The Sick Man

"The French are constitutionally incapable of balancing their budget . . . The French government is moribund."

That was the gist of an unflattering report presented to the U.S. Senate by a group of American businessmen recently returned from Paris. French feelings were hurt: U.S. diplomats in France grumbled that such sweeping accusations do more harm than good. Yet few people in a position to know, in France or the U.S., seriously question the conclusion. France has become the sick man of Europe.

Since war's end, the U.S. has given or lent France a total of $10.5 billion. This comes to $3,000,000 a day, every day, for nearly nine years. To show for this, France has all those things that the Mutual Security Agency is justifiably proud of helping rebuild: a humming industry, a well-tended countryside that, to drive through, seems to glow with prosperity. Yet Premier Laniel's government faces a deficit of more than 600 billion francs--$1.7 billion. France owes her European neighbors $824 million; her reserves of gold and foreign currency are down to $613 million--less than tiny Holland's. Things got so bad that in April and May the U.S. put up an extra $89 million to pay off French I.O.U.s to the European Payments Union.

1931 Jalopy. How did France get into this mess? Cabled TIME Correspondent Curtis Prendergast from Paris:

France got into the mess partly through wars (in Europe and Indo-China), but also because her economy is hopelessly out of date. The U.S. aid that has rehabilitated France has, in effect, done an excellent job of restoring a 1931-model automobile. The dents have been smoothed out. the engine tuned up, but it is fundamentally still the same old jalopy.

The most outstandingly decrepit item is the French tax system. Frenchmen pay taxes (33% of their gross national product, compared with 27% in the U.S.), but the tax load falls unfairly on consumers. An industrial worker with two children, earning $1.000 a year, pays 15% income tax (in the U.S. he would pay nothing). On the other hand, two million French farm families, one-third of the population, pay next to nothing. Politicians dare not anger them. Farm income is calculated on the basis of land values last assessed in 1908. Since then, prices have jumped 170 times, but the old tax rates have increased only one-tenth as fast. Result: 1,500,000 farm families pay no tax at all; the rest pay less than 2%.

Bricked-Up Windows. Illegal tax-dodging is even more serious. It deprives the French treasury of an estimated $1.7 billion a year--more than 20% of its tax revenue. Biggest dodgers are the professional men (doctors and lawyers) and a million petty shopkeepers, many of whom stay in business only by pocketing the sales tax they collect from their customers.

Tax fraud is so prevalent that the collectors resort to all kinds of ruses to catch those with hidden incomes. A French tax form asks: How many servants do you keep? What horsepower is your car? Do you own a pleasure boat or a vacation home? This sort of questioning, designed to establish the scale of living, occasionally catches a tax evader, but more often it affects the economy like the old window tax in England. There, people bricked up their windows; in France, they hide their savings under the mattress, thereby withholding their cash from useful investment.

Up Go Prices. Direct taxes make up only 28% of French tax revenue (the U.S. proportion: 64%). The rest comes from indirect sources, such as 50-c- a gallon on gasoline. These taxes help to price French goods out of foreign markets and beyond the reach of many French workers. To some extent, the workers are compensated by the cradle-to-grave social security system, which pays hospital bills, unemployment benefits and family allowances. A man with four children often collects as much from social security as he does in wages. But social security is added on to the price of goods, and the prices go higher and higher. Paris nowadays is too expensive for U.S. tourists; long ago it got too expensive for Parisians.

The French economy in 1953 is stuck between feudalism and anarchy. Potentially. France is the richest farm country in Europe, yet she imports $200 million more food than she exports. Her farms are tinier and less economical than they were in 1930. French industry seems to operate on an inverted system of Malthusianism, holding down production to keep pace with the population. When demand falls off. firms cut their output, instead of reducing prices to stimulate the market.

Worse Than 1789. Little old Paul Reynaud, onetime Premier of France, recently told the National Assembly that France needs more reforms today to save her than she did in 1789. The reforms are not forthcoming. The only improvements offered so far have been negative: cut the arms budget, reduce pensions. A more popular save-all is also a Communist slogan: "Get out of Indo-China." Strategically, this would be disastrous for the entire Western world. Financially, it would be like knocking the trunk off that 1931 car: the car might run a bit more easily, but its engine capacity would not be improved.

U.S. Mutual Security officials have hawked about a whole series of grand designs to revitalize French industry. First it was European integration, then "productivity," then offshore procurement. The latest is more popular in Congress: no more U.S. aid.

Many responsible Frenchmen applaud this idea. U.S. aid, they say, merely postpones decisions that France must make herself. Yet a sudden stoppage of U.S. assistance could easily jeopardize the huge U.S. military investment in French bases and supply depots, stretching from the Channel to the Rhine. U.S. aid will probably be cut gradually, but cut it will be.

The question is whether France will be on her feet or on her back when the last dollars arrive.

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