Power and Influence: The Atypicality of the U.S.

John Quiggin suggests that the uprising in Egypt is another data point suggesting the decline of the U.S.:

There was another round of the more-or-less endless debate about the decline of the US not long ago, focused on the weak employment growth that has characterized the current ‘recovery’. I expect that the obvious inability of the US to exert significant influence, in either direction, over the fate of client regimes in North Africa and the Middle East will provoke some more discussion among similar lines.

As a public service, I’d like to bring an end to this tiresome debate by observing that the decline of the US from its 1945 position of global pre-eminence has already happened. The US is now a fairly typical advanced/developed country, distinguished primarily by its large population. ...

In geopolitical terms, the US spends a lot more on its military than anyone else (in fact, more than everyone else put together) and (contrary to the beliefs of most Americans) hardly anything on development aid or other efforts at promoting global public goods. The amount of sustainable influence generated as a result appears pretty trivial. The number of places in the world where the US can directly determine, or even substantially influence, political outcomes is approximately zero – nothing like what might be associated with an old style Great Power, let alone a superpower or “hyperpower”.As I’ve observed before, Americans of all classes (except those directly connected to the military-industrial complex) get very little payoff for their military expenditure – trillions of dollars of expenditure has been unable to produce positive outcomes in a couple of relatively insignificant countries, or even to put paid to a bunch of pirates in the Indian Ocean. ...

fn2. As other countries catch up to the advanced group that includes the US, those in that group might be said to have declined in relative terms. But this doesn’t seem to me to constitute “decline” in any important sense.

Taking the last part first, a decline in relative terms is exactly what most people mean when they talk about the rise or decline of states. There's a storied IR debate about whether states are concerned about absolute or relative gains (or both), but basically everyone agrees that when we're talking about power and influence -- as opposed to, say, affluence -- relative differentials is what is important. So Quiggin is not only wrong here, he's got it perfectly backwards.

Also, there is no sense in which development aid is a public good. It is excludable, and it is rival. And it is certainly political. (Moreover, as a commenter points out, once private giving is included the U.S. is actually the world's leader in foreign aid.)

Moving back to the top, the claim that America is a "fairly typical" developed country is extraordinarily naive. Dan Nexon shows up in the comments to say:

I want to be clear that (1) I don’t think the US should be spending what it does on its military, (2) it is really easy to underestimate the degree to which US defense policy—through alliances, bases, partnerships, expenditures, presence, stab ops, nuclear umbrellas, LIC, etc.—structures the current international system. Whethe that impact is “good, “bad”, or more complicated is certainly up for debate. That it depresses many other states military expenditures is, I think, pretty clear.

A clear example of this actually involves the very client states in North Africa and the Middle East that Quiggin says the U.S. is unable to influence. Egypt, for example, spends about $4bn a year on its military. The U.S. provides $1.3bn of that in military aid. It also provides a good bit of economic aid. Does Quiggin (or anyone else) think that this does not give the U.S. significant leverage over the Mubarak regime? The U.S. said yesterday that it would revisit all military aid to Egypt in light of Mubarak's actions, and has now called for a transition of power. If Mubarak instead cracks down on protesters, presumably U.S. aid will dry up and the regime will be further weakened. And as I blogged yesterday, preliminary research by Phil Arena suggests U.S. aid to clients in N. Africa and the Middle East has a pacifying effect on the region by suppressing violence between Israel and its neighbors. So Quiggin has got this backwards as well.

We also know that U.S. influence shapes IMF lending and conditionality, and that other countries leverage their ties to the U.S. for their benefit. The same is true of the World Bank.

The U.S. security umbrella in Europe continues to heavily influence the region. What might the Baltics look like without the U.S./NATO interventions in the 1990s and continued security guarantee to Kosovo? How does Russia's strategic calculus change in Eurasia without the U.S. presence? What does the foreign policy of France or Germany look like if NATO was dissolved tomorrow? I think it's unquestionable that the removal of U.S. influence would lead to major shifts in the policies of nearly every country in Europe. The effects of a strong U.S. presence in East Asia are even more pronounced. I think it's also clear that no other state has anything approaching that level of influence, which puts paid the notion that the U.S.'s power is "typical".

