Wednesday, January 26, 2011

Which is more elitist? France or America?

Frankly I have no brilliant insights about the SOTU address so I thought I would write about something else...I read with interest the blog post Explaining France, a reader request. Tyler Cowen explained that the French elite is well educated and their social class based value system creates strong incentives for them to excel:

1. The French elite work very hard and are educated very well.
2. Contrary to stereotype, France has arguably the strongest work ethic in the world.  Given the rates of taxation, and the difficulty of being fired, most people still do a fair amount of work and they do it fairly well.  If that's not a work ethic, what is?
3. Esteem and approbation are especially important in France, as incentives.  This is one reason, not always voiced as such, why immigration in such an issue there.  It breaks down prevailing forms of status competition.
4. France has been well-positioned to benefit from the growth and economic integration of Europe.  The more open the economy, the less domestic economic policy matters.
5. The French are very smart and able, and have been so for a long time.  You'll note that a wide variety of French companies, whether Dannon or Carrefour, do well around the world.  The French are preeminent globalizers.
6. The foreigners' view of France, and its charm, would be very different if all of the country's buildings dated from after World War II.
7. The French are the very best, and wisest, consumers in the entire world, whether it be for clothing, music, food, or for that matter Hollywood movies and American blues and jazz.  The French government tries to influence this activity, or put up some nominal protectionist measures, but for the most part this French specialty and strength remains unregulated.  It helps account for the very high living standard there.
8. If you see a "World Music" recording from a French record label, buy it.
Personally, what I find most distressing about France is the limited number of dimensions for status competition.  Very often there is one right way to do things, to dress, and so on.  But that's also part of what makes the place work.
France is at the heart of "Old Europe", where the vestiges of a class system still prevails. That got me thinking: Is France more elitist than America?

The chart below from the OECD that plots the Gini coefficient, which is a measure of income inequality (the higher the less equal), against inter-generational social mobility shows that the Gini coefficient is slightly higher in the US than France but the French have a substantially better social mobility.

What about the French system of grande écoles? Doesn't that serve to keep French society elitist? On the other hand, I have seen many Wall Street recruiters look only for graduates from a "top school", i.e. if you didn't graduate from one of the best schools, don't bother me?

Much of the disparity has been generated from Wall Street, consider this Bloomberg story that shows how experienced Wall Street bankers and traders make more than:
  1. Neurosurgeon
  2. Lawyer
  3. Four-star general
  4. Cancer researcher
  5. Aerospace engineer
  6. Architect
When I was a kid, the people on this list were the kinds of professions that you aspired to - and to which they still no doubt aspire to in France. In America, the Wall Street financiers and hedge fund managers now top the list of the elite.

Warren Buffett said: "There's class warfare all right, but it's my class, the rich class, that's winning." Jeremy Grantham echoed those sentiments recently in his latest quarterly letter as he warned about the excessive influence of the elites on American society:

Unfortunately, the political-economic power problem has mutated away from the military, although it has left important vestiges there, toward a broader problem: the undue influence of corporate America on the government, and hence the laws, taxes, and social policies of the country.  This has occurred to such a degree that there seems little real independence in Congress, with most Congressmen answering first to the desire to be reelected and the consequent need to obtain funding from, shall we say, sponsors, and the need to avoid making powerful enemies.  “Well, Senator, we have $10 million here, which can either be used to point out how wise and desirable you are for your sensible vote on the upcoming energy bill or, alternately, can be used to point out how un- American and anti-job you are.  Your call.”

Grantham went on to castigate Wall Street, or the financial industry:

The financial industry, with its incestuous relationships with government agencies, runs a close second to the energy industry.  In the last 10 years or so, their machine, led by the famously failed economic consultant Alan Greenspan – one of the few businessmen ever to be laughed out of business – seemed perhaps the most effective.  It lacks, though, the multi-decadal attitude-changing propaganda of the oil industry. 

Still, in finance they had the “regulators,” deregulating up a storm, to the enormous profit of their industry.  Even with the biggest-ever financial fiasco, entirely brought on by the collective incompetence they produced (“they” being the fi nancial regulators and the financial industry leaders working together in some strange, would-be symbiotic relationship), reform is still diffi cult.  Even with everyone hating them, the fi nancial industry comes out smelling like a rose with less competition, profi ts higher than ever, and not just too big to fail, but bigger still.

If America were to go back to "simpler times", where kids looked up to neurosurgeons, four-star generals and cancer researchers, does that mean it becomes more French?

Just a thought...


Fut.Bot said...

Well, as a French, I read your article carefully. Even if I do agree with some of your arguments, I think the portray you're making lacks really the dark side of French society. The French Society is for the main part, the legacy of enlightenment, and as such as given birth to the socialism, and now to a mainstream of neo-communism. What you define as a quality is from my point of view, a weakness. Because, if you want to maintain a minimum standard of living in France, you have to work pretty hard, to bear the pressure, and pay more than half of your income, and for what ? For less that you have for free in the US.

In fact, the government spending is growing at the fastest pace ever. The taxpayer’s money is thrown away in pharaonic expenses or to found a massive immigration that doesn’t bring any skill or any help to our society, but violence, and multicultural concerns. As of today, most of my friends, mainly well educated and graduated from the better Universities (Phd, Master’s degree and equivalent) are thinking about leaving the country. The Politics are corrupts (for the most part), the journalist and the Justice as well. Wherever you look at, you see the country going into the wall. As a matter of fact, the riots we experienced back in 2005 were a taste of something nasty coming up. France is a social ticking time bomb that is going to explode.
The other problem your article is overlooking is the fact that our country is actually ruled by one class, whose rooted from ENA, the national school of Administration. This school as taken over the entire country, and has in fact confiscated all the powers : Press, Justice, Policy, Administration, Education. So, if you like some kind of soviet society, you might probably like France. Otherwise, you will probably not want to live there.

Jeff said...

Thank your for your input and insight, Fut.Bot.

I'll take it with a grain of salt, of course, as I would any essentially anonymous comment on a message board, but it does perhaps at least open my eyes to the possibility that what you are saying is an accurate portrayal of what is going on in France, or at least from the perspective of some living there.

Unfortunately, I have some similar complaints about the U.S., though there are some obvious differences.

I'm no expert, but Simon Johnson, former chief economist of the International Monetary Fund (IMF) gives a scathing review of how the financiers have a stranglehold on the U.S. economy in an Atlantic article:

The Quiet Coup

Matt Taibbi makes a similar case in Rolling Stone article, "The Great American Bubble Machine"

FWIW, and I know a lot of people, probably most people, disagree with me, but I think the underlying cause of the deterioration and instability of our financial systems around the world is due to a general deterioration or destruction of our moral values.

Unknown said...

The only way to compare economic data is to normalize the data. Below is a link comparing the per capita GDP of various countries. France is toward the middle of the list 33,100.

Below is a list comparing the per capita GDP of the states in the United States. Mississippi is at the bottom 32,967.

The French may work hard but because most of their money is taxed by the government and the government is very ineffective at spending that money the, French are dying a slow economic death.



Cam Hui, CFA said...

John -

I don't see your point. Is there some way that I am mis-representing the data in my post?