Good morning from New Economy Brief.
The New Popular Front was the surprise winner of the recent French elections, beating Marine Le Pen’s far right National Rally, but what does the alliance want? The UK media is well-versed in the economic ideas of centre-left parties in the UK and US, but less so across the Channel in France.
This week’s New Economy Brief looks at the new economic ideas of the largest bloc in the French parliament, and explores what its strategy and platform shares with the victorious UK Labour Party and the Democrats in America.
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What is the New Popular Front?
The recent French elections led to the victory of a new alliance of four left and green parties, the New Popular Front (NPF). Consisting of France Unbowed, Socialist Party, French Green Party and French Communist Party, the NPF is now the largest bloc in the French parliament, though still short of an overall majority. The NPF’s ‘shock win’ was due to a tactical alliance to keep Le Pen from power, following the heavy defeat suffered by President Macron's party in the earlier European elections.
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What does it want to do?
The NPF’s manifesto is full of new economic ideas. Essentially, the coalition wants to reverse the residual ‘trickle down’ economics of the past, strengthen climate action and protect living standards from being eroded. This will all be funded through higher taxes on the rich and businesses. We summarise and analyse some of the NPF’s more interesting policies below:
Climate change and environment. The NPF proposes to establish “an energy climate law that will lay the foundations for ecological planning”, recognise the crime of ‘ecocide’ and create an international climate tribunal. On energy, it wants to “make France the European leader in marine energy with offshore wind power and the development of hydroelectric energy” and block the privatisation of hydroelectric dams. It also wants to create a compensation and protection fund against pollution, and establish a “remunerative” floor price for farmers, with a tax on the super profits of agro-industrialists.
Green public and private finance. It also plans to create a “public banking centre” by strengthening the capacity of the French government’s public finance institutions to take stakes in strategic companies that are in difficulty or looking for shareholders. This will also finance green projects and activities which private investment has underfunded. The NPF also wants to stop banks investing in fossil fuels by forcing them to redirect reserves towards mitigating climate risks like floods, drought etc. The new institution would be funded by a “popular savings account or the sustainable development account”, whose interest rate the State would set.
Restoring purchasing power. The NPF proposes increasing the monthly minimum wage by 14% (€200) to bring it to €1,600 a month and index all salaries to the rate of inflation (Read our previous New Economy Brief on how wage indexation works in Belgium). It also wants better pay for interns, apprentices and students. It plans to improve working conditions for all by including burnout in “occupational diseases”, and to reduce some workers’ hours to a 32-hour week, as well as reversing recent retirement age reforms by changing the pension age back to 62 from 64, creating menstrual leave in both public and private sectors, and numerous other things. It also aims to boost social security by establishing an ‘autonomy guarantee’ to supplement the income of households below the poverty line.
Price controls on essentials. The NPF wants to freeze the price of basic necessities like food, energy and fuel by decree (although price falls would be allowed). It argues that this kind of temporary price control to absorb supply-side shocks can stop inflation snowballing into the rest of the economy. Along with the indexation of wages and a higher minimum wage, this should protect living standards from future inflation. Meanwhile to help with housing costs the NPF proposes to build 200,000 social housing units per year.
Tax justice is a priority. Macron’s government cut taxes for the wealthiest and introduced a flat tax for holders of capital income, as well as various unconditional schemes to support businesses which have all been expensive for the taxpayer but failed to stimulate the economy. The NPF intends to reverse this, with businesses and the richest individuals shouldering more of the burden, as part of a plan to raise an additional €30bn to fund their promises. It wants to end the flat tax on capital income and to re-establish a solidarity tax on wealth “reinforced with a climate component”. It is also planning to re-establish an ‘exit tax’ on the latent capital gains of business leaders who decide to move their tax domicile abroad. The alliance to increase the number of income tax brackets from 5 to 14, and to increase rates for the highest incomes while making sure that those earning less than €4,000 per month don't pay any more. “Ineffective, unfair and polluting” tax loopholes are in the firing line.
Forecast impacts on the economy. Economists from the Institut Rousseau, a French think tank, analysed this policy programme in a macroeconomic simulation and concluded that it “will not cause an explosion of the public deficit, a recession, or an inflationary fever. On the contrary, apart from the trade balance…, all the variables of the French economy (GDP, debt, etc.) will be improved by the NPF measures.” They also found that implementing the programme will reduce inequality and unemployment, increasing citizens' purchasing power while keeping inflation around the 2% target. Not only is decarbonisation an opportunity for the French economy, but taken together the NPF's plans could create at least 495,000 new jobs over the next five years.
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What can other governments learn?
Many Western centre-left parties are competing with an insurgent populist far right. Biden’s Democrats pioneered a new green industrial strategy, but incumbency during the cost of living crisis means Kamala Harris will have a harder time beating a resurgent Trumpism. In France, Macron’s failure to stop living standards being eroded from inflation has fueled both the left and the far right, but the NPF has shown that a policy platform aimed at improving living standards for most of the population, funded through higher taxes on the rich, can blunt the electoral momentum of the right.
Labour parallels. While the politics of the two countries clearly differs in many ways, there are many parallels to be drawn between the NPF manifesto and the recent victorious Labour platform. An emphasis on green industrial strategy with climate change presented as an economic opportunity; workers’ rights given significant prominence alongside housing; taxes on big polluters. But the NPF embraces ideas that Labour shied away from – most obviously on taxation of wealth, but also on areas such as the 32-hour week and (very significantly) on price controls. The political situation in France, with Macron still President, means the NPF’s platform is unlikely to be fully implemented. But the coming years in France will be an interesting test of whether this bolder policy thinking can prove electorally durable in the face of far right populism.
The Spirit Level at 15. 15 years on from the publication of ‘The Spirit Level’, a seminal book on economic inequality, a new report by the Equality Trust explores the state of inequality in the UK today. It details how inequality is central to the climate crisis, erodes social cohesion, limits the chances of children and young people and determines population health and wellbeing.
The case for tiered reserves. The New Economics Foundation’s (NEF) Dominic Caddick argues that “Slightly altering central bank operations to tier reserves and green interest rates could be a good start in better aligning public funds with social and environmental targets”. NEF estimates these changes could save the Bank of England up to £11 billion per year.
Homes are getting bigger, but overcrowding persists. The Resolution Foundation’s latest Housing Outlook finds that over the past 30 years, the number of households in England reporting living in homes with four or more bedrooms has significantly increased with 71% of households living in under-occupied homes with ‘spare’ bedrooms. However, overcrowding has not fallen and is rising for some demographics. The think tank thinks the best solution is to build more large homes, particularly in the social rented sector, rather than policies aimed at encouraging people to downsize.
A Net Zero investment plan? The government’s commitment to growth must focus on the net zero transition via a ‘Net Zero investment plan’, argues E3G’s Will O’Leary. He suggests that more needs to be done to calculate the net zero investment gap so that government interventions can be better targeted and coordinated.
A circular economy for raw materials. The transition to renewable energy may reduce the risk of price hikes and supply shocks for oil and gas, but it could also lead to competition for critical raw materials such as lithium, copper, and cobalt, argues Zero Waste Scotland’s Iain Gulland. Zero Waste Scotland has called for a “new and ambitious approach to critical raw materials that prioritises demand reduction and circularity”.