It's true that some other advanced countries have some influence over some countries, mostly former colonies. But none except the U.S. have this level of influence in every region of the world. Or, really, in any region of the world.

Or consider this: Japan and the rest of Asia had major financial crises in the 1990s, yet the effect on the rest of the world was slight. Same with all of the major Latin American countries, Russia, and others. The U.S. had a financial crisis in 2007-8 and the result is utter chaos in Europe and elsewhere. If the U.S. and Japan were comparable powers this asymmetry shouldn't exist.

Quiggin argued in comments:

Certainly, I can’t think of many examples where the US has been able to prevail on a diplomatic issue where the EU, Japan etc disagreed.

Financial regulation, climate change, arms control/missile shield, invasion of Iraq, monetary policy/exchange rates, integration of China into the global economic community, Israel. For starters.

But the point is even broader than that. If the E.U. and Japan agree with the U.S. on many or most major issues, isn't that evidence that the U.S.'s influence is greater, not lesser? The system that the E.U. and Japan exist in was largely created and maintained by the U.S. If other major countries have been socialized into it, does that fact not demonstrate just how pervasive the U.S.'s influence is?

Burmese Junta Dissolved

Man, the world is moving fast right now:

Myanmar’s ruling generals will preside Monday over the first meeting of Parliament in more than two decades, a move that they say completes the country’s transition to a multiparty democracy.

Officially, the opening of the two-chamber Parliament in the capital, Naypyidaw, will mean the dissolution of the junta that has ruled Myanmar since 1988, when the country was known as Burma.

But it does not appear to be the dawn of unfettered democracy. A quarter of the seats are reserved for the military, and a military-backed party controls more than 80 percent of the rest, allowing the generals to effectively retain their power, albeit in a less hierarchical system.

Maybe call it the Russian model? Looks like oligarchy to me.

The military government, meanwhile, is aggressively selling off buildings, factories and state-run companies, mostly to allies and family members of the country’s military leaders. The rush to privatization vaguely resembles the vast sell-off in Russia after the Soviet Union collapsed. ...

David I. Steinberg, a Georgetown University professor and a longtime observer of Burmese politics, predicted that the new political system would lead to more freedoms and openness, but that it would be a “slow and tortuous” process. He declared himself “cautiously pessimistic.”

Doha Done in 2011?

Richard Baldwin says the Doha round of WTO negotiations will succeed this year:

The paralysis of the last two years was primarily due to the Obama administration’s unwillingness to engage the issue, according to my discussions with more than a dozen WTO ambassadors and WTO leaders since August 2010.

Obama needed every Democratic vote to get his domestic agenda through Congress. As trade liberalization is deeply opposed by some Democrats, the administration treated “trade” as a four-letter word – not to be mentioned in any way in any situation. America, the argument went, needed healthcare reform, financial reform, and a stimulus package far more urgently than it needed a trade deal. ...

And then Obama lost his majority in the lower house. Plan A was out; Plan B was in – and this includes the Doha Round. Obama supports multilateral governance in general, is broadly in favour of free trade (his anti-trade remarks on the campaign trail were directed at bilateral deals with low-wage nations, Council of Foreign Relations 2008), and believes that Doha could create US jobs. ...

But beware. While likely to conclude, nothing is sure about this deal. To drive the point home, Germany, Britain, Indonesia, and Turkey created a “High Level Trade Experts Group” in the run-up to the Seoul G20 Summit. The Group’s remit is to identify priority actions on trade, including Doha. The Group, which consists of nine trade experts[iii] appointed by the four sponsoring governments (I was appointed by the Cameron administration), today released an interim report in Davos where trade ministers are meeting informally to take political readings and identify blockages. The key points are threefold, in my view:

1. Doha is doable this year; rapid progress is being made in closing the negotiating gaps; this started in November 2010.

