the political economy of educational reform in france and britain: 1980–2000

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The political economy of educationalreform in France and Britain:1980–2000Cecile Deer a & Jean‐luc de meulemeester b

a Oxford University , UKb Université Libre de BelgiquePublished online: 21 Oct 2010.

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The political economy of educationalreform in France and Britain: 1980–2000Cecile Deer [email protected] Deer*1 & Jean-Luc de Meulemeester2

1Oxford University, UK; 2Universite Libre de Belgique

In this article we analyse the role given to education and training by policy-makersin France and Britain from 1980 onwards, in relation to their overall choseneconomic (and social) strategies, and highlight conjunctions between education,exchange-rate regimes and the level of economic openness. Britain opted for amonetarist route against inflation, deregulated labour markets, a scaled-down wel-fare state and reduced taxation, mostly keeping a floating exchange rate. Educationbecame a prominent theme during periods of semi-fixed exchange rates (1987–92)and when the value of the pound soared (from 1997 onwards). The idea that fixedexchange rates may impinge on human capital policies is strengthened by the Frenchcase. After a period of Keynesian reflation (1981–83), France opted for Europeanintegration and a fixed exchange rate at a high level (politique du franc fort). Withrather rigid labour markets and active public policies impeding both labour marketderegulation and tax reduction, this led to a high unemployment level, especiallyamong young people. These elements pushed the Government towards usingeducation as a key economic instrument from a human capital perspective, aimingto foster the product quality and innovation necessary to maintain competitivenessin an increasingly integrated common European market.

Introduction

At the end of the 1970s, France and Britain chose very different routes in attemptingto escape economic slowdown. In Britain, the people elected the Conservatives inApril 1979, who held office for 18 years. In France, after more than 23 years ofright-wing governments, the Socialist Francois Mitterrand was elected President inApril 1981. Leaving aside cohabitation periods (when the elected parliamentarymajority and the president belong to opposing political tendencies), a left-wingcoalition governed France until 2002. In both countries this allowed for a strongdegree of political stability with successive governments implementing clear-cutpolicies that reflected not only their ideological leaning but also the specific social,political and economic problems they had to address.

*Corresponding author: Oxford University Department of Economics (SKOPE), Oxford OX13UQ, UK. Email: [email protected]

ISSN 0305-7925 (print)/ISSN 1469-3623 (online)/04/010033-19 2004 Taylor & Francis LtdDOI: 10.1080/0305792032000180451

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34 C. Deer & J.-L. de Meulemeester

Education and training policies cannot be understood in isolation from theirbroader environment. Beyond mere economic constraints, the political and institu-tional context also needs to be considered. In modern democracies, objectiveeconomic constraints do not preclude choice in public policies. Considering Franceand Britain between 1980 and 2000, we argue that educational reforms can be seenas a domestic policy area to fall back on when other political options have eitherfailed or been impossible/unavailable.

Educational policy and its political economic context

Mundell’s triangle of impossibility (1963) illustrates how choices made in somepublic policy areas impinge on the range of those available in others (see alsoFleming, 1962): (a) when capital moves freely, monetary policies can influenceexchange rates; (b) if a government seeks to maintain fixed exchange rates, itsmonetary policy will no longer be autonomous (e.g. when the French Governmentdefended the French franc/Deutschmark fixed parity before the launch of the euro,the Banque de France had to increase its interest rates along with the Bundesbankregardless of the needs of the national economy); (c) if capital moves freely and ifmonetary policies remain autonomous, exchange rates cannot be fixed (e.g. the typeof policy generally favoured by British governments); and (d) an autonomousmonetary policy in a context of fixed exchange rates is only possible if there is strictcontrol on the movement of capital.

We try to understand French and English educational policy broadly defined,using this framework of understanding and from a comparative perspective, as oneof a number of macroeconomic adjustment variables for political decision-makers.The type of understanding is not entirely dissimilar to that developed by Boltho(1996), who suggested that the trade liberalization of the 1950s and the 1960sworked in favour of countries whose national currencies’ exchange rates were low.They experienced rapid output and investment growth as well as rising exportmarket shares (e.g. Germany, Italy in the 1950s; France, Spain in the 1960s).However, Boltho also indicates that the international context which characterizedthe period, such as Bretton Woods’ nearly fixed exchange-rate arrangement, theacceleration of trade liberalization and the ‘benign neglect’ of the USA regardingproblems concerning its trade balance situation, might have allowed for the effec-tiveness of such policies and that this could not have worked after 1973.

