Are socialists or conservatives better at managing a country’s economy?
Just over two years ago French citoyens ended 17 years of right-wing rule with the election of Francois Hollande’s Socialist government. A year earlier, British voters ejected their 13-year-old Labour government in favour of a Conservative-Liberal coalition led by David Cameron. As Crikey observed two years ago:
“… it will be intriguing to see how France’s Socialist program shifts the economic indicators over the next few years, if it does so at all. And, similarly, how the Conservative agenda impacts economic wellbeing in Britain.”
Side by side, Crikey suggested, France and Britain offer intriguing case studies:
“Both are developed post-industrial countries with similar populations — 66 and 63 million respectively — and similar challenges. Both were badly impacted by the GFC in 2008 and slipped into recession. France experienced four negative growth quarters, the UK five.”
At the time both had more than 8% unemployment and public debt above 86% of gross domestic product (GDP). And both were struggling with the eurozone crisis.
So two years down the track, have the self-assured Socialists succeeded splendidly? Or have the tenacious Tories triumphed tremendously? Taking June 2012 as the benchmark, we can track progress over the last two years on nine variables for which data is available:
1. Growth — the rate the economy is expanding
France’s GDP has grown only 0.7% in the two years from mid-2012. It was 0.6% in 2012-13 but a bare 0.1% in 2013-14. By contrast, the UK’s GDP expanded 4.9% in the same period: 1.8% in 2012-13 and 3.1% in 2013-14. Win to the UK. (All data from tradingeconomics.com and the OECD database. With the latter, use the blue drop-down menu near the top of the page.)
From June 2012 to now, an extra 150,000 people found work in France. So the number of employed persons rose just 0.56% from 26.90 to 27.05 million. Jobs in the UK increased by an impressive 902,000 over the same period. Up 3.15% from 28.61 million to 29.51 million. Win to the UK.
5. Interest rates
The benchmark interest rate in France has fallen progressively from 1% in June 2012 to just 0.05% now. The rate in the UK has not shifted since early 2009 when it fell suddenly from 5.0% to 0.5%. Great for borrowers in both countries, but not much return for savers. The UK is slightly ahead here.
So is it a lay-down misere for Tory capitalism? Not quite.
6. Budget deficits
Hollande inherited a budget in deficit to the tune of 5.2% of GDP and reduced it to 4.9% in his first budget and then to 4.2% in his second. The tip for next year is 3.9%. Two years ago, the UK reduced its deficit from 7.6% to 6.1%. A year ago this was barely trimmed to 5.8%. Marginal edge to France.
7. Current account balance
France’s current account balance — reflecting volume of exports over imports — was -2.16% of its GDP in 2012 — the worst current account deficit for decades. This has improved over the last two years to -1.62%. The UK’s balance was -3.83% two years ago and has eased only a tad to -3.71%. Win to France.
8. Government debt
France’s gross debt is now 95.86% of GDP, up from 90.61% in 2012. So has risen by 5.25% of GDP. (OECD numbers using the Maastricht definition.) The UK, similarly, has net debt now 91.50% of GDP, up from 89.06% in 2012. That’s a more modest rise of 2.44% of GDP in the last two years. But it was a much steeper 4.74% expansion in 2011, the government’s first year in office. Technical win to the UK.
Current net debt figures are not readily available, but interest payments are.
9. Net government interest payments as a percentage of GDP
France was paying 2.44% in 2012. This has since dropped to just 2.15%. The UK was paying 2.83% in 2012. This has risen to 2.89%. Win to France.
Two observations can be made at this point in the contest of political philosophies. First, it is still early days. Hollande has another three years before he has to face the voters. Last month he reshuffled his ministry specifically to hasten economic reform. The next two years could bring a much better performance — or much worse.
Secondly, can Britain’s impressive performance on jobs and growth — and probably wealth and income also, for which there are no data yet — really be attributed to solid Conservative policies?
Like that one amazing country that rocketed to the top of the world’s economies through the global financial crisis — yes, Australia — the UK is governed by a bizarre coalition of the Conservative Party and the Liberal Democrats.
The two chief secretaries to the Treasury — both cabinet positions — are Lib Dems, as are several other ministers for business, energy, employment and resources. So the Conservatives by no means dominate economic decision-making.
Could that be one secret of success?