France’s yellow vest movement has morphed far beyond a carbon tax protest, Stanford economist says

Jan. 23, 2019 – The yellow vest movement in France, which began as a protest against increased fuel taxes, has taken on a much broader agenda, according to a Stanford economist who recently taught in Paris. The movement stems from frustrations over high unemployment and an economy that has stagnated, despite a decade of global expansion in other European countries, he said.

France’s yellow vest movement, which began as a protest against an increased fuel tax, has evolved into a broader stance against President Emmanuel Macron’s economic policies, says Stanford economist Gregory Rosston. If Macron is to survive politically, he must encourage widespread economic growth along with responsible climate policies, Rosston said.

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Here, Rosston, director of Stanford’s Public Policy Program and the Gordon Cain Senior Fellow at the Stanford Institute for Economic Policy Research, shares his thoughts on the recent demonstrations that began in opposition to a carbon tax that was perceived to disproportionately burden the country’s working class. The yellow vest (gilets jaune) movement – named after the high-visibility jackets the protesters wear – has since taken on a broader political agenda about how to solve some of France’s toughest problems: high unemployment and a stagnant economy.

Rosston was in France in fall 2018 as the faculty-in-residence for the Bing Overseas Study’s Paris program. There, he taught “Economic Challenges for France” to Stanford students.

The yellow vest protests have morphed into a broader movement about other economic issues, such as the high cost of living and other government tax policies. According to your research, what problems are affecting the French economy?

The backlash is not simply anger at higher gasoline prices. In fact, the price of gas in France was already quite high ($6.48 per gallon at the start of the protests) and the swings in the cost of crude oil over the past few months have caused gas prices to drop by more than 5 percent (the price is now about $6.13 per gallon).

Early on, President Macron’s opponents labeled him “the president of the rich” for enacting tax cuts that mainly benefited high income households. His view was that his tax reform would combine with changing labor laws to increase economic activity and reduce France’s stubbornly high unemployment rate, which has remained at close to 10 percent despite the global economic expansion over the past decade and significant reductions in unemployment in many other advanced European countries.

Economic growth in France has been relatively anemic over the past decade. Increasing growth  by even 0.5 percent per year would make a huge difference in the ability to better balance the budget and provide income security for vulnerable populations. Changing the labor laws and attracting capital are two tools, but there are others as well that can protect vulnerable populations, yet increase economic incentives.

Since the protests, Macron’s government has announced plans to increase wages for some of the poorest workers and a tax cut for most pensioners. Do you think these measures will be effective? What can be done to make economic policies equitable to protesters and the working class?

One of the slogans of the protesters was, “Macron is concerned with the end of the world. We are concerned with the end of the month.” There are a significant number of people who have not benefited from the economic growth – both the 10 percent who are unemployed and many workers who have not seen real wage growth over time. Despite these issues, income inequality in France is substantially lower than in the U.S. and in other countries. When state-provided health care is considered, the distribution becomes even less unequal.

One of the toughest problems for France is to increase employment. France has significant labor regulations that make employers skittish about hiring long-term workers. In addition to lowering taxes, President Macron made some inroads to reduce burdens on employers, but there seems to be more that can be done without imperiling workers’ rights substantially.

Getting more jobs and economic growth leading to higher wages would go a long way to increasing the welfare of lower income citizens. In addition, protecting vulnerable people like retirees, who initially faced higher taxes on their fixed incomes until that tax increase was rescinded, is important.

Based on your recent experiences in Paris, what do people living outside of France need to know to understand the nature of these protests?

First, the yellow vests are a product of French regulators who mandate that every car have a reflective vest in case of breakdown. So, the protesters used a symbol related to cars, easily accessible and very visible for their protests – a politically savvy move by Macron’s opponents.

Second, there is a significant portion of the public who support the protest movement but dislike the violence. However, the violence keeps the protests in the news so despite differing goals, the anti-gas tax movement is benefiting from more radical protesters.

Third, Macron was not the first choice of very many French people – he garnered only about 25 percent of the vote in the first round of the presidential election. In the runoff, he faced Marine Le Pen, who not only proposed policies that many disagreed with, but she also fared poorly in her campaign and debate appearances. So, it is not shocking that those who did not support Macron initially are unhappy with him and his policies after a year and half.

What lessons can be learned from the yellow vest protests, especially how a government – France and elsewhere – can successfully implement a carbon tax?

Economists almost universally agree that implementing a global carbon tax equal to the social cost of carbon would be the best way to pay for the harms that carbon use causes. However, too few politicians and too few carbon users and producers agree to make it possible to pass a global –  much less a national – tax at such a level. One way to make them more politically palatable is by “recycling” carbon tax revenues such as a return to all citizens (see the proposal by Secretary George Shultz et al.).

While carbon taxes would be the most efficient, it is possible that other more regulatory solutions can help in the absence of a carbon tax. For example, if clean air standards for coal-fired power plants, cap and trade plans, or corporate average fuel economy (CAFE) standards for automobile sales can come close to the efficiency of carbon taxes without being called a “tax,” especially one that is visible to consumers, then it is possible to sacrifice some efficiency from an ideal, yet politically unimplementable, idea for others that get a lot of the benefits.

Of course, the efficient solution might work if there could be redistribution of the revenue to make it politically saleable and equitable. For example, President Macron could take the revenues and give them back to the people based on how much driving was done in their town the previous year to make them more politically viable. His proposal had been to use the money in the general treasury which, while potentially very good, did not work politically, especially after he reduced taxes for high-income people.

After yielding to protesters, how can Macron maintain a carbon plan that meets the Paris climate agreement and survive politically?

President Macron needs to figure out how to survive politically so he can push a climate plan.  Conversely, it is important for him to be able to show that a leader can implement responsible climate policies and succeed politically. Right now, leaders around the world are looking at France and seeing the backlash to Macron’s policies and are likely very hesitant to adopt similar carbon taxes.

Gina Raimondo, governor of Rhode Island, took on politically unpopular pension reform and said at the SIEPR (Stanford Institute for Economic Policy Research) Economic Summit in March 2018 that she was running for re-election to show other politicians that they could do the right thing and survive politically. Like Governor Raimondo, I hope that President Macron regains his power to enact reasonable climate policies and show politicians around the world that they can also do the right thing and survive politically.