We propose that, between 1980 and 2000, a combination of trade liberalization(partly due to participation in the European Economic Community [EEC]) and offixed exchange rates via the exchange-rate mechanism (ERM) and then the euro hascontributed to necessary improvements in the structural elements of the econom-ies—inter alia, the human capital dimension—of Western European countries,which may have long-term effects on their relative sustainable competitiveness. Theaim of successive French governments to have France participate in the EuropeanMonetary System and the European Union led them to follow a policy of austerity(politique de rigueur) (Sicsic & Wyplosz, 1996), leaving few areas of genuinelyautonomous political intervention. One exception was that they could attempt to

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Educational reform in France and Britain 35

improve the stock of human capital, hence the emphasis placed on education. Wesee a similar tendency with Conservative governments in Britain, first at the end ofthe 1980s (1987–90) with the more or less official shadowing of the Deutschmarkand then between 1990 and 1992 with participation in the ERM. We also see it after1996 with the surge in the pound’s value in relation to the euro (for a survey on theovervaluation of the pound in relation to the euro in historical terms, and itsundervaluation in relation to the dollar, see Organization for Economic Cooperationand Development [OECD], 2002, 155 ff.).

Almost simultaneously (from around the second half of the 1980s) there was anincreased emphasis on education and knowledge in a revival of growth theory withinthe framework of neo-classical economics (endogenous growth literature) (Aghion etal., 1998, chapter 10). Education, and more largely human capital, was seen as a keyengine to economic growth, either directly through increased stock of human capital(Lucas, 1988), or because of the impact of the level of human capital on the growthof knowledge conducive to economic growth (Romer, 1990). Lucas, who hadrejected Keynesian macroeconomic management, even proposed a kind of stateinterventionism on the grounds that using an accumulation of individual choices todetermine the optimal level of investment in human capital would lead to underin-vestment, as it was unlikely that the beneficial social externalities would be takeninto account by profit-maximizing individuals. These theories were influential interms of a new ‘conventional wisdom’, which appeared at the end of the 1980s. Forinstance, in 1989 the European Round Table of Industrialists first produced a reporton the state of education in Europe and the need to reform it (De Meulemeester &Rochat, 2001). International comparisons of educational indicators also gainedground in national political landscapes around this time.

France since the 1980s

1981–84: a short-lived experiment in Keynesian reflation

Between 1981 and 1984, the French Government attempted to implement aninterventionist, socialist route: increased public ownership (e.g. nationalizations[CGE, St Gobain, Pechiney Thomson and Bull]), high rates of redistributivetaxation (e.g. wealth tax), increased public spending, exchange controls, rigid labourmarket rules (e.g. compulsory annual pay bargaining, increases in the minimumwage [see Table 1 and Figure 1], compulsory administrative authorization fordismissals, the 39–hour week) (Muet & Fonteneau, 1990). The economic manifes-tation and impacts of such a policy can be summarized in Table 2 (Blanchard,2000).

The policy was first implemented in a context of floating (fixed but adjustable)exchange rates in the European Monetary System, then in one of nearly-fixedexchange rates as, towards the mid-1980s after several devaluations (Plihon, 1991,p. 92), French governments reverted to a policy of shadowing the Deutschmark toparticipate in the European Economic and Monetary Union (1987–1992). Thisculminated in the launch of the European Currency Unit, the signing of the 1992

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Table 1. Gross hourly minimum wage in France(1980–2001)

In FFYear % increase

14.791980 –201981 17.76

20.291982 14

101983 22.33

24.361984 971985 26.04

26.921986 331987 27.84

28.761988 341989 29.91

31.941990 7

21991 32.6634.061992 4

21993 34.8335.561994 2

41995 36.9837.911996 3

41997 39.4340.221998 2

11999 40.7242.022000 343.722001 4

Source: INSEE.

Maastricht Treaty, the freezing of exchange rates between European currencies in1999 and, finally, the official launch of euro coins and banknotes in January 2002.At the beginning of the 1980s, foreign exchange rates could still play the role of anadjustment variable, as may be seen in the repeated devaluations of the Frenchfranc. Together with fiscal transfers at an industrial and social level (OECD, 1998a),this dampened the effects on unemployment in a rigid labour market. However,when foreign exchange rates could no longer play the role of an adjustment variable,unemployment figures rapidly worsened (see Figures 1 and 2).

Regarding education, the new left-wing coalition in power in France chose toincrease sharply and then stabilize educational expenses in relation to gross domesticproduct (GDP) (Ministere de l’Education Nationale [MEN], 2001, p. 261). Thisincrease was more a political and ideological stance—in line with the broader typeof ideologically informed policies being implemented (e.g. nationalizations, controlof the movement of capital …)—than an economically justified option. This was alsotrue for the immediate repeal of the Sauvage Law, the 1982 Chevenement Lawon Research and the aborted 1984 Savary Law on public and private schools.Attempts were made to establish the ‘unified’ national system of education whichMitterrand had pledged in his 1981 electoral manifesto. This favoured a state-runsystem at the expense of the private (i.e. Catholic) sector of the primary

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Figure 1. Index of change in labour costs in France (engineering industry)Source: OECD (1984, 1988, 1992, 1996, 2000, 2002).

and secondary education system. However, after a number of massive demonstra-tions and with no clear-cut majority, the project died away (Lauer, 2003). In themid-1980s, this lack of strong ideological leadership, combined with the Socialistdemand-led economic policy running out of steam and with the growing importanceof the European and international dimension in the domestic policy agenda, indi-cated the tide was turning (Lombard, 1995).

