04.22.2017
  • France

The Mélenchon Economy

    An interview with
  • Liêm Hoang-Ngoc

Jean-Luc Mélenchon’s senior economic advisor explains his proposals to grow the economy and carry out an ecological transition.

Jean-Luc Mélenchon speaks at a campaign event in January.

Tomorrow, France goes to the polls for one of the most tightly-contested presidential elections in its history. Among the candidates aiming to reach the second round is Jean-Luc Mélenchon, a veteran left-winger representing France Insoumise.

The American business press is already describing him as “scarier for investors than Marine Le Pen,” but what, exactly, are his economic proposals? And how radical would they be?

Journalist Cole Stangler interviewed senior Mélenchon advisor Liêm Hoang-Ngoc, a lecturer in economics at the Panthéon-Sorbonne University, about his plans.

Cole Stangler

What are the pillars of Jean-Luc Mélenchon’s economic program?

Liêm Hoang-Ngoc

First, there is an economic reboot centered on the environment. We will plan a €100 billion investment program to stimulate the economy, financed by borrowing. The other component is a redistribution policy that will reform pensions, establish what we call an integrated social security, and redistribute income in favor of lower- and medium-income households.

That will proceed via tax reform for both individuals and businesses. We are going to cut business tax but at the same time increase taxation on the profits that the big corporations do not reinvest. And also increase taxation on wealth. Our policy is aimed at rebooting investment, wages and employment, while combatting unearned income.

Then there will also be a program to fight poverty, with minimum benefits raised to the poverty threshold, meaning €1,000 a month.

Cole Stangler

The program seems quite Keynesian — are these kinds of growth pacts between labour and capital still possible under today’s capitalism?

Liêm Hoang-Ngoc

You are right to say that this is a Keynesian policy, but there are many variants of Keynesianism. For instance, United States and the United Kingdom — unlike the Eurozone countries — are today practicing a kind of Keynesian policy. Since the 2008 crisis the United States has revived growth in this way. And the British have also had to invest to save their banks and revive their economy.

Beyond that, everything depends on the particular kind of Keynesian policy. The Keynesianism that exists in the Anglo-Saxon countries is not the same as ours, which is a social and ecological Keynesianism. Ours is a Keynesianism adapted to the current situation, where Europe is on the brink of depression and the climate emergency demands that we shift our energy sources towards renewables.

So this program is not a matter of nostalgia for the Trente Glorieuses [France’s post-war boom]. On the contrary, it is very much in step with the challenges of the twenty-first century.

On the compromise between labour and capital, the policies implemented in France across the last thirty years pushed back such a compromise precisely by shifting the share of incomes in favor of the new rentiers. This shift in the distribution of wealth amounts to 10 percent of added value, meaning €200 billion out of a GDP of €2,000 billion. So even without returning to the proportions that normally went to wages and to profits in the 1970s–80s, by giving a bit larger share of added value to wages we can arrive at something very reasonable.

Cole Stangler

Can you tell us a bit about your plans to increase public spending?

Liêm Hoang-Ngoc

The boost to public spending — not including public investment — itself amounts to €173 billion, to be added to the €100 billion for the investment plan over five years. We plan to raise €190 billion in revenue through policies such as getting rid of CICE [corporate tax credits], targeting tax evasion, increasing compulsory deductions as well as the benefits of the economic relaunch. That clearly means we plan for the state’s operating budget to be in surplus, precisely because we are reviving growth, which implies increased revenues linked to economic recovery. So there will be a surplus in the operating budget, and the debt will concern only the investment budget, namely the €100 billion stimulus plan.

We [hope to create] 200,000 civil service posts. That will also include innovations such as cooperative contracts, the jobs created in the context of the state’s mission as the employer of last resort. We will establish the principle that, when a company is closing, workers have the right to run it as a cooperative, because our goal is to offer all long-term unemployed people a socially useful job paid at the minimum wage.

We will also improve unemployment compensation, make sure payments are available from the first day of unemployment, even if the worker has resigned. And we will also reduce the retirement age to sixty. This is logical because, if people have to work longer and longer, and there are fewer jobs, we will end up making up for the savings in the pension system with unemployment insurance.

And, of course, we want to re-industrialize France, which is today suffering a collapse in investment because of the failure of supply-side policies. We will do this within the framework of ecological planning. The motor of the new industrial policy will be the strategic enterprises of the energy sector and the energy transition.