2. Getting the deal done requires head-of-state attention; they must authorise, or personally negotiate the last trade-offs framed by the draft agreement that their WTO ambassadors hope to have ready for April.

3. The window for this deal is the first half of 2011; after that all bets are off until 2013 at the earliest.

More at the link. I'm more skeptical, as I don't see Congress granting Obama fast-track authority. The GOP is not loudly pro-trade these days, and the xenophobic tendencies of the Tea Party movement might wreck any chances in the House. I would be surprised if a Democratic Senate would be especially interested in the idea either. Without that authority, Obama doesn't have the tool required to lead in the ways Baldwin would like to see. Moreover, without that authority -- which prevents amending or filibustering an agreement -- the Congress would likely tinker with it, amend it, stall it, and otherwise make passage less likely.

Baldwin points to 1994, when Clinton was able to work with a Republican Congress to pass trade legislation. But 1994 is not 2011. The economy had recovered from the small '91-'92 recession, and the GOP was out front in support of open trade and controlled both houses of Congress. Clinton still had fast track authority (it expired later that year). None of those things are true now, and any one of them could scuttle any deal.

And that's just in the U.S. Is Europe prepared to give in on agricultural supports at a period when economic uncertainty is especially high?

I think Obama should push for the resolution of Doha, and I think he will. But I'm not optimistic.

Get Back to Work, Phil!

I'm very interested in reading this paper after it has been written:

In the case of Egypt, there's also an argument to be made that the US effectively bought the end to one of the postwar era's most intense interstate rivalries. (One of the too many papers I'm working on at the moment develops this argument. When it is ready, I will post a version here. The preliminary results suggest that the best explanation for patterns of conflict between Israel and her neighbors is the amount of US foreign aid given. Standard factors like parity and rapid shifts in the distribution of capabilities do not have much effect, though they do help explain how much aid the US gives.)

Two Pieces on Power

A couple things on power. First, Joseph Nye makes the case for European power in an excerpt from his new book:

The closest thing to an equal that the United States faces at the beginning of the 21st century is the European Union. ...

In military terms, Europe spends less than half of what the United States does on defense, but has more men under arms, and includes two countries that possess nuclear arsenals. In soft power, European cultures have long had a wide appeal in the rest of the world, and the sense of a Europe uniting around Brussels has had a strong attraction for its neighbors. Europeans have also been important pioneers and played central roles in international institutions. ...

The political scientist Andrew Moravcsik makes a similar argument that European nations, singly and collectively, are the only states other than the U.S. able to “exert global influence across the full spectrum from ‘hard’ to ‘soft’ power. Insofar as the term retains any meaning, the world is bipolar , and is likely to remain so over the foreseeable future.” ...

In terms of relative power, if the EU endeavored to become a global challenger to the United States in a traditional realist balance of power, these assets might counter American power. But if Europe and America remain loosely allied or even neutral, these resources could reinforce each other.

The future of European power depends on deepening European integration. Does that process appear healthy right now? I don't think you can even characterize Europe as a unified pole, so I disagree with Moravcsik that the world is bipolar. I actually expect Europe to continue to centralize political authority, but it will be a slow, murky, uneven process. I do agree that the realist expectation that the EU should be balancing the US -- and the obvious fact that it isn't -- drives the nail even deeper into that grand theory.

Elsewhere, Kevin Drum summarizes his view of American political economy:

I am, fundamentally, old fashioned about this stuff: I think of the world as largely a set of competing power centers. Economics matters, but power matters at least as much, and I think that students of political economy these days spend way too much time on the economy and way too little time on the political. This explains, for example, why I regret the demise of private sector labor unions. It's not because I don't recognize their many pathologies, or even the fact that sometimes they stand in the way of economic efficiency. I'm all in favor of trying to regulate the worst aspects of this. But large corporations have their pathologies too, and those pathologies are far worse because there's no longer any effective countervailing power to fight them. Unions used to provide that power. Today nobody does. ...