The mid-1980s

From the mid-1980s onwards, the debate on education for employability gainedground in the discourse of governing elites regardless of their political hue. For theLeft in power, unable to prevent the deepening of the economic crisis and itscorollary, rising unemployment figures (see Figure 2 and Figure 3), this reflected agradual awakening to the realities of market rules in an increasingly open nationaleconomy. A discourse on education for national productivity and competitivenessdeveloped alongside the traditional egalitarian discourse on education for individualbetterment. Quantitatively, the effect was an increase in participation rates at alleducational levels (Deer, 2002). Qualitatively, however, the choice of policy wastelling as diversity through vocational education gained political favour as a route toachieve quantitative targets (Savary’s DEUST, Chevenement’s vocational baccalau-reate and university Masters, Allegre’s Instituts Universitaires Professionalises [IUP]).

This not only signalled a departure from the egalitarian beliefs that had informedthe pre-1981 political manifesto of the left-wing coalition in educational matters, butit was a form of yielding to employers’ demands which was antithetical to the notionof class struggle that had so far underpinned much of its social and economic policy.

In this context, the run-up to the signing of the European Act (18 February 1986)represented a decisive moment for central political spheres. France’s still rather

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Table 2. Macroeconomic aggregates, France 1980–1983 (from Blanchard, O., 2000, p. 371)

1980 19821981 1983

0.7GDP growth % 2.51.6 1.20.7 1.6EU growth % 1.4 0.2

Budget surplus � 3.20.0 � 2.8� 1.9� 2.2 � 0.9Current account surplus � 0.6 � 0.8

Budget surplus and current account surplus are measured as ratios to GDP, in percent. A minussign indicates a deficit. EU growth refers to the average growth rate for the countries of theEuropean Union.Source: OECD Economic Outlook, December 1993.

sheltered national economy (Foley, 1998, p. 56) would soon have to face compul-sory price deregulations and European, as well as international, competition (Sicsic& Wyplosz, 1996, p. 234). Restrictive economic and financial practices would nolonger be a feasible option (Sicsic & Wyplosz, 1996). The majority of unskilled jobsin traditional industries such as shipbuilding, car manufacturing, textiles or miningwere in decline and the trend could be expected to accelerate:

the new policies developed after the exchange crises of 1981–83 relied on three pillars.First, an explicit move against wage indexation was deemed necessary to bring inflationdown. Second, exchange rates would not be used to correct past policy mistakes.Instead macroeconomic policies would be steered towards the attainment of stability inprices, exchange rates and budget balance. Third, industrial policy would be reconsid-ered, with much less sympathetic eyes. All three approaches represented a majorinnovation because they were proposed by a leftist majority whose history had beendominated by radical talking. (Sicsic & Wyplosz, 1996, pp. 226–227)

In the competitive environment heralded by the European Act, the polity presentedworkforce quality as a key factor in gaining a competitive edge on the internationalstage (Deer, 2002). If France was to produce the kind of manpower a ‘post-indus-trial’ economy required there could be no hesitation: education had to become thenational priority. ‘Education, education, education’ could have been the motto ofthe Fabius Government (1984–86). For a government more or less avowedlydetermined to adjourn its strict Keynesian experiment, such a political strategypresented other advantages as youth unemployment rates remained high (above22.6% for under-25s in 1989 with overall unemployment rates at 9.6%). For Sicsicand Wyplosz, these data suggest not so much insufficient investment in humancapital as misallocation of resources and inefficiencies in the French school system.For the French Government, it meant that there was room for improvement. Withmore radical measures increasingly out of reach, the emphasis on education was animportant source of political legitimacy for the Socialists in power. It appealed totheir core electorate, which included a significant proportion of the teaching pro-fession.

In 1985, the new Secretary of State for National Education, Jean-Pierre Cheven-ement, influenced by experts who forecast a future need for manpower educated toat least upper-secondary level (Mission Education–Formation, 1985), set two strin-gent targets for the national education system: firstly, every school leaver would be

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provided with recognized professional qualifications by 2000 and, secondly, 80% ofan age cohort would reach baccalaureat level. Significantly, these objectives havebeen endorsed by Chevenement’s successors, regardless of their political affiliation.Lionel Jospin even transformed them into a legal national requirement (JournalOfficiel, 1989, art. 20).

