Monday, September 1, 2014
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A French Cure

PARIS – France is widely regarded around the world as a country that has failed to embrace globalization or to modernize its economic and social model. Its own citizens have been more pessimistic about its future than ever in recent decades. The question is, can the French map out a way forward, dispel the prevailing gloom, and rebuild prosperity?

The starting point must be a lucid diagnosis. In comparison to countries that enjoyed a similar level of development 25 years ago, France has underperformed economically. The gap is not wide – six percentage points of per capita GDP – but the trend is worrying enough to call for a correction. Unemployment, moreover, has remained at shamefully high levels. And, whereas France ranks higher for some social indicators related to health care, income inequality, and poverty prevention, the price for this performance has been a steady rise in public spending and debt.

The reason for this state of affairs is not that France’s economy lacks potential. It has weaknesses for sure – a relatively thin layer of medium-size companies, adversarial labor relations, and public-sector inefficiencies, to name some key shortcomings. But France can also build on remarkable assets: on average, its working-age population is much better educated than it was a quarter-century ago; it is younger than most neighboring countries; it is home to more global corporate champions than Germany or the United Kingdom; and its infrastructure is outstanding. The balance of assets and liabilities does not justify the gloom.

The causes of France’s malaise lie elsewhere. For starters, it is much too uncertain about fundamental choices. French society is ambivalent about its own identity, the way ahead for its social model, its attitude toward globalization, its stance on Europe – and, increasingly, even about economic growth itself.

Of course, all democratic societies feature spirited debate about collective preferences. But a key feature of the French is that they do not trust their own political institutions and leaders. Legitimate and accountable institutions and policymakers are what hold divided societies together and help them overcome dilemmas. France now lacks this glue.

A second reason for France’s underperformance is the way that it reforms itself. Economic and social reforms tend to be very gradual. Each government does its bit of tinkering with regulations but generally falls short of a more ambitious overhaul of the aims and instruments of a given policy, merely paving the way for another reform five or ten years later.

As a result, French citizens view each reform as partial, temporary, and possibly reversible. Half a reform, however, does not deliver half of the results. It often delivers much less, because it fails to provide clear and stable incentives for new behavior. The rules of the game that are supposed to provide guidance to individuals and firms lack clarity and stability.

France needs to become much clearer about some key choices, and to act consistently. To begin with, the country needs to build a more agile, more open economy. It cannot rely on the same growth model that served it well in the past, but that has since lost effectiveness. French corporate champions like Safran and L’Oréal are an asset, but they cannot serve as a growth and export platform anymore.

Rather, France must tap the innovation and growth potential of young firms. In order to unlock this potential, these firms should reach out to customers and suppliers worldwide. France should thus discard mercantilism and set itself the goal of both exporting more and importing more, so that its economy responds better to global trends. It also needs to broaden the scope for international trade – for example, by opening up higher education to internationalization.

Moreover, French society remains too hierarchical and too segmented. The economic, political, and cultural elite is too thin, too uniform, and too closed. This is a recipe for frustration among an educated labor force that is too often denied the opportunity to fulfill its potential. This must change. Firms must adapt their management and governance with the aim of empowering their employees. The state also should open up and recruit senior managers from outside the civil service.

To prepare for these changes, France should not only send more students abroad and welcome more foreign students; in a country where a non-negligible share of each generation still struggles to master basic literacy and numeracy, public education must remain a key priority. Indeed, it is the one field in which public spending should be increased. Overall, cuts in public spending should continue beyond current plans; but funds should also be reallocated to finance investment in primary education.

Money alone, however, will not buy success. French civil servants must recognize that equality – that cardinal French value – does not mean uniformity, but rather more adaptability and decentralization. Schools and other public services in underprivileged neighborhoods should be endowed with the means and the autonomy that they need to serve common ends in the most suitable way.

Finally, France’s social model needs to be rethought. It was built for a vanished world in which workers often had the same employer for most of their career. Employment protection, lifelong learning, and social benefits should be rebuilt around the individual, not the job. The benefits system should be streamlined so that it becomes centered on the person, rather than being managed according to specific programs and categorical funding streams.

This is an ambitious agenda. But the credibility gap in France nowadays is such that anything short of comprehensive reform is likely to be regarded with suspicion. This is a moment when broad objectives should be set out clearly and openly debated, so that French society can embrace common aims.

This column builds on a report to the French president on what France can achieve in ten years, which was published on June 25.

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  1. CommentedJoshua Ioji Konov

    The majority of advices in the article are very much in place, however: the successes of the French economy to maintain high living standards and social stability should not be undercut in anyways, the benefits succeeded should stay in place while economic productivity and rejuvenation is pressed, also, no shady business conditions to attract easy business should be considered, in the opposite strict business laws should be in place. What about the debt: money should work for ppl not the way around: it could be well seen in the Quantitative Easing and Stimulus Packages in the State and Japan, and the active policies in China to promote business and prosperity; what the EU is not doing.. You can see the results almost elsewhere in the EU.

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