Marc John identifies the challenges facing France and how it can recover its lost vigor.
In just over 30 years after World War Two, France lifted itself from the ignominy of Nazi occupation into a sleek and modern Group of Seven economy with world-beating industrial champions in sectors such as energy and aerospace.
Its welfare system is among the most generous in the world. A road and rail transport network means its companies are within hours of tens of millions of potential customers. It is a leader in luxury goods and is the world’s top tourist destination.
But somehow that Gallic vigour is being lost.
Unemployment is at 14-year highs as plant closures mount, France’s share of export markets is declining, and the fact that no government in three decades has managed a budget surplus has created a public debt pile almost as big as national output.
After three decades of uninterrupted post-WWII boom — often described as the “Glorious 30” — the French government lost its way.
By 1980, French economic growth had shrunk to two percent compared to its pre-oil crisis rate of above six percent – a rate which France and most rich states have not seen since.
In the years that followed, governments around the world reacted in their fashion: Britain’s Margaret Thatcher faced down Britain’s unions in a drive to free up labor markets, while Scandinavian leaders sought to free their economies of debt.
In France, governments of left and right chose entrenchment: strong rises in public spending which helped ease the social and employment shocks but which sent national debt soaring from 20 percent of output in 1980 to its current record of 91 percent.
The next three decades are sometimes called the “Pitiful 30”.
Influence exerted by interest groups — or “insiders” — prevented government reform of the labor market, making France increasingly uncompetitive in the face of global competition. This is the same problem that Mancur Olson identified in Great Britain after WWII — when Britain floundered while Germany and Japan flourished. Narrow interest groups maximize their own welfare at the expense of the broader economy.
France faces massive challenges in overhauling — possibly “dismantling” — its welfare state and restoring international competitiveness. Responsibility has fallen to the unlikely figure of socialist President Francois Hollande.
Read the entire article at Insight: Making France work again | Reuters.
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