A new type of vocational baccalaureate was created to attract more students to thevocational sector of secondary education. This was not unlike the later attempt inBritain to promote General National Vocational Qualifications (GNVQs) and, as inBritain, the public response to this new type of qualification was mitigated(Lefresne, 1998; CEDEFOP/Eurydice, 2001). The vocational path certainly con-tributed to the overall attainment of the politically set quantitative target, but muchof the growth also took place in the more traditional academically oriented streamsof upper-secondary education (Prost, 1992; Esquieu & Poulet-Coulibando, 2002).This unintended consequence was partially due to a failure of the Left at this stagein its quest for a unified national system of education to address the internal logicof the French educational system and, in particular, the Malthusian and repro-ductive recruitment practice of its elite (Bourdieu, 1989; Merle, 1996). This may becompared with the situation in Britain (albeit very cautiously) (Deer, 2003), whereany attempt at reforming and diversifying secondary schooling with the job marketin mind is distorted by the impact of the independent school/elite universities sector.The logic of ‘quest for social status’ led a large proportion of an age cohort to choosethe general, rather than vocational, path and then general orientations in theuniversity sector, which, at the time, had little incentive to modify its traditionalsupply. In 1995, drop-out rates in university-level education in France were 45%(18% in the United Kingdom) (OECD, 1998b).

This situation superimposed itself on the reinforced rigidity of the job market thatplayed against newcomers and on the gradual impossibility for French governmentsto use interest rates to boost a slow-growth economy, and led to a significant wasteof financial and human resources, notably in terms of high youth unemploymentrates. In this sense, the expansion of free higher education in France may beinterpreted as a form of intergenerational fiscal transfer. However, given the dearthof maintenance grants, this has worked in favour of middle-class participation(Chauvel, 1998).

1986: the first cohabitation

In 1986, the first period of cohabitation began with a Socialist president and aright-wing cabinet. The Right returned to power with a strong desire to recover lostground. With some of its leading members influenced by the British experiment, itbegan an ambitious programme of privatization, deregulation and restriction ofsocial freedoms. This general approach had ramifications in the educational sectorand was epitomized by the Devaquet Bill for higher education, which planned tomake universities far more autonomous in terms of their institutional management(including university fees) (Devaquet, 1987; Friedberg & Musselin, 1993). Like theSavary Bill, the Devaquet Bill sought to harness education to a broader ideological

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agenda. As such, it was met with intense opposition that led to street violence duringwhich a student was killed. The Higher Education Minister resigned and the projectwas withdrawn.

The repeated failures of these radical attempts at restructuring the educationalsector (the 1984 Savary Bill and the 1986 Devaquet Bill), or even part of it, hasinformed the subsequent reform practice of governments regardless of their politicalallegiance. Governments have shared a perception of the need to adjust educationaloutput and practice to new external constraints such as the limits on publicexpenditure, budget deficit and state subsidies imposed by the Maastricht Treatycriteria, increased international competition with the signing of General Agreementon Tariffs and Trade/World Trade Organization agreements, the single Europeanmarket and even the fixed European ERM. There have also been domestic con-straints, such as strong indications throughout the 1980s and 1990s that votersfavoured public service investment, strong labour market legislation and, in general,a protective state. Rather than try to implement sweeping reforms by law, policy-makers would increasingly try to weaken the autonomous logic of the educationalsystem by applying piecemeal stimuli via central government regulations and broadconsultation but, more importantly, with a dose of decentralization and contractual-ization (Friedberg & Musselin, 1993; Deer, 2002; see also Poupeau, 2003).

Since 1988: a new domestic and international paradigm

The Left coalition that returned to power between 1988 and 1992 increased theeducation budget sharply (MEN, 2001, p. 261) and set out on a more liberaleconomic agenda (budget tightening, privatizations) shielded by European con-straints, the high point of which was the successful 1992 referendum on theMaastricht Treaty. From the end of the 1980s, France no longer had an indepen-dent monetary policy as capital moved freely and exchange parity was fixed.Politically, it was difficult for the Left to boost competitiveness by drasticallyderegulating the job market or diminishing corporate taxation and/or public expen-diture. Education was part of the public sector, where it could at least be seen to beimplementing policies which were both socially and politically acceptable (given itsmandate), while appearing to be sound for national economic performance. More-over, domestic policies of decentralization and contractualization allowed the centralgovernment to spread the financial burden and collective responsibilities for thesuccess of reforms (Deer, 2002).

