The “yellow vests” protests in France foreshadow the beginnings of a deeper crisis that will afflict developed societies in a mature phase of economic growth. In turn, they could impact the formation of post-industrial societies and in how they can cope with the information revolution and advanced technologies such as artificial intelligence.
Such violent demonstrations could lead to transformations in the structure of these societies and in their mode of wealth distribution. What we care about here is the economic aspect and leaving the rest to interested observers. The protests came about to target President Macron’s policies of hiking taxes on energy consumption, but it is only the tip of a greater crises enveloping Europe as a whole.
It is plausible that these incidents were caused by tech-driven disruptions and their impact on unemployment rates and in the concentration of wealth, which reflects poorly on a country’s financial management.
Many countries suffer from a discrepancy between revenues and financial obligations. This imbalance can be addressed at varying levels. In France’s case, the state resorted to the easiest solution — imposing more taxes on fuel, which was already as high as 64 per cent compared to 60-70 per cent in most European countries. Such a mechanism has turned fuel taxes into one of the most important sources of budget funding.
The fuel tax revenues are almost equal to Opec’s revenues from oil exports. It is a fact that resource development is vital for all economies, but there are many ways besides taxation. In France, the government has pursued two objectives: first maintaining budget deficits within 3 per cent of GDP to comply with EU standards. Second, mobilising financial resources to comply with the Paris climate accord and obtain additional funds to develop clean energy sources and reduce dependence on hydrocarbons.
Most EU countries have developed programmes to transition to electric cars by 2040. Perhaps, this is the correct approach, but it is important to know how it is to be achieved. Excessive taxation has definite negative consequences on the overall economic and social situation and may lead to adverse results in terms of capital flight, economic contraction and low living standards.
This what in fact happened in France, Belgium and Denmark, but was scrapped due to the scale of the likely repercussions. Developing budget resources and reducing dependence on hydrocarbon fuels should not be limited to taxation, but should be supported by comprehensive studies on the implication of new taxes on the overall economic situation.
Currently, the price of a litre of gasoline in France is 1.51 euros, the highest in Europe, while the minimum monthly wage is 1,300 euros, which is a modest amount compared to the high prices there. This means most of the French cannot manage even basic living standards.
The contradictions resulting from tech advances as well as the subsequent social effects will continue to roil developed countries. This requires which requires substantive solutions to avoid any unrest and for stability to prevail in these societies.
The additional costs resulting from the financial measures taken by the French government after the protests will cost the treasury 10 billion euros. The budget deficit is expected to rise to 3.4 per cent, especially as some destructive forces were involved in the burning and destroying of public and private properties. This is similar to the notorious Arab Spring, which unfortunately was supported by Western countries, including France.
And they are now getting a taste of their own medicine. Yet, no one is calling it the French Spring.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.