November 7, 2012
President Obama and Congress have kicked so many cans down the road it’s a wonder Virginia isn't one big landfill. Make no mistake; the bill for our reckless spending and indifference to private-sector growth is coming due in Obama’s second term.
Not only do fiscal issues demand immediate attention thanks to the dreadful debt-ceiling compromise reached in 2011, the inability to stem the flow of U.S. red ink in the past four years has raised our debt burden to the breaking point. The only way out of this mess is to engineer a U.S. growth spurt. Unfortunately, Democrats have sacrificed our competitiveness to the demands of Big Labor, environmentalists and those who think that government largesse, and not private industry, is the best path to prosperity.
We could right now learn a thing or two from the Socialists in France. You heard that right – I find inspiration in the left-wing government of the Fifth Republic where growth has stalled and unemployment tops 10 percent. Earlier this week, the Hollande government announced it would cut payroll taxes for businesses to overcome what Prime Minister Ayrault described as "ten years of industrial stagnation."
The move was in response to a government-sponsored report just out on how to stem the country's competitive decline. It was something of a surprise coming from a group whose first instinct was to slap a 75 percent marginal income tax rate on high earners. The paper, authored by Louis Gallois, former CEO of European Aeronautic Defense & Space Companie, recommends 22 measures to “stop the slide” and deliver what is described as a “competitiveness shock.”
Gallois' recommendations will resonate with business leaders here in the U.S. who are scrambling to compete on a global playing field -- business leaders who have long bemoaned the Obama administration’s indifference to their needs.
In France, industry has been hobbled by average hourly labor costs of nearly $44 per hour, a full 13 percent higher than their German counterparts. It is not surprising that German exports – the engine of that country’s relatively strong growth – are more than double those of France, or that Germany’s share of EU exports has been rising while France has seen its slice of the pie decline.
Gallois’ includes the just-enacted reduction in the portion of the state’s welfare cost burden borne by industry as well as a slew of other measures. They include avoiding “new layers of regulation” to “ensure better long-term visibility,” helping small businesses, reducing “legal and fiscal obstacles for small firms seeking to grow into mid-sized companies, simplifying export credits and maintaining tax credits and public funding for research and innovation. He also recommends putting four workers on the boards of large companies, to try to soften France’s “us vs. them” labor mentality.
Most shocking perhaps is the suggestion that France would do well to research exploring possible shale gas reserves that are among the largest in Western Europe “despite environmental concerns.” This sounds more like the Mitt Romney platform than the working papers of a Socialist government.
Already the Gallois report is causing tremors. French President Francois Hollande was in Laos attending an Asian-European summit when it was released, but was quoted as saying, “strong decisions will be taken.” That echoes the noncommittal response of the Obama administration to the conclusions of the Simpson-Bowles fiscal commission.
That group suggested politically toxic but utterly reasonable changes in U.S. social safety net spending, including raising the retirement age for Social Security recipients and cutting subsidies for student loans, farmers and government retirees. From the ever-thoughtful Nancy Pelosi, who immediately declared the Commission’s suggestions “simply unacceptable,” to President Obama who ended up running for cover, Democrats distanced themselves from making hard fiscal choices. Like Hollande, Obama managed to be out of town when the Simpson-Bowles Commission reported their conclusions.
Unlike the Obama administration, France’s leadership has bowed to the pressure of job losses by moving ahead (albeit in a more gradual manner) with at least one suggestion of the Gallois report. They have little choice. The IMF warned Monday that “the ability of the French economy to rebound is… undermined by a competitiveness problem.” The international agency said that while financial risks are abating, France’s “competitiveness gap” was the country’s main challenge for growth and job creation. The IMF pinpointed issues that need to be addressed, including “stronger containment and rationalization of public spending…to create room for a reduction of the tax burden over the medium term,” labor market reforms and lower taxes on financial income.
The IMF is not looking at France in isolation. Au contraire. They point out that the country’s prospects are at risk in part because their major trading partners – Italy and Spain – have followed Germany in making “deep reforms.”
Those countries also compete with the U.S. We, too, have to boost our competitiveness, and deal with our fiscal problems. The IMF has also issued warnings to the U.S. – including one last month. In releasing its World Economic Outlook, IMF Chief Economist Olivier Blanchard flagged the impending “fiscal cliff” in the U.S. as a major problem, saying “Worries about the ability of European policymakers to control the euro crisis and worries about the failure to date of U.S. policymakers to agree on a fiscal plan surely play an important role” in retarding growth.
The challenge is clear. President Obama will have to make some hard choices – reining in future spending and boosting our private sector. That is the only way our growth will provide revenues necessary to pay down debt and to fund our necessary programs. It will not be easy – especially with every other country leaping ahead of us to boost competitiveness. Now that Obama has won a second term, Americans can only pray that in this next four years he finally sees the light.