Cole Stangler

Could you tell us a bit more about the centrality of ecological planning to your program?

Liêm Hoang-Ngoc

Our program is not productivist in the sense that Keynesian policies were in the Trente Glorieuses. We do not want growth for the sake of growth. We want de-growth in useless products, and growth in those products that are today useful for saving the planet. There is an urgent need to do something about climate change — and we are some way off. So organizing improvements in environmental conditions is urgently necessary and we plan to tackle this by replacing fossil fuels with renewable energy. This is not just limited to development in the energy sector but will include, for instance, a rail-transport development plan and a housing plan based on lower emissions.

Cole Stangler

In the 1980s, François Mitterrand’s government was targeted by finance and ended up ditching its social program. How would a Mélenchon government avoid this?

Liêm Hoang-Ngoc

Already in 1981 the program worked very well. In 1982 France had a growth rate of 2.5 percent when the rest of Europe was in recession. This French policy could have continued, on condition of allowing the currency to float in order to adjust its external balances. And that was an option that certain economists proposed, which was not followed because François Mitterrand followed Jacques Delors’s line which consisted of preparing the way for the single currency, thus anchoring the Franc to the Mark. And the fiscal rigor was justified by that choice to anchor the one to the other.

Today we are in the single currency, because of that choice in 1983. There is no longer an external balance. The situation is all the better suited to a stimulus policy because the trade deficit does not have to be compensated by adjustments to foreign exchange.

We plan to have a budget deficit which will be, on average, 3.5 percent of GDP. This is the same as under François Hollande’s presidency, so we have had a preview of the reaction to these kind of levels by the markets. The difference is that we will apply counter-cyclical policies, meaning that we will be more in deficit at the start in order to revive economic activity, and will reduce the deficit by the end of the five-year term thanks to the tax receipts associated with economic recovery.

There is no reason why interest rates should rise. In Portugal and Spain — where left-wing coalitions either did take, or threatened to take power — there was a slight upward pressure on interest rates. But it was no more than 0.5 percent. The markets have no interest in going into a panic — and even less so given that the planned policy should revive growth and cut the debt.

Cole Stangler

What impact will the confrontation with the EU have on your calculations?

Liêm Hoang-Ngoc

Clearly the EU treaties referring to the budget will not be applied. We will carry out the policy we were elected to carry out. We will tell our European partners that these texts are so absurd that no one manages to apply them. For example, Germany does not stick to the 60 percent indebtedness limit. Since they do not work, we propose their renegotiation, at the same time proposing instruments necessary to make the single currency work. So that supposes fiscal harmonization, social harmonization, a significant EU-wide budget, or failing that, room for maneuver in national budgets. And also a European-level protectionism.

Cole Stangler

Will this kind of confrontation not lead to pressure from the markets?

Liêm Hoang-Ngoc

There is no reason for interest rates to rise today, especially if the European Central Bank deploys the instruments it has honed, namely the Securities Markets Programme and the Outright Monetary Transactions program. It conceived those programs, and had to use them, in order to head off any rise in interest rates. It already used these programs with regard to Spain, Italy, Portugal, Greece and Ireland. In the context of the discussions that we will have with Germany and the ECB, we will demand that the ECB accord these same programs in the case of upward pressure on rates.

If it does not do so, that will be because it has made a deliberate, political decision to torpedo our policy. That would mean the compromising of its independence, clearly demonstrating that it is there to defend partisan policies.

Cole Stangler

And the question of capital flight. Does that worry you?

Liêm Hoang-Ngoc

It depends which capital. We have an instrument called differential taxation — you have it in the USA as well — which consists of calculating the tax that foreign-resident US citizens would pay if they were on US territory, and making them pay the difference with what they actually pay in that foreign country. So we will apply exactly the same principle that operates in the United States. This relies on information-exchange agreements, including with Switzerland. So that is a tool you have provided us with.

As for the rest, if French capitalists and pension funds commit to selling securities en masse and their values collapse, we will recover them all the more easily, and to our advantage, if we have to nationalize firms. If one of the new rentiers wishes to get rid of their family jewels, we will take them back, there is no problem there. And we will finance our investments by means other than through the markets and the banking system — exactly as they did during the Trente Glorieuses.