FRANCE: The Sick Man

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"The French are constitutionally incapable of balancing their budget . . . The French government is moribund."

That was the gist of an unflattering report presented to the U.S. Senate by a group of American businessmen recently returned from Paris. French feelings were hurt: U.S. diplomats in France grumbled that such sweeping accusations do more harm than good. Yet few people in a position to know, in France or the U.S., seriously question the conclusion. France has become the sick man of Europe.

Since war's end, the U.S. has given or lent France a total of $10.5 billion. This comes to $3,000,000 a day, every day, for nearly nine years. To show for this, France has all those things that the Mutual Security Agency is justifiably proud of helping rebuild: a humming industry, a well-tended countryside that, to drive through, seems to glow with prosperity. Yet Premier Laniel's government faces a deficit of more than 600 billion francs—$1.7 billion. France owes her European neighbors $824 million; her reserves of gold and foreign currency are down to $613 million—less than tiny Holland's. Things got so bad that in April and May the U.S. put up an extra $89 million to pay off French I.O.U.s to the European Payments Union.

1931 Jalopy. How did France get into this mess? Cabled TIME Correspondent Curtis Prendergast from Paris:

France got into the mess partly through wars (in Europe and Indo-China), but also because her economy is hopelessly out of date. The U.S. aid that has rehabilitated France has, in effect, done an excellent job of restoring a 1931-model automobile. The dents have been smoothed out. the engine tuned up, but it is fundamentally still the same old jalopy.

The most outstandingly decrepit item is the French tax system. Frenchmen pay taxes (33% of their gross national product, compared with 27% in the U.S.), but the tax load falls unfairly on consumers. An industrial worker with two children, earning $1.000 a year, pays 15% income tax (in the U.S. he would pay nothing). On the other hand, two million French farm families, one-third of the population, pay next to nothing. Politicians dare not anger them. Farm income is calculated on the basis of land values last assessed in 1908. Since then, prices have jumped 170 times, but the old tax rates have increased only one-tenth as fast. Result: 1,500,000 farm families pay no tax at all; the rest pay less than 2%.

Bricked-Up Windows. Illegal tax-dodging is even more serious. It deprives the French treasury of an estimated $1.7 billion a year—more than 20% of its tax revenue. Biggest dodgers are the professional men (doctors and lawyers) and a million petty shopkeepers, many of whom stay in business only by pocketing the sales tax they collect from their customers.

Tax fraud is so prevalent that the collectors resort to all kinds of ruses to catch those with hidden incomes. A French tax form asks: How many servants do you keep? What horsepower is your car? Do you own a pleasure boat or a vacation home? This sort of questioning, designed to establish the scale of living, occasionally catches a tax evader, but more often it affects the economy like the old window tax in England. There, people bricked up their windows; in France, they hide their savings under the mattress, thereby withholding their cash from useful investment.