The Right returned to government again in 1993 and remained until 1997, firstfor another period of cohabitation and then under the RPR presidency of JacquesChirac. Youth unemployment remained high. Rather than try to implement sweep-ing structural reforms of the educational system, the problem was tackled from theother end by proposing a partial deregulation of employment regulations for certainnewcomers to the job market, namely the Institut Universitaire de Technologie (IUT)students. The implication that short vocational qualifications were worth less on thejob market than ‘long-cycle’ university studies ran against the message all govern-ments had tried to convey more or less successfully since the expansion of post-

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Figure 2. Unemployment rates in France and the UKSource: OECD (1984, 1988, 1992, 1996, 2000, 2002).

compulsory schooling. The proposal met with fierce opposition and the Governmentrapidly drew back, refocusing its energy on privatization, taxation and the partialderegulation of the job market whilst trying to secure people’s votes via fiscal transferthrough the worsening of the budget deficit (Institut National de la Statistique et desEtudes, 2002, p. 123). The result was a new period of cohabitation, with theSocialists and the Communists forming a new government under Lionel Jospin from1997 to 2002 and implementing and entrenching the sort of approach previouslydescribed: increased investment in education, vocationalization, contractualizationand decentralization.

At the end of the period, productivity in France was high enough for the35-hour-week legislation to be implemented (Figures 3 & 4).

Figure 3. Weekly working hours: UK, France and other European countries (1983–1999).Source: Labour Force Survey, Eurostat, ONS 2000.

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Figure 4. GDP per capita from 1979 to 1998 in France and UKSource: OECD (1984, 1988, 1992, 1996, 2000, 2002).

This was due to a combination of factors. A prolonged period of politically drivenhigh labour costs forced industry (sometimes with state subsidies) to invest in meansof production to remain competitive, particularly in the new European SingleMarket: ‘this development resulted in increased competition … and therefore, madeinnovations more advantageous, prompting French firms to become more innova-tive’ (Sicsic & Wyplosz, 1996, p. 234). The fact that these investments wereparalleled by human capital investment may explain this jump in productivity. Forexample, Manacorda & Petrongolo, 1999, noted over the last two decades, thatthough one could observe a clear sign of a net relative demand shift towards skilledlabour market, the skill mismatch (the fact that this evolution in the relative demandfor skills would not be matched by an equal increase in relative supply) has not beena homogenous phenomenon and was more serious in the UK (and the USA) thanin continental Europe, including France.

Education became a political economic priority (as opposed to an ideological one)for Socialist governments in France when the Keynesian reflation experiment failedto stimulate growth and when the country decided to be part of the euro zone. Thecombination of a high taxation/high public spending domestic agenda and theEuropean/international agenda left France with few options in terms of sustainedcompetitiveness other than a good overall national public and private infrastructure

Table 3. Productivity GDP per man hourcompared with the US ( � 100)

19921973

102France 7668 82UK71 95Germany

Source: Foley, 1998, p. 54, Table 3.3.

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Table 4. Rates of investment as a percent-age of GDP

France UK

20.61980–1989 17.518.81990–1998 16

Source: OCDE (1998a).

and an educated workforce. Continuing high unemployment rates indicate thatinefficiencies persist which could be eased by a partial deregulation of the jobmarket. We argue, however, that in terms of restructuring the major part of theeffort has been made. It is easier to loosen an already tight job market—the35-hour-week legislation has been praised for doing exactly this—than to achieve along-lasting jump in productivity levels.

The United Kingdom since the 1980s

A short-lived monetarist experiment

From the early 1950s, the UK economy suffered a continuous relative decline (Prest& Coppock, 1982; Mazier, 1999; Crafts, 2001; Grant, 2002). Before 1980, Francewas faring comparatively better than its neighbour in times of strife (see Figure 4)as Labour’s traditional aggregate demand management policies inspired by a Keyne-sian approach proved increasingly inefficient and ineffective (Crafts, 1998; Grant,2002).

During the first half of the 1980s, successive Conservative cabinets implementeda monetarist free-market agenda, controlling the growth of the money supply anddecreasing overall taxation (Grant, 2002, p. 98). Both proved difficult to achieve.Taxation as a proportion of national income remained higher than it had been underLabour, rising from 35.5% in 1979–80 to 37.25% in 1990–91 (Lawson, 1992), asthe Government strove to reduce substantially an inherited budget deficit. However,taxation became less redistributive as progressive taxation was replaced by lump sumor indirect taxes. The top rate of tax on earned income (83%) and on savingsincome (98%) was quickly reduced to 40% (Grant, 2002, p. 37). Selective bud-getary cuts were implemented with education in the front line. The labour marketswere deregulated after long and bitter fights with organized unions. Regulationswere introduced that reduced the bargaining power of trade unions, the freedom tostrike and the obstacles to the flexibility and mobility of the labour force (‘hire andfire’) (Crafts, 1998; Seldon & Collings, 2000). These policies were carried out in aprolonged context of fixed but adjustable exchange rates.

