Shock Treatment

As they swarmed back from the seaside and the mountains last week, their August vacations over, France's wage earners got a cheery greeting from Finance Minister Felix Gaillard. "You will find," said Gaillard in a nationwide radio broadcast, "that price cuts have been made in household appliances, pharmaceutical products and a goodly number of articles that your children are going to need when school reopens."

Despite his optimistic tone, brilliant young (37) Fiscal Expert Felix Gaillard had really little to be optimistic about. While Gaillard's countrymen had been disporting themselves (and he himself got in a little water skiing), the devalued franc had steadied a bit on the free market (444 to the dollar v. the new 420 official rate), but prices had continued to rise. One angry reader sent a financial newspaper the bills for two identical meals in the same restaurant, one in mid-July, the other in mid-August. The mid-August bill was 31% higher.

Gaillard's answer was that ever-ready remedy of the financial bureaucrat--a price freeze. In addition to freezing many manufactured goods at the pre-devaluation prices of July 31, the harried Finance Minister ordered sharp reductions in the retail price of four French vegetables--onions, carrots, leeks and cabbage. Violators, he threatened, would be subject to rigorous sanctions.

But, solid as he made it sound, Gaillard's freeze order was full of loopholes. Manufacturers who could show that they were planning to increase exports would be permitted to raise domestic prices; so would manufacturers whose imported raw materials had grown more costly because of devaluation. Such increases, as Gaillard was well aware, would create strong pressure for a general price-wage hike and, hence, another round of inflation. What Gaillard was counting on to counteract that pressure was something he called choc (shock) effect--a spontaneous decline in prices produced by his selective controls. Stores were immediately filled with "operation choc" sales, but canny buyers recognized the offerings as no bargain.

France's big non-Communist labor confederation (Force Ouvriere) insisted that some wages already lag behind the high level of the frozen prices, and the boss of the General Confederation of Small and Medium Business chimed in: "No enterprise can sell below the level of its profit-earning capacity." In the face of such resistance, it was doubtful whether M. Gaillard's choc effect would be shockingly effective enough. The alternative, warned Gaillard, is an inflation that "will lead us to economic asphyxiation and unemployment."

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