Certified French prophet warns EMU is madness

The French writer Emmanuel Todd has earned a reputation for accurate predictions. In 1976, his book The Final Fall foresaw the end of the Soviet empire 13 years before the Berlin wall came down.

On April 22nd last year, the day after President Chirac dissolved the French parliament and called a general election, Mr Todd (47) told me with utter conviction that the Left would win a landslide victory.

Everyone else predicted the Right would squeeze through, but they got it wrong. "I'm a certified prophet," he jokes in his office at the French National Institute of Demographics. "That's why I scare people."

At the beginning of his new book, The Economic Illusion, Essay on the Stagnation of Developed Societies, Mr Todd cites a recent study which shows that the economy inspires fear in 41 per cent of French people and a feeling of revolt among 31 per cent. This anxiety helps to explain why The Economic Illusion was second on the French non-fiction bestseller list after only 10 days in print.

In his 321-page essay, carefully shored up with charts and graphs based on OECD statistics, Mr Todd seeks to destroy the myth of US economic prosperity, and shows that from a demographic point of view, Economic and Monetary Union is folly. As usual, he attacks "la pensee unique" - the conventional wisdom of the moment.

His principal target is the gospel of liberal, free market economics espoused by the US, Britain and a large segment of the French establishment. Like many Frenchmen, he associates the US and Britain in one catch-all phrase: "les anglo- saxons". "From an anglo-saxon point of view, talking about free trade the way I do is inconceivable, heretical," he laughs.

"The concept of free trade entails a contradiction and a lie," he explains. "In a protectionist economy, when a company pays salaries, it has a vague idea what these salaries represent for the whole society. The company doesn't consider the salaries it pays simply as an expense. It's the post-war system, in which you give pay rises because you know it will benefit everyone.

"But when you move to a free market economy, you enter into a completely different logic. A company in country A produces for consumers in countries B, C, and D. The company no longer considers the salaries it pays as domestic consumption. The salary becomes pure cost. You are into the game of cutting back, of competitivty, of reducing payrolls.

"If every company in every country tries to cut back its payroll, you fall into the old capitalist problem of stagnant demand. The geographical and psychological separation of production and consumption eventually leads to stagnation. Since the late 1960s, western countries have adopted more and more free trade policies, and growth rates in OECD countries are falling. This is a natural result of free market economics or globalisation, which is in effect the same thing."

To escape the ill effects of free trade, Mr Todd advocates what he calls "intelligent, civilised, co-operative protectionism".

If the fundamental contradiction of free trade is the decline in consumption, the inherent lie is that only half of developed countries respect its precepts, Mr Todd says. "The US, Britain and France really practice free trade. In these countries, the consumer is king. He buys goods from any country, at the lowest price. But the Germans and Japanese don't behave the same way." Which brings us to the central tenet of Mr Todd's theories: you never escape from the family.

To understand his arguments, you must go back to his 1983 work, published in English as The Explanation of Ideology. While studying historical anthropology at Cambridge, Mr Todd developed the theories of one of his professors, Mr Alan Macfarlane, who established a relationship between British individualism and the British family structure.

"I applied this model to explain political ideologies," he says. "I realised that behind every political ideology of the 20th century, there was a family type. For example, in all the countries that had Communist revolutions Russia, Serbia, as well as the western European regions where there was a strong Communist vote there was a specific family system among peasants authoritarian and egalitarian."

Studying economics over the past six years, Mr Todd found an equally strong correlation between family structures and the way we do business. "The results are even more obvious in economics than in politics," he says.

"There are two main types of anthropological matrices in the developed world. In the US and Britain, the family structure is what I call the `absolute nuclear family', which has existed in England since the 16th century. It's a very individualistic system, where children become autonomous at an early age. There is no clear principle of equality between children in the family.

"The other main type of family in the developed world is the `stem family'. This is a standard term in anthropology which I took from Peter Laslett, the Cambridge professor who directed my doctoral thesis. In past times, you found `stem families' in Germany, Japan and Sweden. The stem family integrates the individual much more than the nuclear family. It is authoritarian and inegalitarian, and designates a sole heir in every generation." Associated with British and continental aristocracies, the stem family was also typical of German, Japanese and Swedish peasantry.

Without realising it, economists are moving more and more towards anthropology, Mr Todd says. Since the early 1990s, they have recognised the existence of two distinct types of capitalism which he says are the result of different family structures. "I often cite Michael Porter's US business school classic, The Competitive Advantage of Nations. It was published in 1990, at a time when the US and Britain were uneasy and Japan and Germany were on the rise. Mr Porter compared the US and Britain to countries that were more structured, and more dynamic at that time. He defined the characteristics of capitalism in the US and Britain as obsession with profitability, the short term, and mobility of the work force.

"On the other hand, Porter found a different type of capitalist economy characterised by a more long-term vision, greater interest in technical and financial problems, a more stable labour force and training for higher-ranking staff. This was the capitalism of Germany, Japan, Korea and Sweden. Without realising it, Mr Porter created a sample that was perfect for an anthropologist. His individualistic capitalism is the one built on the absolute nuclear family, and alongside that he constructed a sample which any anthropologist would recognise as a stem family. I call it `stem capitalism'. But others call it `communitary capitalism' or `integrated capitalism'.

"When you understand these two types of capitalism, you understand the trade imbalance. Traditional economic theory says that if a country has a trade surplus, its currency will gain value and make it more difficult to export. But a theory like this assumes all countries function in the same manner. In reality, Japan and Germany have a permanent structural trade surplus, independently of the value of their currency.

"Anthropology enables you to accept the obvious, that countries like Japan and Germany, because of their mental structure, are instinctively protectionist. They don't play the free trade game."

Mr Todd believes EMU is headed for great difficulties. "It is simply not possible to practice a single monetary regulation for countries of very different mental and social structures," he says.

Over the next 20 years, what the French call "les classes creuses" (empty classes) less populous generations created by the 1970s' drop in fertility rates will come of age. "The drop was substantial in France and England, strong in Germany and dramatic in Italy. If you look into the future, the decrease in the number of young people in their early 20s between 1990 and 2010 in France and Britain is about 10 per cent. In Germany it's 23 per cent; in Italy 40 per cent.

education, retirement, etc. All the budgets will be affected, but in very different proportions. How can you envisage a common budgetary policy for all these countries? If you can't harmonise budgets, how can you harmonise monetary policy? We're trying to converge our currencies at the very moment when societies are diverging.

"The single currency will aggravate all the problems arising from these circumstances," he continues. "Consumption is decreasing as a result of free trade, and it will decrease further as the number of young adults falls. On top of that, you add a currency whose sole objective is monetary stability. There's something mad about this project, a reality gap. The German, French and Italian ruling classes are in a state of historic carelessness that reminds me of the period between the two world wars or before 1914. The stupid ruling classes have come back; they're here, among us."