Initially, the Conservatives’ main aim was to fight inflation through a restrictivemonetary policy. This was presented as a kind of restoration of social justice as somevulnerable social groups such as pensioners were hit by inflation. Governmentobjectives were set over a four-year period in terms of targets for the growth of the

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Figure 5. Evolution of exchange rates (spot)Source: OECD (1984, 1988, 1992, 1996, 2000, 2002).

money supply, public-sector borrowing, public expenditure and taxation (MTFS, orMedium-Term Financial Strategy, see Grant, 2002, p. 98). The aim was toinfluence public expectations by convincing employers and unions ‘that inflationarywage demands would not be financed’ (Thain & Wright, 1995, p. 268). This policyrapidly ran into difficulties. By 1982, the central emphasis had become the PublicSector Borrowing Requirement (PSBR). The money supply target was suspended in1985 and the main focus became the exchange rate. From 1987, the Chancellor ofthe Exchequer, Nigel Lawson, reverted more or less overtly to a policy of shadowingthe Deutschmark (Grant, 2002, p. 99). This was an untimely move: earlier policieshad led to an economic boom that had driven up inflation and led to a collapse ofthe housing market. Britain needed a tighter monetary policy and in 1988 Lawsonabandoned the exchange-rate policy and raised interest rates. This ended in short-term interest rates with little support from fiscal policy (Dimsdale, 1991, p. 139;Grant, 2002, p. 100). When John Major became Chancellor in 1989, his answer tothe lack of anchoring for economic policy was to join the ERM (Grant, 2002,p. 100). Interest rates rose as did the pound’s value, penalizing an already weakindustrial sector.

Throughout the 1980s the fluctuation of the pound and the French franc inrelation to the US dollar followed very similar patterns (see Figure 5). A significantdecoupling of the two currencies intervened throughout the 1990s, with Francequickly joining and remaining in the European Monetary System and Britain joiningthe ERM in 1990 and being forced to leave in 1992 after speculative attacks againstthe pound. We question the ‘overvalued pound’ argument, which often underpinsdebates on Britain’s international competitiveness as both countries have had to dealwith the soaring value of their national currency in the second half of the 1980s butthe value of the French franc against the US dollar remained high compared to thatof the pound throughout most of the 1990s (OECD, 2002).

Britain’s route to increased national competitiveness in the 1980s and 1990s wasthrough allowing the free operation of domestic markets. Remedying the lack of

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Figure 6. Exchange rates (1988–2000)Figure 6.1 France (FF per $)

Figure 6.2 UK (£ per $)Source: OECD (1984, 1988, 1992, 1996, 2000, 2002).

competitiveness in parts of national industry was no longer considered to be a rolefor the state. Fiscal transfer through tax-funded industrial subsidies (as grantequivalent per cent of GDP) fell from 2.8% in 1979 to 0.1% in 1994 (Crafts, 1998,p. 12). For the Government, another positive side effect was that the traditionalindustrial sectors which were directly threatened were also trade-union strongholds(Grant, 2002).

To fight inflation was to fight distortions in relative prices, which misinformeddecisions. Trade unionism and wage/price indexation mechanisms were perceived assources of labour market imperfections. For similar reasons, the share of publicexpenditure in GDP was reduced1 (Foley, 1998, p. 67) with a disengagement fromnationalized and publicly funded industries and reduced overall expenditure onsocial services (education and health). Public deficit was presented as a threat to theeconomy with higher debt and the crowding-out of private investment. Like publicsubsidies, public services were considered to be potentially damaging for the pricesystem in that they did not reflect actual costs and thus led to over-consumption.Privatizations (e.g. utilities, the railway industry) or the setting-up of managed

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markets in education and the National Health Service rolled forward marketmechanisms (LeGrand, 1993).

This prevailing liberal economic agenda was inspired by a ‘principle of responsi-bility’: people should face the consequences of their errors or reap the reward of theirefforts. The extension of the welfare state was considered to have corroded this senseof responsibility by weakening incentives to work hard or invest, by limiting theprofits gained by the most productive people or organizations and by the costssuffered by the least productive (e.g. the unemployed, subsidized firms). Growingsocial inequalities were considered the price to pay for economic dynamism, whichwould result in a bettering of the situation for all (the ‘trickle-down’ effect). Between1979 and 1994, the Gini coefficients for the UK increased from 24.8 to 33.7(Crafts, 1998; Atkinson, 2002).

How did education fare and fit in this overall picture? In 1979, little was stated oneducation in the Conservative manifesto, although Margaret Thatcher had beenEducation Secretary after the June 1970 general election (Seldon & Collings, 2000).Initially, education attracted little interest on the part of the Conservative Govern-ment apart from the fact that it was a public policy area where budgetary cuts couldbe implemented quickly and effectively. However, during the 1980s a broad consen-sus developed that education and particularly vocational training needed reformingand that successful reforms in this area could contribute to enhanced growth andproductivity performance (Bean & Crafts, 1996). Virtually all economists consideredpolitical intervention vital to the success of such initiatives because of market failurein training activities and the likelihood of suboptimal skills formation in an environ-ment characterized by multiple equilibria (Finegold & Soskice, 1988).