It's worth noting, by the way, that corporations and the rich know this perfectly well, even if lots of liberals have forgotten it. They know exactly what the biggest threat to their wealth is, and it's not high tax rates. This is why the steady erosion of labor rights has been, by far, their single biggest obsession since the end of World War II. Not taxes, unions. If, right now, you were to offer corporations and the rich a choice between (a) passage of EFCA or (b) a return to Clinton-era tax rates on high incomes, they wouldn't even blink. If you put a gun to their head and they had to choose between one or the other, they'd pay the higher taxes without a peep. That's because, on the level of raw power, they know how the world works.

I'm not convinced that unions are always, or even usually, a force for good or even on the side of "workers". Unions can also be cartels, and they can capture and distribute rents to relatively small numbers of people rather than the masses. They certainly put up barriers to entry. But I agree with the fundamental point that power is important but often ignored, and that the current American system is essentially corporatist.

On Second Thought...

You can watch the revolution, live and in progress, here. Marc Lynch is blogging it. I agree with Joshua Tucker that Twitter is the best source for up-to-date information, although caveat emptor.

My thoughts are still forming. Last night I tweeted:

I want democracy in #Egypt. I also fear democracy in Egypt. I hate that the US gov is backing Mubarak, but I know why. #nogreatoptions

That basically sums it up for me, and I'm glad to see the Obama administration walking back its support for Mubarak. Obama needs to get out in front of this. Soon. ADDED: Then again, Dubya's early support for the coup against Hugo Chavez back-fired, so maybe taking a wait-and-see approach is best. For a while.

Here is Obama's speech in Cairo 18 months ago.

UPDATE: Apparently the U.S. has been supporting Egyptian dissidents for years.

The FCIC Report

I have been trying to make sense of the FCIC report released yesterday. I am apparently the only person who finds both the majority conclusion and the dissenting view unsatisfying and thus believes that we continue to misunderstand this crisis.

For those not paying attention, the FCIC majority view (six Democrats on the Commission) found that the crisis was avoidable and a result largely of excessive risk taking by financial institutions and regulatory failure by government agencies. The main dissent (there are 2) argues that these factors were clearly part of the story, but assign greater weight to "broad forces" such as the global savings glut.

I find both views unsatisfying because neither rests on any clearly identifiable macroeconomic model. The majority view seems to dispense with macroeconomic reasoning altogether. For them, the crisis is simply a matter of individual behavior; they seem willful in their refusal to embed this behavior in any macroeconomic context. The minority view seems to adhere to a model in which foreign savings generates a demand for safe assets which are available in greatest supply in the US. They don’t embed global financial markets in any broader macroeconomic model.

Because neither viewpoint offers a broader macroeconomic model, neither offers a satisfying answer to either of the two dimensions of the central question: why did the US experience a housing bubble? The majority view doesn’t address the “why US” question at all (a point nicely highlighted by the dissenting view). Nor does it answer the housing bubble question: between 2000 and 2006, residential investment in the US increased from 25 percent to 36 percent of total fixed investment while total investment didn’t increase as a share of GDP (get the data here). Deregulation, which affected the financial sector generally, doesn't explain this sectoral reallocation of investment. Hence, the majority viewpoint doesn't answer the second dimension of the question--why real estate?—either.

The dissenting view can't explain why foreign demand for risk-free assets caused by the savings glut sparked a housing bubble in the United States. This specific allocation of foreign savings (in terms of asset class and country) is hardly a deterministic (or even highly probable) consequence of a sudden increase in savings in the rest of the world. Indeed, the last time a set of countries emerged as major global creditors almost overnight (OPEC in the 1970s) excessive global credit financed sovereign debt (of the commercial bank variety) in Latin America. The financing of over-priced houses in Las Vegas was in no sense a necessary consequence of East Asian savings.

