Problems in common

William F. Buckley
Posted: May 12, 2003 12:00 AM
The French have other distractions than the U.S. victory in Iraq. They will have to weigh in on the U.S. proposal to reorder the economic scene in Iraq to conform in some way with post-Saddam realities. There isn't any way in which France can throw itself upon the scene to benefit itself, but it could certainly use help, because France is just about on the rocks. Successive governments have encouraged a lifestyle in France that is more suitable to the sheiks of Araby than to the French working population.

But the French aren't about to let go of their easy pension system without a great demonstration, with potentially crippling effect on a faltering economy. The facts are so basic and so central to the French economy that Prime Minister Jean-Pierre Raffarin went out on television and tearfully took the message to the public. He might as well have asked the French to stop drinking wine. What he did ask them to do was to contribute to the state pension system for 2 1/2 years more than they now do.

The problem in France revolves, to begin with, on the huge size of the public working sector. It is one-fourth of the working population. That means that for one-quarter of the French, pensions are dictated not by economic realities but by political contrivance. It is pleasant for the French public-service worker to grow up knowing that he can retire with full pension at age 55; in some situations, at age 50. Some retirement programs permit full pension benefits after only l5 years of contributing to the pension fund.

That would be OK if the French died at age 65, but of course they do not, and modern health measures keep them alive longer than the men and women who enacted the pension plans. It boils down to this: As things are now going, in the year 2020, one French working man would have to devote his entire pension contribution to sustain one Frenchman on pension.

The analogy to U.S. Social Security is of the same order. When Social Security was launched, 16 working men contributed to every recipient. As that ratio changes, the imposition on those who work, for the benefit of those who do not, becomes onerous and, finally, inordinate.

The government's reform program, so ardently resisted by the public-service union, is modest. Le Figaro commentator Alexis Brezet writes scornfully about retrograde French policies. "If 25 years after Britain, 15 years after Italy, and 10 years after Spain, France finally started to cut back the public sphere, it would be a revolution." French analysts are saying it in very simple language: If a country spends money disproportionate to what it generates, a drag sets in that brings on progressive reductions in the standard of living.

Apparent wealth achieved by funny money is everywhere attractive. Californians face a budget deficit awesomely large. A French-style reform is required, but the Democratic governor, Gray Davis, is wondering out loud how to effect reforms. In the past few years, revenues shrank, hard hit by the dot-com implosion, and public spending did not reduce correspondingly.

The cop on the beat here is Moody's. That august institution hands out ratings to potential creditors, and California rates from Moody's an A2, the lowest state rating, shared with Louisiana and New York. In California, what is needed is a great big sum of money to pay off looming obligations. How do you raise such money? You borrow. In order to provide a measure of concealment about what you are up to, you issue bonds that attach directly to the distress loan, on the model of what New York did in l975 with the Municipal Assistance Corp.

But potential bond underwriters look to Moody's to inquire after the degree of the risk they are running. And if Moody's, surveying the situation in California even as it might the situation in France, comes in with a low rating, then Californians are going to pay heavily to finance their distress. The money is raised by higher taxes, a diminution in state services, or some combination of the two. Republicans in Sacramento are against higher taxes, which bring on, ultimately, a traffic in dollars flying everywhere from everywhere else, militating toward the kind of senselessness the French face: one father and mother retiring on the earnings of one son and daughter.

The French national strike is set for May l3. California has until early summer to shape up.