Corporate Governance, Innovation, and Economic Performance in the EU

It is well appreciated that demographic trends threaten the integrity of continental European systems of social security. For France, these trends imply a long term funding crisis as well as a crisis of confidence in national economic and social institutions. The funding of social security is a recurrent largely unresolved political issue; proposals for comprehensive reform are heavily contested and often stymied by organised interests willing to go to the streets. At the same time, incremental changes introduced by governments from the left and right will likely discount the expected value of future retirement benefits. In this paper, I begin by sketching the logic of pay-as-yougo social security, identifying the basic economic and social institutions that together provide universal coverage. One goal of the paper is to articulate the economic and philosophical roots of social solidarity and the importance of the state as the custodian of the social contract between generations. In doing so, I sketch-out the French ideal: a coherent social security system based upon self-reinforcing mutual obligations and institutions. But I also argue that its current problems could have been anticipated in 1955 and have been the subject of various government reports over the last 25-30 years. A second goal of the paper is to show how and why the French social-security system became unsustainable. The French state used the retirement system as a form of labour market policy, thereby undercutting both its financial integrity and its political legitimacy. The third goal of the paper is to demonstrate the significance of younger individuals’ possible defection from social solidarity. Basically, I dispute the argument that national systems of governance necessarily persist; internal inconsistencies and defection when combined with external opportunities in very different systems of governance may overturn the past. By making this argument, I do not mean to suggest that the AngloAmerican model is obviously superior to social security systems based on social solidarity. Quite the contrary. Rather, my point is entirely argumentative: solemn incantations that defend the past, whatever their best intentions, may simply reinforce the nature and significance of the pending crisis.