The EconomistNovember 30, 1968
From general down to sergeant
General de Gaulle has abandoned strategy for discipline. The attempt to prevent a repetition of the events of last May through workers' "participation" has been dropped, and with it "the search for a third way between capitalism and communism." The new slogan is law and order. The new method of restoring financial stability is the classical one of deflation, with a tiny disguised devaluation to start with and the prospect of more to come, preferably as part of an international realignment. Having accepted the orthodox rules of the game, General de Gaulle has also become more dependent on international, particularly American support. And this may well limit the scope of his foreign policy.
At first sight it looks unlikely. Last Saturday, when devaluation of the franc was taken for granted, General de Gaulle broadcast his resounding non. Once again it was possible to present him as the French patriot, as the man who astonishes the world. But for a more realistic view of the situation one ought to go back to the crisis of last May.
At that time, on its tenth anniversary, the unsuspecting gaullist regime was almost destroyed, first by the revolutionary students and then by the biggest strike in the country's history. To save their skins, the government and the employers agreed to wage increases double the normal average. Nominal wages will have risen by about 13 per cent this year compared with an average of just over 6 per cent; prices are expected to rise by about 6 per cent compared with the usual 3 per cent. Then came the general's electoral victory and the rout of the opposition.
Some of the victors were in a hurry. They wanted to club the students into submission and take away from the workers part of their gain. To put it more diplomatically, they insisted that profit margins must be rapidly restored. More sophisticated than his supporters, General de Gaulle considered how to avoid a repetition of the upheaval and how to make use of the forces of discontent revealed by the students' rising and the workers' strike. He made the faithful M. Couve de Murville prime minister to help him in this delicate task; It was the role of the stern M. Marcellin, as minister of the interior, to inspire awe, while the bright M. Edgar Faure was told to get on with university reform. The workers were to be promised a greater say in management; but they could not be expected even to listen to vague schemes of participation if they were deprived of the spoils they won after the May crisis. The solution was a rapid rate of expansion; a planned increase of the gross national product by more than 7 per cent in 1969.
But at this point the government clumsily tried to have it both ways. It increased death duties just as it was lifting exchange control which, in any case, had never been very tight. To stimulate production, the government extended credits and pumped money into the economy. And there were no barriers to prevent it from overflowing into Germany or Switzerland. For a time, however, the policy seemed to work. By the end of October France still had just over $4 billion in its reserves compared with $6 billion in April (the losses, taking into account other credits, amounted to about $3 billion). Production was booming, the trade deficit was narrow and the main doubts were about what would happen next spring. Then came the rumours of German revaluation and the trouble started. The franc looked overvalued, it was hoped that the German mark would be revalued, money was easy, there was uncertainty about future social unrest and the "speculators" were breaking no legal rule. Not surprisingly the flight reached astronomical proportions.
What is still not clear is whether the French government lost its nerve in the middle of the crisis. Last Saturday French papers were merely debating the size of the devaluation and officials were making no effort to correct them. Was this just stage-management for the general, or a change of mind?
In any case, General de Gaulle has made up his mind. He has abandoned his attempt to pursue the middle course--witness the one sentence in his speech against speculation, and a whole concluding paragraph about law and order. On Tuesday M. Couve de Murville brutally elaborated this policy. Even without devaluation, the obvious medicine is a dose of deflation. To widen their profit margins the employers will no longer have to pay a tax on wages and salaries. On the other hand, all rates of value-added tax have been raised. Prices are now expected to rise by about 6 per cent next year. If nominal wages do not increase any faster, the outcome of the May crisis will on the whole have been absorbed.
The new crisis may shake de Gaulle's foreign policy. But his main problem is a domestic one. Will the workers draw the lesson that it is not worth striking? Or will they, on the contrary, decide that next time they must fight to the bitter end?