I think that answering these two questions requires one to embed the global savings glut and financial markets in a dependent-economy approach to open economy macroeconomics. The dependent-economy model, also known as the Australian model after the nationality of the key contributors (Salter, Swan, Corden), allows us to consider the impact of a current account deficit on the real exchange rate and the impact of the real exchange rate on the allocation of investment activity between traded and non-traded activities (or between manufacturing and housing if you wish to simplify).

The simple story is the following: a current account deficit causes real currency appreciation. Real appreciation raises non-tradable prices relative to tradable prices. This relative price switch encourages investment to shift away from traded to non-traded activities. More simply, with the dollar over-valued, domestic manufactured goods are less competitive with equivalent foreign goods. So, people invest in activities that don’t compete against foreign goods—e.g., building houses.

This simple mechanism explains one dimension of the crisis: given the US current account deficit, the dollar will strengthen and cause investment to shift into real estate. One would imagine that investment would also flow to sectors that support real estate (i.e., mortgage lending) as well as other areas sheltered from international competition. Hence, a reasonable hypothesis is that the reallocation of investment into real estate and away from other activities resulted from a real appreciation of the dollar caused by the current account deficit.

This leaves the second dimension of the question: why the United States? That is, what caused the US to have a current account deficit? Two mechanisms seem relevant. The first is the mechanism the dissenting viewpoint highlights—the current account deficit was a result of foreign demand for US assets. The second mechanism makes no appearance in the FCIC report—fiscal policy. A decrease in government revenue (2001 tax cut) and an increase in government expenditure (War on Terror) produce a federal budget deficit that reduces national savings. All else equal, the fiscal deficit increases the current account deficit.

As I said, we need not choose between the two mechanisms but we might want to think about their relative priority and importance. One might suggest that foreign enthusiasm for the dot-com bubble of the late 1990s generated a current account deficit and dollar appreciation. The popping of this bubble in 2000 should have seen adjustment, but the re-emergent fiscal deficit widened the current account deficit and kept the dollar strong. On top of this, the foreign quest for relatively safe assets reinforced the impact of the fiscal imbalance on the current account. A self-reinforcing element (mania-induced bubble) emerged as real estate prices began to rise. To that we could consider the consumption boom that resulted from HELOCs as home prices rose in value

In short, viewed through the lens of a dependent-economy model, the crisis was caused by the relative price consequences of a macroeconomic imbalance (the current account deficit). At least part of the blame for this macroeconomic imbalance lies with those who make fiscal policy (a group who seem to be the only government agents entirely absent from the report). There are other implications, but this post is already too long. More to follow.

Political Instability and Commodity Prices

I've been pondering this from Yglesias for a few hours:

Think of a world in which there are two kinds of growth. One is leap-ahead growth in which technologically advanced societies dream up even more advanced technology. The other is catch-up growth in which technologically backwards societies learn to use the advanced technology that already exists in the advanced countries. In the twentieth century we saw some instances of catch-up growth, but leap-ahead growth accounted for the majority of global growth in output. One result of that is that we got much much better at extracting natural resources (energy, food, metal) from the fixed supply of land, and commodity prices generally went down. But over the past ten years, catch-up growth in India, Brazil, and (especially) China has been the majority of world growth. Consequently, the rate of stuff-utilization is going up higher than the rate of stuff-production, meaning we’ll see rising commodity prices rather than falling ones.

For rich countries, that’s inconvenient but we’ll deal. For China, it’s fine—the whole point is that incomes will be rising faster than prices. But for poor countries that aren’t growing rapidly, it’s potentially a disaster. This kind of trend is what’s driving the current instability in North Africa and will probably be a major story for years to come.

