IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
France is famous for its wine, cheese and…unions. It is well established now that any reform considered by any government, left or right, has to be approved by unions (or, at least, not strongly opposed) in order to have a chance to be passed. Strange situation in a country where less than 8% of all employees have a union membership card—the lowest rate in the EU. Despite the poor legitimacy that such a low membership rate implies, unions are getting important grants and allowances from the state as well as from businesses.
According to an article published by Le Figaro Magazine, those financial supports would amount to more than €4 billion per year. This is more than half of the budget of the ministry of justice. Meanwhile, contributions from their members account for only 3-4% of their spending. In any other EU country membership fees account for 80% of the budget of unions.
According to a recent parliamentary report, the budget and spending of unions remain completely obscure. True, it is only since 2010 that unions have the obligation to publish their accounts; nobody ever asked them to justify their expenses since their creation in 1884! This probably explains that many of them have decided to ignore the new law and have not disclosed their accounts yet.
According to the same report, between 17 000 and 28 000 civil servants are working for unions, while being paid by the state. The number is not clear, because nobody actually knows it or cares about it in the various ministries. The money spent on the respective salaries is estimated to be around €1.3 billion. The private sector is subsidizing its unions with €1.6 billion per year. Last but not least source of revenues for the unions is their quasi monopoly on professional training, which represents some €6.3 billion. The flourishing financial situation of unions, even in those difficult times of crisis, is puzzling. According to some analysts (Jean-Luc Touly, author of several books on unions’ financing), this situation is easy to explain – unions function by converting into cash their support for reforms. This is true not only at the national level, but also for large private or public companies. This would explain, for example, why the RATP (Paris railroad transportation) is giving to its unions €16 million per year, that is, €7 million more than the amount requested by the law. The same is true for other top French companies like Air France, eager to secure its privatization plan and merger with KLM, or like EDF, the electricity company, which hosts the richest union committee in France.
The lesson is that in France things don’t always taste as they look. Unions aren’t so much opposing capitalism than taking their shares in a, until now, flourishing crony capitalism. But, that very bizarre understanding of “social cooperation” could be living its last days. The debt crisis and coming recession will unavoidably hit the system and unions’ revenues with it. And the necessary and difficult reforms of the French “social model”, including the 35 hours working week and the pensions system, will require negotiators with true legitimacy. May be the Parliament could takeover the job while a new form of unions develop. That will save time and money. Meanwhile we still have cheese and wine which, most of the time, taste as good as they look.