France Bids Adieu to Controls

Taking some price rises today to temper inflation tomorrow

In the 21 months since he became France's Premier, former Economics Professor Raymond Barre has earned a reputation as a formidable inflation fighter. His success in keeping prices down was crucial in helping President Valery Giscard d'Estaing's center-right coalition win last March's bitter elections. Yet the professor's record is beginning to tarnish. Since December, when consumer prices rose at an annual rate of only 3.7%, inflation has worsened every month, to an alarming rate of 14% during April.

Barre is taking the news in stride.

"A high index is not necessarily a bad index," he explains nonchalantly, adding that he sees no improvement in the months ahead. As if to ensure that prophecy, he has instructed officials to dismantle one of France's most entrenched institutions: the system of 30,000 decrees that since 1945 has controlled the price of almost all manufactured goods, from trucks to biscuits. This bombshell, more over, is hitting as the economy is still absorbing the impact of another recent Barre move: increases of up to 20% in the prices of natural gas, electricity, rail tickets and other government-supplied services. The cost of mailing a letter inside France went up from 22-c- to 26-c-, and this week premium gasoline will rise 10.7%, to $2.20 per gal. By charging more for services, Barre hopes to shrink the government's inflationary $4.3 billion budget deficit.

With all the increases, French price rises this year will almost certainly return to double digits, up from 9% in 1977. But Barre, a devout believer in the free market in a country sadly short of such sentiment, is convinced that within a year or two his latest moves will reduce France's inflation to that of its more successful neighbors. He notes that countries without controls generally have more stable prices--for example, Germany with a rate of 2.7% and Switzerland with 1.7%. Austria, the Benelux countries and even Britain have also done better than France lately. Although designed to keep prices down, controls actually lift them by eliminating competition, in effect turning all industries into cartels. Discount stores are far scarcer in France than in West Germany or the U.S. Since businessmen know that the government will usually give in to demands for price rises, companies have little incentive to gain an edge by keeping costs, especially wages, under control.

Barre is moving now because the political and economic climate is more propitious than at any other time during President Giscard's four-year tenure. The Socialist-Communist opposition is still deeply split. With the threat of a leftist victory out of the way, prospects for the French economy have improved. The franc is steady, trade is in surplus, consumers are spending and corporate investment--which had been stagnant in anticipation of wholesale nationalizations by a leftist government--is picking up.

The success of Barre's strategy will depend largely on France's managers. To make sure they do not take undue advantage of their new freedom, Barre is adopting a tough antitrust policy that will encourage more competition, especially from abroad. At the same time, to avoid political problems as inflation temporarily accelerates, he has promised that workers' wages this year will rise at least as quickly as prices. That commitment carries a risk: the resurgence of a wage-price spiral that would be hard to break. As Barre's former students know, inflation is always easier to trigger than to control.

This file is automatically generated by a robot program, so viewer discretion is required.