However, education in general (as opposed to vocational education in particular)only emerged for Conservative leaders as a serious potential lever for social andeconomic purposes towards the end of the 1980s. The Government turned itsattention to the reform and restructuring of education at a time when its ideologi-cally informed monetary experiment started to show its social and therefore politicallimitations and as Britain was attempting to rejoin the ERM by implementingmonetary policies designed to shadow the Deutschmark.

Educational reforms were presented as a way to kill three birds with one stone.Socially, they showed that the Government was acting both to correct some of thesocial inequalities that its broader policy implementation had allowed to accumulateand to foster the genuine meritocracy on which its free-market thinking hinged. Atthe same time, the reforms were clearly conceived and justified as a way to extendthe remit and benefits of the free-market model into social policy. Finally, they werea way to increase Britain’s stock of human capital, an economic indicator on whichthe country always fared poorly in international comparisons (OECD, 2002). Thelow participation rate in upper-secondary education became a recognized issue ofconcern (Deer, 2002). Ensuring a provision of human capital compatible withemployers’ needs was a clear objective of the educational reforms. A series ofmeasures and decisions were taken which led to an unprecedented degree ofcentralization and homogenization of public education.

The traditional academic/vocational divide in British education had to be over-

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come. In 1988, a reduction in the apprenticeship form of training and a greaterdegree of formalization and unification of vocational training were decided. NationalVocational Qualifications (NVQ) were set up, with the qualifications being con-sidered as capacities rather than competencies. An attempt was also made tosubsume vocational training within the broader context of secondary education withthe General National Vocational Qualifications (GNVQ). These reforms weredesigned and implemented to encourage participation at upper-secondary levelwhile promoting diversity and employability.

The passing of the 1988 Education Act was a landmark in the history of Britisheducation. A National Curriculum of 10 foundation subjects was defined, withagreed ‘attainment targets’ and assessments at ages 7, 11, 14 and 16. This was tobring consistency nationwide to children’s learning. The voucher option2 had beendiscarded but its spirit pervaded the Education Act: choice and quality for customersthrough state-managed competition between schools via a reorganization of fundingallocations. Open enrolment would allow popular schools to expand and receivefinancial rewards through a new system of per capita funding. The idea was thatsuch a system would encourage schools to improve quality and standards in orderto attract more pupils and receive more money. The Act introduced an opting-outalternative, allowing schools to be freed from local authorities and receive moneydirectly from the central state. The hope was that grant-maintained schools (GMschools) would be more adaptable and flexible because more decisions would betaken by teachers and parents. City Technology Colleges were created to teachtechnical skills. The overall aim was to increase the educational choices available toparents. Higher education was also involved in the reforms. Here, the drive wastowards more accountability, competition and efficiency (Deer, 2002). The implicitobjective has been to make the overall higher education system more responsive tothe external demands of society (students’ employability).

In the aftermath of these sweeping changes, the 1990s were characterized byvarious small-scale educational experiments without any clear-cut consistency (Ash-ton & Green, 1996). With a soaring pound from 1996 onwards, education soonbecame a central issue again under the New Labour Government, suggesting therelevance of our thesis regarding the link between fixed exchange rates, lack of policyinstruments and educational policy. Education was also fast becoming a proxy forreducing social inequalities.

Conclusion

Throughout the 1980s and 1990s, French governments have been actively involvedin the process of European unification, whereas their British counterparts have moreoften opted for less stringent obligations. Since the mid-1980s France, like Ger-many, has implemented her domestic policies with one eye on the EuropeanUnion—and in particular on the euro zone. The written constitution was modifiedto allow for ratified international agreements to take precedence over the consti-tution itself. The setting-up of the common European market and the acceptance ofits disciplinary effects on foreign exchange policies imposed by fixed exchange rates

