Wednesday, May 23, 2007

Paris on the Hudson

My following Op Ed appeared on page nine of the New York Sun of November 28 and is copied here courtesy of the New York Sun.

November 28, 2005 Edition > Section: Opinion > Printer-Friendly Version
Paris on the Hudson
November 28, 2005
When considering the recent rioting in France, it is more important to remember that the rioters were poor than that they were Muslim - it was a case of economic, and not merely religious, strife. As such the episode should give New Yorkers pause. Just as the world witnessed a collision of two Frances, one of mostly ethnically French "insiders" and another of more diverse "outsiders," New York has increasingly become a city divided along class lines, with the lower stratum dominated by African Americans, Hispanics, and a perennially emigrating white working class. Is the lack of opportunity for the poor of both Paris and New York a coincidence?
Arguably not. Rather, it is in both cities a function of dirigisme, government intervention and control in the name of social cohesion and welfare. However wonderful it might sound in theory, in practice it is all too clear that "social cohesion" and "welfare" ends up excluding the poor.
In the post-World War II era, government played a large role in France's economic development. The emphasis was on creating a technocratic elite based on merit and a high degree of government influence on the economy. In the early 1980s, the socialist prime minister, Francois Mitterand, first aimed to intensify dirigisme, but because of the problems that nationalization created he reversed course and liberalized the economy. However, the liberalization did not do away with labor regulation. A 35-hour week was enforced and restrictions on firing that make hiring expensive were retained.
Like France, New York has a history of dirigisme. In the 1920s, Al Smith pushed for reforms that later became the basis for the New Deal. In reducing the influence of the patronage system of Tammany Hall, Fiorello La Guardia encouraged a meritocratic approach to hiring. The state's intervention in the economy intensified in the 1940s and 1950s with urban renewal and public housing laws that rebuilt the city's infrastructure. Due to this interventionist history, New York's economic philosophy today is closer to that of Paris than to that of Phoenix. New York's taxes are among the highest in the United States. Its rent control laws raise the rents for newcomers including the young and recent immigrants, creating homelessness. Just as French elites fear American culture, so the New York City Council passed a health insurance regulation in October targeting Wal-Mart and other big-box stores, cultural icons that are popular almost everywhere else in the country.
Regulation imposes costs on employers that make them less likely to hire. At 10%, French unemployment is higher than New York's, and among France's Islamic and African minorities unemployment levels are higher still. Tens of thousands of young people in France have given up looking for a job, and the unemployment rate for those under 25 is 25%.In New York, the unemployment rate is about 5.7% but, as in France, among teens it is 23% and for African Americans it is 10.6%. According to the Community Service Society, in New York in 2004 the black employment rate was 60.7% while for whites it was 76.6%.
In both Paris and New York, heavy regulation makes jobs scarce for those with the least power. In both cities a veneer of politically correct diversity rhetoric cloaks economic policies that benefit the median citizen such as middle class public employees while squeezing those at the margins, specifically marginal racial minorities.
Perversely, increasing labor costs through regulation creates incentives for employers to be more selective in hiring, which can mean indulging discriminatory preferences. Since regulation makes firing costly, it reduces employers' willingness to take risks on ambitious employees who lack conventional qualifications but may be willing to work longer and harder. For ambitious workers from underprivileged backgrounds, the way around discrimination often is competition through the acquisition of skills, but regulation limits the possibility of their acquiring skills by raising the cost to employers of hiring employees from diverse backgrounds that do not fit employers' stereotypes. Those who gain admission to the most prestigious schools and can afford the tuition, and those whose parents have trained them to be most articulate and socially adept, have an enhanced advantage under dirigisme. Those whose ability is harder to discern because it has not been as carefully cultivated and those who are most eager to work hard to succeed despite disadvantages are the ones likely to suffer most from marginalization.
In Paris the 35-hour workweek serves to reinforce the privileges of capital by preventing poor, would-be parvenus from working extra hours to compensate for their poverty. In New York, the state and city saddle employers with high taxes while the schools teach neither basic skills (reading, writing, and math) nor self-discipline. Instead, the students are taught to have self-esteem. The result is that the higher-end firms that can remain in New York are decreasingly likely to hire New Yorkers.
The French regularly denounce racism in the United States. Yet, when it comes to hiring, they are strikingly discriminatory. In New York, the diversity rhetoric is coupled with the eviction of Wal-Mart and the managed decay of the educational system, policies that cripple the poor while subsidizing special labor interests.
In both Paris and New York, large, established firms find it easy to comply with complicated regulations while small entrepreneurial firms find it difficult. Middle- to upper-income consumers don't mind spending more at a department store, while lower-income consumers are in need of the price reduction Wal-Mart offers. Most importantly, those who have not been able to graduate have a greater need for work experience in modest-paying jobs with longer hours and will benefit most from the experience that marginal jobs offer. But such jobs are driven out by dirigisme in Paris and New York.
Perhaps the biggest difference between France and New York is that dirigisme is a policy that influences all of France, while New York's state intervention does not cross the Hudson. Since the days of Horace Greeley, New Yorkers have tended to emigrate westward. In recent decades, the reason has been New York's war against the poor. The working-class youngsters in the French suburbs do not have a larger nation with a free market philosophy to which they can emigrate to escape the assault of dirigisme. As a result, the young French increasingly emigrate to London, much as New Yorkers have increasingly emigrated to Texas, California, and Colorado. Policies that claim to be communitarian are precisely those that are decimating communities in Paris and New York.
Mr. Langbert is an associate professor of business and economics at Brooklyn College.

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