The Yellow Vests Don’t Only Need Cheaper Gas

The Yellow Vests Don’t Need Cheaper Gas, They Need A New Deal for The Entrepreneurial Age

Forbes published on 8 December an article entitled: “The Yellow Vests Don’t Need Cheaper Gas, They Need A New Deal for The Entrepreneurial Age” by Nicolas Colin, cofounder & director of The Family, author of Hedge: A Greater Safety Net for the Entrepreneurial Age. EIS republishes the article here as follows:

It all started with a seemingly futile protest over raising the diesel tax just a few cents per liter. But now France is in a state of shock: thousands of ‘yellow vest’ protestors are storming the streets of Paris, breaking everything they can find and screaming for Emmanuel Macron to resign.

For many, this all comes as a surprise. Macron, after all, has lately appeared as the new leader of the free world, with France as the last bastion of liberal democratic values in a world governed by backward-looking, nationalistic, authoritarian leaders such as Donald Trump. But really, the yellow vests are just another logical consequence of a four-decade shift from the Fordist age to the Entrepreneurial Age—a process that has been slowly eroding the living standards of the Western middle class.

It started with a first wave, that of globalization. With emerging countries catching up on developed ones and international trade growing in volume from the 1970s onward, most Western firms lost their competitive edge. Some jobs were relocated overseas. Others were replaced by robots. Those workers who managed to retain their jobs were put under greater pressure: they had to renounce high wages, social benefits, and strong union representation if they wanted their employer to stay in business. In most industries, business then thrived, but it came at the expense of the workforce.

The second wave was that of financialization. With the end of the Bretton-Woods system and the rise of technology, finance turned into a global, networked industry, able to move capital around  more easily. At the same time, new business tools and methods, such as Bruce Henderson’s “growth/share matrix and Michael Porter’s “strategic positioning”, helped companies to defend their market position and their margins. All these trends made it easier for the financial services industry to increase its bargaining power and extract more value out of the corporate world, once again at the expense of workers.

The third wave was the reform of the welfare state. Slowly but surely, middle class households had to renounce an increasing proportion of their social benefits: everyone has to pay more for healthcare; retirees have to make do with lower pensions; unemployment benefits are subject to harsher conditions. Also, more and more workers now have “atypical” employment statuses (temporary work, part-time work, self-employed work), which restrict their access to mechanisms that were designed for full-time, career-long salaried workers. The rise of household debt has somewhat compensated for the retreat of the welfare state, but with levels of volatility that led to the 2008 financial crisis.

The crisis itself was the fourth wave. In France, it has played out in an atypical way: the labor market is so rigid that real wages have effectively gone up after the crisis. There were two downsides: an even higher unemployment rate and a looming fiscal crisis due to the slowing down of the economy and the surge in public spending to support failing businesses. Since then, as in other European countries, things have all turned into a vicious circle of ill-designed austerity measures and tax hikes, which in turn have slowed economic growth and made it even harder for already strained households to make ends meet.

The accelerating shift to the Entrepreneurial Age comes on top of all that—a fifth wave, if you will. With the rise of the high-skilled tech industry and lower-skilled proximity services, all located in urban areas, everything now gets concentrated in cities: jobs, wealth, assets, opportunities, power. Those who live in cities don’t necessarily have a good life since clustering effects make it hard for city inhabitants to afford housing. Yet it’s even worse for those who are literally trapped outside cities. Because they’re so removed from the core of activity, they can’t partake in fresh prosperity; and because it’s financially unaffordable to move in cities anyway, they can’t even think about switching jobs and rebounding in the most dynamic parts of today’s economy.

In that context, it’s a shame that a significant part of Macron’s agenda takes inspiration from outdated and irrelevant precedents. Margaret Thatcher’s conservative government was right to lower taxes and unshackle finance in the U.K., but that was 30 years ago, in a country where financial services already formed the core of the domestic economy. The Clinton administration was right to invest in lifelong education in the U.S., but that was 25 years ago, at the dawn of the Internet economy and with the clear goal of racing ahead rather than catching up. Then Gerhard Schröder’s social-democratic government was right to implement the “Hartz Reforms”in Germany, but that was 15 years ago, in a country whose growth is driven by manufacturing exports and where housing, unlike in France, has remained affordable (and, by the way, those reforms wiped the SPD off the map anyway).

We should assume that voters are smart and realize that all those policies, whatever their relevance in other countries in the past, are irrelevant in 2018 France. That’s because many things have changed since the times of Thatcher, Clinton and Schröder: the financial crisis; the rise of China as a global economic powerhouse; large tech companies replacing old Fordist companies as the most powerful corporate organizations in the world; most of the jobs and opportunities clustering in large cities, where housing is now unaffordable; and the looming crisis of the European Union and the eurozone.

In short, middle class household living standards keep eroding, prices and taxes are rising, geographic inequalities are widening and the French government, despite its self-proclaimed passion for entrepreneurship and innovation, is still looking backward, trying to fix well-known problems of the past rather than inventing a radically new and better future. The only thing that should surprise us is that it took so much time for the frustration and anger to explode into riots. Fortunately, it’s not too late to open a new front, that of imagining the institutions that will make the digital economy more sustainable and more inclusive—a New Deal for the Entrepreneurial Age.

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