My first thought was "This sounds plausible" and then "But why just North Africa?". A quick glance around the region gives me pause. Yemen is growing at over 5%, yet there is instability. Tunisia has had solid growth for years, and has a GDP/capita of nearly $10,000, among the highest in the region. Egypt has had high growth rates (5-7%) as well. Lebanon has been growing from 7-9% per year, and has a GDP/capita of over $16,000. Obviously there has been instability in all of those places lately. But also in Iran, which has had anemic growth. Sudan has obviously had lots of conflict, but has it always corresponded with rising commodity prices? The current peace has occurred at a time when energy prices have been relatively high. I'm less familiar with the rest of North Africa, but I don't see an obvious pattern here.

This new research (ungated pdf here) seems to support Yglesias' position:

We examine the effects that variations in the international food prices have on democracy and intra-state conflict using panel data for over 120 countries during the period 1970-2007. Our main finding is that in Low Income Countries increases in the international food prices lead to a significant deterioration of democratic institutions and a significant increase in the incidence of anti-government demonstrations, riots, and civil conflict. In the High Income Countries variations in the international food prices have no significant effects on democratic institutions and measures of intra-state conflict. Our empirical results point to a significant externality of variations in international food prices on Low Income Countries' social and political stability.

But Paul Collier's research suggests that conflict is more likely when commodity prices fall. (More precisely, when prices are volatile.) Many low-income countries are commodity-exporters, so their incomes go up when global commodity prices rise. Does this imply that if commodity prices rise conflict is less likely? Does it depend on which commodity? Does it depend on how the income gains are distributed? Surely there is some research on these, but I'm not familiar enough with the civil war/development literature to reach any firm conclusions. The Blattman/Miguel survey of the civil war econ literature indicates that poverty and slow growth is the most consistent factor, not necessarily commodity prices.

My provisional takeaway is that it will depend on which commodity prices are rising and which countries are producing those goods. Prices of different commodities do not necessarily covary (or has that changed?), so the effects will not necessarily be homogenous across countries.

Promises, Promises

State of the Union tonight. The administration seems to have concluded that we are engaged in a global fight for jobs: "the world has changed. The competition for jobs is real." The NYT even makes the "Global Fight for US Jobs" its online headline. It is all very weird; as they used to say, :this is where I came in. The meme even has Paul Krugman returning to arguments that pulled him from academic obscurity into the punditocracy.

The New York Times has an interesting graphic depicting the frequency of key words in the SOTU going back to Roosevelt. Obama used the word "jobs" more than any other president (31 times). He mentioned the deficit half as often as Clinton did in 1993 in spite of having a deficit that is twice as large as a share of GDP.

The President also offered some rather vague specifics. The highlights:

Mr. Obama outlined initiatives in five areas: innovation; education; infrastructure; streamlining the federal bureaucracy and cutting the deficit. He pledged to increase the nation’s spending on research and development, as a share of the total economy, to the highest levels since John F. Kennedy was president, and vowed to prepare an additional 100,000 science and math teachers by the end of the next decade.

He proposed new efforts on high-speed rail, road and airport construction and a “National Wireless Initiative” that, administration officials said, would extend the next generation of wireless coverage to 98 percent of the population.

Saying it is imperative for the nation to tackle its deficit, Mr. Obama reiterated his support for $78 billion in cuts to the Pentagon’s budget over five years, in addition to the five-year partial freeze on domestic spending.

I might point out that the FY 2010 budget, called "A New Era of Responsibility: Renewing America's Promise" (without a touch of irony), totaled $3.55 trillion. The military's share was approximately $600 billion plus the cost of overseas contingency operations. Trimming $15 billion from that per year is not really a huge reduction, especially as the US winds down its commitment of troops and material to Afghanistan.

And the partial freeze of other discretionary spending programs is supposed to "save" $400 billion over 10 years. That is $40 billion a year, I think. Grand total of proposed economies: $55 billion. Budget deficit for FY 2010? $1.3 trillion. Yes, this improves as the economy recovers. But even assuming this recovery, the deficit remains $440 billion per year in 2014 and then begins to widen again. Let's just call this approach to deficit reduction uninspired.

