By Swedish Lex, an expert and advisor on EU regulatory and political affairs.
The French Commission on the Measurement of Economic Performance and Social Progress presented its final Report written by Stiglitz and other leading economists at an event at la Sorbonne earlier today. The contents of Report is already being discussed widely but at least as relevant are the politics surrounding the Commission’s Report and how France intends to use it to spearhead economic reform at home and abroad. This post provides a few comments on Sarkozy’s speech.
The French Commission was convened by Sarkozy in early 2008 and as regards the timing he said that it could not have been done ahead of the crisis as it then would have resulted in a discussion among academics without consequence. By launching the Commission during the financial crisis and by demonstrating his commitment to the issue, Sarkozy has elevated the matter up to the highest level where, if is rhetoric is to be believed, he intends to keep and promote it further. So, at least in France, the financial crisis is alive and will be used to promote reform. It will be interesting to see how Obama addresses the same issue in his up-coming speech.
The composition of the Commission is in itself revealing as it, besides a large French contingent, contains quite a few U.S. academics. Absent are economists from the ECB and the European Commission as well as from France’s main European partner states, like Germany. The OECD is also well represented. The composition of the group demonstrates Sarkozy’s intention to render the Commission’s conclusion more palatable globally. The Commission’s Report, if one judges by the group that wrote it, cannot be accused of being Franco- or EU-centric.
The French President gave a lengthy speech at la Sorbonne before an auditorium that included la crème of French, European and international academics and policy-makers.
The speech contained the usual French verbal flamboyance that those less familiar with French culture often write off as pure hot air. It is probably however more correct to view the speech as Sarkozy declaring the starting point and the intellectual backdrop for up-coming policy initiatives. The French position on EU financial regulation, accounting rules, climate and trade policies, etc. will be shaped accordingly. It is reasonable to assume that Sarkozy will use the Commission’s Report to re-consolidate his political base well ahead the of next Presidential elections.
Sarkozy related to the fundamental flaws of the current system through a number of examples, for instance by referring to the public having been told that the exponential increase of modern finance was a positive, while it in reality almost threw the world “into chaos”. He went on saying that in recent years, citizens have seen their economic situation deteriorating, despite available statistics and acknowledged measurements indicating positive economic developments. The divide between how citizens experience their situation and how it is presented centrally is destroying democracy, Sarkozy went on to say and said added that people believe that they are being lied to – and they are not entirely wrong to believe so.
Governments need to modify their behavior, first by changing how they account for the situation in society by including questions about the overriding purposes of society and public policy; “our certitudes have evaporated, everything has to be put into question and re-invented”. Current methodologies fail to take externalities into account with the risk of booking developments as progress while, in reality, the opposite is true. Growth has in some regards destroyed more than it has achieved.
Sarkozy made commitments that the French Government will use the Report to begin shaping the post-crisis world by starting at home but also, in parallel, by convincing its European partners to take the lead on the issue and by raising the matter in all international organizations and other fora.
Despite the mainly general in character of the speech, it made clear references to on-going policy battles, for instance as regards mark to market accounting where France is strongly objects to the position of the IASB. According to Sarkozy: “You do not know the value of an asset simply because markets give them a value every second. The opposite is true”.
On “trading”, Sarkozy commented that it is accounted for as creating value under current methodology although it creates a new risk, which in turn may contribute to increased volatility, which in turn necessitates further transactions. Sarkozy put in question the value to society of such activity altogether and added that it creates internal tensions within capitalism – of which he is a supporter – which risks being destroyed as result.