Capitalism runs out of the accumulated dividends, reaches a critical point
Published: Mar 26, 2023 07:38 PM
Paris. Photo:VCG

Paris. Photo:VCG

The reform of the pension system is a key issue related to national competitiveness, especially for developed countries like France, which have entered the era of welfarism. 

As one of the important engines of the European economy, the reform of France's pension system is closely related to its development in the post-industrial era and the competitiveness of the entire EU. In the era of globalization, France faces economic challenges not only from within the EU but also from competition from the US, China, and other emerging economies.

The current economic strength of France is based on the historical foundation of more than 500 years of Western colonial expansion, as well as the achievements of hardwork by one or two generations after the end of the WWII.

Today, France still controls the currency of 14 former West African colonies, with the franc being their legal currency, and these countries must deposit 50 percent of their foreign exchange reserves at the French Public Treasury. This is one of the reasons why the French still enjoy almost the most generous social welfare system in the world, including pensions.

In the competition amid globalization, the French people are running out of the dividends accumulated by their predecessors. The country still has money and can provide significant military support to Ukraine. However, with the continuous increase of the elderly population in the future, the pension system will face a deficit. This is why French President Emmanuel Macron insists on reform.

As an important part of the welfare system, pensions are an important factor to reflect the fairness of secondary distribution. Moreover, the experiences of many countries show that pensions can only be increased and difficult to be cut. Therefore, the issue of how to continuously make the pool of pension funds bigger has become a problem related to how to distribute it more fairly.

For France, the arrangement of making everyone work longer is not fair, which means that the vast majority of blue-collar workers, including those who work in polluted and dangerous environments, will have to share the burden. But their job nature is completely different from those who work on computers and play with stocks and securities. The reform is seen as another exacerbation of the wealth gap.

France used to be known for a relatively small wealth gap within Europe, but in recent years, this gap has been widening. Data from the World Inequality Lab of the Paris School of Economics shows that income and wealth inequalities have been on the rise nearly everywhere since the 1980s. And analysts believe the wealth tax (IFI), a tax on the real estate assets for individuals, which has replaced the solidarity wealth tax (ISF), has led to an "acceleration" of inequality. 

The challenges faced by France, a world-class economic power, are not just about money. How many people from the new generation who enjoy this welfare system will be willing to continue to work hard to create sustainable economic growth, especially at the bottom and manufacturing levels, like their predecessors did? Former French president Nicolas Sarkozy's famous words "work more to earn more" were considered right a few years ago, but they are now widely rejected by many French people, especially young people.

Therefore, reform of pensions is not only a systemic issue but also a matter of spirit. Whether France can continue to maintain its strong competitiveness also faces a dual challenge at both systemic and spiritual levels.

Looking back at history, European capitalism has been exploring between efficiency and fairness to constantly find points that lead to reforms. The European people chose a different path from that of the US - a path that emphasizes welfare and fair distribution. However, even under welfare capitalism, it does not change the nature of capitalism and its inherent flaws, which has inevitably led to the widening of the wealth gap.

It seems that the French people cannot find a way out now. Neither can the US. Capitalism seems to have reached a critical point, and although it will not disappear quickly, the future path is uncertain.