Other than these "cuts," here is what the President offered:

"This means further reducing health care costs, including programs like Medicare and Medicaid, which are the single biggest contributor to our long-term deficit...To put us on solid ground, we should also find a bipartisan solution to strengthen Social Security for future generations. And we must do it without putting at risk current retirees, the most vulnerable, or people with disabilities; without slashing benefits for future generations; and without subjecting Americans’ guaranteed retirement income to the whims of the stock market."

All of which brings to mind the following passage from the 1997 SOTU:

Whatever our differences, we should balance the budget now. And then, for the long-term health of our society, we must agree to a bipartisan process to preserve Social Security and reform Medicare for the long run, so that these fundamental programs will be as strong for our children as they are for our parents.

Like I said, I think this is where I came in.

Explaining France

There's been some interesting discussion of the similarities and differences between the French and American economies. Krugman touched on it:

In the 90s, with US employment surging while France (and much of Europe) was having trouble creating jobs, there was a lot of talk about the European employment problem. By the eve of the current crisis, however, the European job picture had changed a lot for the better, while even a business-cycle recovery didn’t seem to do much for US jobs.

Many Americans, even those who imagine themselves well-informed, don’t realize that there has been a big change here; my sense is that the US elite picture of Europe is stuck in a sort of time warp, in which it’s always 1997, and we have the Internet and they don’t. But things have moved on a lot since then.

Indeed they have. Now French employment -- measured as percentage of the working-age population currently employed -- is higher than the U.S.'s, and has been for most of the past decade. French wages are lower, but they retire earlier, get more vacation time, and hourly-earners have a shorter work week. But it's not only that. As Daniel Little notes, the French tax structure is actually less progressive than America's:

In a word, these experts conclude that the existing tax structure in France is seriously unjust because it is anti-progressive at the very high end of the income distribution -- the top 1 percent decline steeply in the percentage of their income that is collected in the form of the several tax vehicles. Only 20% of the state' revenues derive from taxes that are truly progressive...

[T]he total tax burden of the top 1 percent of income earners declines sharply from 48% to about 32%. And the reason for this is the portion of the French tax system devoted to funding social services (Cotisations sociales et taxes sur les salaires). This assessment is roughly flat from the 30th percentile to the 99th percentile, and then it declines rapidly. (The other components of taxes represented here include the income tax, a tax on returns on capital, and taxes on consumption including the TVA.)

France has a value-added tax (VAT) of nearly 20%. This is the sort of broad-based, flat(ish) tax that many on the American right seem to prefer. Overall, France's tax revenues are much higher than the U.S.'s as a percentage of GDP, but the tax code itself is not very progressive. Despite that, or perhaps because labor is not taxed prohibitively, French productivity is very high. Consider this anecdote:

Paris is the only city we know of where there are two rush hours, not one. From 4 to 6, you have civil servants getting home. From 7 to 9, you have people who work in the private sector.

France also has high labor mobility, and has benefited greatly from European integration and its previous colonies. It has exported its large corporations to Europe's periphery and to Asia, so even though it is not the manufacturing colossus that Germany is, it benefits from the global expansion of retail and services to emerging markets. Its large investment into nuclear energy has cushioned it from commodity volatility. They obviously benefit from exporting culture and history, in the form of tourism, as well.

All in all it may be fair to say that France has done better than it rightfully should have. Less-developed countries would not necessarily do well by following their lead, and it's doubtful that the U.S. would benefit from adopting a more French-like bureaucracy (although shifting to a VAT or consumption-based tax structure wouldn't hurt, as it would likely encourage more domestic savings and investment). It is not an especially innovative country, although it does develop a lot of pharmaceuticals. But despite all that France is doing pretty well. Much to the surprise (and chagrin?) of plenty of Americans.