Welfare Lessons from France

Yet we should give more careful thought to the uprising. There are important lessons for U.S. policymakers.

American liberals often look fondly to the European welfare state as a model for U.S. social policy. A typical low‐​income family of four has much of its rent subsidized by the French government and can receive more than $1,200 a month in various government benefits. The unemployed receive more. There is a universal national health care system and generous retirement benefits.

Yet, despite all this, we now know much of France’s Muslim community lives in areas overcome with crime, poverty and unemployment. And in no small measure the blame can be attributed to France’s prized welfare system. For, while French welfare has made poverty more bearable, it has done little to promote the ability of people to move up the economic ladder, improve their lives and see a better future. It is a society in which the poor are given much, but own little and are offered few opportunities for self‐​betterment, a society locked in social and economic immobility.

French unemployment has hovered around 10 percent for years, but the unemployment rate for the rioting young people is well above 20 percent and in some immigrant neighborhoods tops 60 percent. Overall economic growth is less than half that of the United States.

Much of that economic malaise can be blamed on France’s tax and regulation systems. France’s tax burden is one of the highest in Europe — welfare states don’t come cheap. The top marginal income tax rate is 48 percent. When payroll taxes are included, the French can pay as much as 65 percent of their income in taxes. The top corporate tax rate is 34 percent. There is also a 19.6 percent value‐​added tax (VAT). Overall, taxes consume nearly 44 percent of France’s GDP. And even this isn’t enough to pay for the French welfare state. France’s national debt tops 68 percent of GDP, quite aside from the unfunded liabilities of the French Social Security system — a debt some estimate to exceed 200 percent of GDP.

Moreover, French businesses are weighted down with regulations and restrictions that make its labor market one of the industrial world’s most rigid. France’s minimum wage is roughly double that of the United States. The workweek is limited to 35 hours. French workers are entitled to a minimum of five weeks of vacation and 36 weeks of paid family or maternity leave, with additional time off available on an unpaid basis. It is very difficult for French companies to lay off or fire employees. Dismissals are subject to stringent bureaucratic constraints. As a result, French companies are extremely reluctant to hire new workers. On average, the United States creates more new private‐​sector jobs in a month than France does in a year.

At the same time, the generosity of French welfare offers little incentive for the unemployed to look for work. The result is a growing population of idle, disillusioned poor with little connection to society at large.

Of course, we have seen similar effects much closer to home. In the wake of Hurricane Katrina, we learned some $10 billion in welfare spending had been pumped into Louisiana over the last five years, yet New Orleans still had an enormous underclass unable to deal effectively with the storm and its aftermath.

Katrina has now started a new American debate on how to address the poverty that still exists in so many cities across America. As President Bush said in his televised address from New Orleans, “As all of us saw on television, there is also some deep, persistent poverty in this region as well. … We have a duty to confront this poverty with bold action.”

The president is right, but the important question is what sort of bold action we should take. And here, France provides an important lesson: A growing welfare state financed by ever‐​higher taxes is not the answer.