There has been for many years an elephant in the living room of the French society. No one has wanted to acknowledge it. No one has had the political courage to challenge it.
That elephant is the retirement system in France and, especially, the retirement age.
The retirement system in France (as in many countries) is based on the principle of “repartition” - meaning that the retirement benefits that people receive is paid for by the retirement contributions of the working population. The system is somewhat complex – as it is in most countries. There are different retirement systems for different workers; general salaried workers, public service workers, independent professionals, and more.
But to make simple, the retirement systems have two main components:
1.The basic retirement system - generally under the social security administration. There is a minimum age at which one can start to receive benefits – if they have had the required number of working quarters. (The system counts quarters.) There is an age that one is entitled to full retirement, even if they have not worked enough quarters. The system is funded by salary taxes paid by both the employee and the employer.
That should sound familiar.
2.Complimentary mutual retirement programs – obligatory – that people also pay into, again as part of the salary tax.
So far so good, you are saying. But, you ask, what is the retirement age?
“Ay, there's the rub.” (Hamlet 3/1)
In 1982, under the socialist government of then President François Mitterand, the retirement age was lowered – to 60 years as the age where one could begin to collect retirement if they had worked enough quarters and 65 years as the age where one was entitled to full retirement even if they had not worked enough quarters.
But, things have changed since then – both the economics and the demographics.
When the retirement age was lowered, there was essentially full employment and most people worked in jobs in the manufacturing sector. Today, as in many countries, many of the manufacturing jobs have been moved to low cost labor countries and the unemployment rate stays stuck at just under 10%.
When the retirement age was lowered, people did not live as long. (And thus, the number of years receiving retirement benefits was much fewer.) Today, people live much longer. Based on my family history, there is a good risk that I may live to the age of 100. What this means is that if I had to work 40 years to earn my retirement and I retire at the age of 60, I will receive retirement benefits for 40 years. You do the math.
People are living longer and there are more and more of us “seniors”. We are rapidly moving to the point where each working person will have to carry on their back the cost on one retired person.
I am looking for that one working person who will carry me on their back for the rest of my life. Will you?
The result of all of this is that the French government is increasingly needing to borrow money to fund the retirement system.
What to do? There are several options. One could further increase the government deficit – but the deficit is already unsustainably high and exceeds the legal limit for the EU. One could further increase taxes – in a country where the tax burden is already very high and where the government promised to reduce taxes. One could reduce retirement benefits – but I will let you imagine the political impact of that. Or, one could recognize the fact that people live longer and are capable of working longer.
Thus, the government proposed a reform of the retirement system where the age of retirement would be raised (on a phased basis) from 60/65 to 62/67. This mirrors what other countries have already done. (Nobody has had the courage to say that it will need to be further increased in the future. But, that is after the next election in 2012.)
And, with this, the noise.
The unions have largely refused to consider any change. The consider the retirement age of 60/65 to be a workers right that was earned and that can not be modified. This rigidity has been aggravated by the government's heavy handed manner to force through the reform without sufficient dialogue. The result is a rupture of dialogue – and the conflict that we see.
The Socialists, who are out of power, do not have any proposal on how to fix the retirement problem but are happy to jump on anything to score points against the conservative government in power. The only proposition was by Ségolène Royal (past Socialist candidate for President) who proposed to further tax the “rich” and the company owners – an economic neutron bomb.
And with that, we have an environment of conflict and people take to the streets. The marches of demonstrators have been well organized by the unions and have been joined by students and politicians from the left – the Socialists, the far left, and the very far left. For the leaders of the minority parties, it is an opportunity to gain visibility and gain points by appearing to be on the side of workers.
But what about the students? Why are they involved?
The students do have legitimate complaints. When they complete their studies, many find that there are not jobs for them. The French economic and cultural systems do not facilitate the entry of new graduates into professional careers. The government promised to correct that problem and has not. The problem is so serious that there are suggestions that there needs to be instituted quotas requiring companies to hire a minimum number of new graduates – something like the equal opportunity quotas that we saw in the United States. (I remember carefully managing my quota numbers as a manager.)
However, an interesting thing is that many of the demonstrating students are not university students. They are high school students. Furthermore, when interviewed on TV, they give a standardized rhetoric and recite an old socialist view that the number of jobs is a fixed pie that needs to be divided up and that making older people work two years longer takes jobs away from new graduates. In this regard, it is my opinion that the students are being manipulated by their frequently highly unionized teachers.
The real issue here is not a fixed pie of jobs but getting sufficient growth in the economic system to provide for job creation.
As Eleanor Beardsleyobserved (NPR 24 Oct 10), student protest demonstrations is a time honored tradition in France. Many of the parents of these students participated in the student revolt of May '68.
Add to this a level of support from the general French population. While being unhappy with strikes and disruptions many are fed-up with the unfulfilled promises and style of President Sarkozy. Their sentiment is not support of the strikes but against the President and his government.
And, the violence?
We have all seen it on television – the violence in certain cities (notably Lyon) and the burning automobile in Nanterre. While any property destruction is not good, especially for the person who's property is being destroyed, the violence is rather limited. However, the non-stop coverage on television and in the newspapers gives the appearance of generalized chaos.
Unfortunately, in France, as in most all countries, there is an element of hooliganism – people who seek any opportunity to cause destruction. Some of them are arrested but many are minors, some as young as 12-13, and the courts let them go. The hooligans have nothing to do with the question - neither the retirement age nor the complaints of the students.
All this has given us a veritable symphony of calliopes.
As I complete this, the retirement reform has been voted, approved, and will be implemented. The strikes and disruptions have (almost all) ended. The demonstrations are fewer and fewer. But is it over?
That is how I see things.
We still do need to talk about the reason for this conflict and managing strategic change, French style.
Mark Louis Uhrich
Maisons-Laffitte, France, 2 November 2010
©Copyright Mark Uhrich