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and a common currency meant that France’s relative strengths and weaknesses hadto be reassessed at a time when other possible sources of national competitivenesswere, in political terms, either unacceptable or impossible. With left-leaning govern-ments that favoured a regulated and protected labour market together withreaffirmed trade-union power (especially in the public sector), labour costs couldnot be allowed to drop too low via decreasing salary levels and socially regressiveemployment policies. The competitiveness of French commerce and industry had tobe achieved essentially through greater productivity and/or quality, that is to saythrough investment in the modernization of the means of production and thereorganization of working practices. The state actively promoted this modernizationthrough public investment and R & D expenditure. New physical capital alsoimplied more highly skilled manpower. With received wisdom linking workforceproductivity and product quality to the human capital accumulated by the work-force, education became a clear priority. As Jean-Pierre Chevenement stated on theeve of the 1986 Single Act, if France wished to remain competitive in an invigoratedEEC, she had to invest massively in education. Besides the need to overcome highlabour costs, there was another important related variable: high unemploymentrates, especially among young people. Unemployment may be tackled in twonon-mutually exclusive ways: it can be reduced or accommodated. Education andtraining can be seen to allow for both by hopefully equipping youngsters with theskills needed on the market or at least by keeping them in some sort of activity. AsAlain Touraine, a leading French sociologist is reported to have replied to PresidentMitterrand, who had complained about the cost of his Government’s higher edu-cation policy at the beginning of the 1990s: ‘Sir, this is the price you have had to payto avoid another May 1968!’ (quoted in Allegre, 1993, p. 149).

Even when choosing to join the ERM and then the euro zone (which meantcompletely fixed exchange rates) and when the free movement of capital within theEuropean Community took effect in 1990, France still kept a relatively rigid labourmarket structure. This has been particularly true in the public sector, less so in theprivate sector. As France did not make her labour markets significantly more fluidand Europe did not make huge fiscal transfers, unemployment rates have remainedhigh but the productivity of those in employment has improved to the point wherethe most recent left-wing coalition government felt it could introduce further labourmarket legislation to reduce the working week in the hope of creating new jobs. Inthe case of France, the European political and economic agenda (i.e. the building ofthe single market, the free movement of capital, the loss of autonomy in monetarypolicy, the Maastricht criteria, the limitation of fiscal transfer) combined with theleft-wing socio-political agenda to generate high rates of unemployment, in particu-lar in the younger generations (Chauvel, 1998). This has also forced governingleft-wing coalitions to think of education not only as a sociocultural tool but also asan economic one.

Governments in the UK have been less openly involved in the Europeanunification process. Since the UK joined the EEC in 1972, she has reluctantly takenpart in the building of a more politically and monetarily integrated European Union.The fight against inflation at the beginning of the 1980s was part of a strong

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domestic agenda. From 1987 onwards, the pound tracked the Deutschmark andBritain joined the ERM in 1990. For a long period, except for 1987–1992, the UKhas had a free-floating currency. Despite the damaging short-term effects this hashad on the British economy with a sharp rise in interest rates, the devaluation of thepound has also been a source of renewed international competitiveness in themedium term for British products (especially for a short period after 1992), com-pared to other European countries in the ERM. This variable was also adjusted ata time when Britain could hardly deregulate her job market any further to improveher competitiveness. Arguably this provided British industry with less of an incentiveto peg its competitiveness on structural and sustainable measures such as themodernization of equipment or investment in skills. This, combined with a deregu-lated labour market, led to comparatively low rates of unemployment but also, withno set level of minimum wage, to an increase in the number of the ‘working poor’.

The various European and domestic constraints that have influenced the Frencheconomy have not been a strong feature of the UK situation, where the choice of alow-skill route has been an easier, almost natural path to competitiveness matchedby the relatively low rate of productive investment and ageing equipment (see Table5).

Using the same argument as the one advanced for France, that is to say thecomplementarity between human and physical capital, we can understand the lackof incentive to invest in education and skills. With polarization in the job market andin society as a whole, it is the quality and availability of middle-management skillswhich has been at stake (Sicsic & Wyplosz, 1996). There has been a strikingly lowlevel of investment at all educational levels, but in particular at secondary schoollevel, and post-16 participation rates have remained unsatisfactory (Micklewright,1989) despite government initiatives, as companies have been trapped in the lowskills–low wage equilibrium (Finegold & Soskice, 1988). There is a hint that thismight have been otherwise in the period 1987–1992, where, in a new context of afixed ERM, the British Government had to reconsider its options, stressing edu-cation as a new focus of government reforms and intervention. In a sense this cametoo late given the type of economic policy that had been implemented earlier.

Finally, in view of what happened in France in contrast to Britain throughout the1980s and 1990s, we may ask whether the current policies of higher taxes, socialprotection and the—albeit still remote—possibility of joining the euro may wellexplain why ‘education, education, education’ has been used as one of the centre-pieces of New Labour’s social policies.

Notes

1. If general government expenditure in percentage of GDP for 1974–1985 was higher inBritain (43.1%) than in France (39.4%), the reverse became true for 1986–90 (42.9% forBritain against 52.2% for France) (Foley, 1998, p. 67).

2. A proposal consisting of parents being issued with vouchers that they could redeem to payfor their children’s education. Parents would then ‘shop around’, considering schools inboth the private and public sector, and choose the one they thought to be the best.

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the political economy of educational reform in france and britain: 1980–2000

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