of at least several More months without a charter of rights. We doubt it will. Cause any loss of sleep. When one schedule gets altered it naturally affects others that impinge upon the first. It has been widely speculated by those close to finance minister Allan Maceachen and Justice minister Jean Chretien that Trudeau will vacate the prime minister s office soon after the constitutional Resolution is passed by the British parliament. If indeed Trudeau does intend to depart when the constitutional Issue is settled the departure Date has obviously been set Back. Thus the Date of Maceachen s As tendency is deferred and Chretien s takeover from Maceachen is also set Back indeed those moves have been i the cards. D d d members of. Parliament have been cautiously dancing around the ques Tion of a pay raise. No one wants to be seen As being too greedy but practically every my wants the raise. Most of them deserve it. It is a difficult proposition to sell to the Public but most maps work extremely hard in the commons in committees and taking care of constituents problems. They would like to vote themselves a raise but Don t want too much Atten Tion drawn to it. They would also like to attach future salary increases to raises in the Indus trial wage Index thus avoiding the need to debate the Issue in the com Mons in future. The problem is that unless the raise is voted on immediately the Campaign for increased and indexed maps salaries is going to coincide with a Campaign by the finance department to de Index tax deductions. The question of de indexing deductions was last year As a Means of helping the government overcome its huge and i deficit. It did t happen in the Las budget As finance minister Allan a Eachen attacked Petroleum Rev Ems instead. However Fina of officials Are again talking about de indexation. The Campaign is expect to intensify during the summer i new budget Day draws nearer. Maps will 1 k Pivo faced if they have in Jed the own salaries and then proceed to de Index tax deductions. Another round coming in fight Over ramp there goes the Gong for the latest round in what seems to be an endless boxing match Between the Federal government and eight provinces. In the Ottawa Corner is solicitor Gen eral Robert Kaplan who is willing to fight the eight individually or As a group because he has the ultimate weapon the ability to withdraw ramp forces if the provinces refuse to play according to his rules. Unfortunately for him a similar weapon can be used by the provinces who Don t like those rules. Therefore they move around the ring jabbing at what they believe to be a weak spot. Both sides have weak spots. The Federal proposal for financing of the ramp services was introduced nine months ago As part of the liberals latest Effort to combat their enormous deficit. Under the scheme the prov inces would pay 75 per cent and municipalities 90 per cent instead of the cur rent system where the provinces pay 56 per cent and municipalities pay 56 per cent for the first five officers and 81 per cent for the remainder. The proposed changes May lighten the financial Burden on Ottawa but that expense would merely shift to the shoulders of the provinces and municipalities. The Federal reasoning is Evi Dent. Under the previous plan All provinces were contributing to services for Only eight. Should the residents of under the dome Arlene Billinkoff Ontario and Quebec provinces which have their own provincial police forces have their tax Money going to maintain those who Don to was it Wise to inflict this Burden onto the people who had elected this government in order to help those foreigners in the West who supported other parties was it Worth the time and Money judging by the past nine months Ottawa believes those outsiders should pay through the nose. There really was not much More to lose since the chances for future support in the West appeared to be slight. The provinces have Little Power to prevent the Federal government from withdrawing its funds except for threatening to form their own forces and thus diminish the importance of the supposedly National group. Does a government which is attempting to create a unified new country bound together by a Constitution want to lose that Symbol of Unity Kaplan has described that threat As political it maybe. When Kaplan first announced the Federal plan he justified it by saying his government would save Mil lion. Besides it was time the provinces paid a proper share. It was too much too soon countered the provinces but the minister insisted his Price tag represented a fair evaluation of the services provided and reminded them what it would Cost if they had to Start their own police forces from scratch. The provinces agreed with the Princi ple but As attorney general Gerry Mercier noted the size of the increase would be a tremendous Burden on municipalities. They should pay the same percentage As the provinces he said. Kaplan refused to Back Down. The provinces also refused to Back Down and the april 1 deadline passed with no Resolution in sight. At that Point the Federal minister threatened to reduce the policing while Mercier who regarded that plan As outlandish and excessive countered with the possibility of Manitoba setting up its own forces. There was obviously an impasse. Manitoba and others did not have the Money to set up their own forces but continued to protest about the size of the increase. On the other hand Kaplan kept pointing out that regardless of the proposed increase the total Cost would still be less than if the provinces and municipalities went on their own. How Ever after some consideration he was willing to offer a one year Extension to municipalities with populations under and hoped the plan would be approved by july. We want to be he said. But it was unreasonable countered Mercier As his people offered another alternative. That was rejected As a deliberate delay in bargaining and the fight resumed with both sides attempt ing to Span the million Gap in their respective schemes for Cost sharing. By the beginning of june Kaplan threatened to pull the ramp out of 49 larger municipalities unless the prov inces came up with a better offer than 61 per cent for that group. It was Loo Low and made no sense he said. After All since the Federal government was currently paying 20 per cent and wanted to reduce that to 10 per cent there was no Way it would increase its contribution. Yet another provincial proposal which would result in a million saving for Ottawa instead of the de sired million was a bit More acceptable and Kaplan was willing to Bend on certain issues. However he remained stubborn about the Sugges Tion that municipalities with More than pay 60 per cent the first year rising annually to 65 per cent in the fifth year. It was a totally unjustified re quest he insisted. According to Kaplan s interpretation the provinces believed that because the Federal government was weak in the West they could Force it to pay More for municipal policing. That was merely political blackmail and we won t do blackmail it is True the liberals Are weak in the West with Only two representatives West of the Ontario Manitoba Border admitted Mercier but this was not merely a political fight. There was a principle and the next round should begin shortly. Doonesbury he Jim Tim to u5ef8sk v goih3 to to Gas Heil want to it a smoke Fuu the natural Kesot Keshe Cai Thasky Jim. You the Cah we no pwt Juhyon 6et5 Back from he poin6 Inthis Park ;