Monday, May 22, 2017

The Big Test

Surprisingly, the Philippe I Government is very popular, and it now seems that REM might even win an absolute majority in the Assembly. If it does, this will be taken as a mandate to proceed full speed ahead with Macron's program, the first element of which is reform of the labor code.

Elie Cohen gives an excellent analysis of the reform here (h/t George Ross). The only thing lacking from Cohen's analysis is an evaluation of the likely effects of the reform. Will it, as promised, actually reduce unemployment or increase investment? From an economist like Cohen one might expect such an analysis, but instead we get a discussion--a very lucid discussion--of how the Macron reform repairs the mistakes of similar reforms attempted by his predecessors. The discussion is entirely tactical. Avoid retreats indicating weakness and uncertainty, proceed quickly, by ordonnance if necessary, take a pedagogical approach, build on previous negotiations, enlist allies among the unions but without making unnecessary concessions.

All well and good, but the discussion makes passage of the reform a test of presidential strength and acumen rather than one pillar of a broader economic strategy. The question is whether such a strategy already exists, or whether it must be deferred until after the outcome of this first step is clear. It is as if the battlefield ahead is still too shrouded in fog to know where resistance lies. Only after the battle over labor code reform is engaged will Macron know where he must concentrate his forces for the next battle. The assumption is that this first battle is all but won, but its unfolding will reveal the shape of battles to come. I think this is probably correct, but it may also be somewhat overconfident. Even if the first battle is not lost, it may inflict substantial enough damage to slow the planned invasion. At the moment, confidence is high, but so is uncertainty. And since Bruno Le Maire could well be defeated in his re-election bid, Macron cannot even be sure who his generals will be as he prepares for coming skirmishes.