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New Economy in France: Some Lessons from Past and Future Perspectives: an Introductory Note

Gilbert Abraham-Frois[*]

Contents

I. Last century’s economic development in France: a long run-view

II. Last ten years surprising evolution

Are economics at a crossroad? Some explorations concerning France may be useful fo a better understanding of many controversial points.. In this note, we shall have a cursory view of last century’s economic development in France before dealing more precisely on some contemporary debates

I. Last century’s economic development in France: a long run-view

Different authors have dealt with long terme development in France over say the last century. Our choice was to give some information from international sources as well as french ones. Since the methodology is quite standard, it is quite clear that results are largely similar even if the periods are not exactly the same. So there appears a very low rate of growth in the first half of the century; after the war comes a period of buoyant growth followed by a well known period of stagnation and stagflation

1) A low rate of growth during the first half of the century

Maddison’s book provides some synthetic view on comparative development (cf. table 1). However, one may think that the period chosen are not always relevant for a good understanding of France’s economic development on nearly a century. However, with different periods, rates of growth are quite similar (cf. table 2). As a matter of fact, average growth rate is quite low during the period 1913-1950, (cf. table 1) as well as for period 1896-1929 but this is not surprising if one remembers the two World Wars with millions of casualties (especially for the first W.W 1914-1918) and heavy destructions.

Both tables are quite clear: the low rate of growth in France in the first half of the century; has to be mainly attributed to low level of input volume, both in capital and labour; labour force is say stagnant: heavy casualties due to WWI, very little immigration and low capital accumulation. Quite unexpectedly, unexplained residual is very similar, according to Maddison, during the two periods 1913-1950 and 1973-87, the first and the last. However, things are rather different according to Dubois’s calculations (table 2).

(Table 1) Identifiable Forces explaining GDP Growth 1913-1987 (annual average compound % contribution to Growth GDP)

1913-50 / 1950-1973 / 1973-1987
GDP / 1.15 / 5.04 / 2.16
Augmented factor input / 0.48 / 2.02 / 1.24
Foreign trade effect / 0.03 / 0.28 / 0.18
Structural effect / 0.04 / 0.46 / - 0.10
Technology diffusion / 0.00 / 0.25 / 0.21
Scale / 0.03 / 0.15 / 0.06
Energy effect / 0.00 / 0.00 / - 0.05
Natural resource windfall / 0.00 / 0.00 / 0.00
Total explained / 0.58 / 3.19 / 1.54
Unexplained residual / 0.57 / 1.79 / 0.61

Source: A.Maddison(1991) p.158

(Table 2) Sources of growth: France 1896-1984 (annual rates of growth)

1896-1929 / 1929-1951 / 1951-1973 / 1973-1984
GDP / 1.8 / 0.9 / 5.4 / 2.2
Inputs volume / 0.7 / - 0.15 / 1.45 / 1.0
Apparent total productivity / 1.1 / 0.75 / 4.0 / 1.2
Corrections introduced:
- hours per person / - 0.4 / -0.15 / -0.3 / -0.8
- educational level / 0.25 / 0.3 / 0.4 / 0.7
- agricultural exodus / 0.3 / 0.1 / 0.5 / 0.3
- duration of capital utilization / -0.2 / -0.05 / -0.05 / -0.4
- age of capital stock / - / - / 0.3 / -
- rate of factors utilization / - / - / - / -0.6
- oil price substitution effects / - / - / - / -0.25
Corrected total productivity / 1.15 / 0.85 / 3.1 / 2.25

Source: P.Dubois (1990)

2)1950-1973: The «Golden Age»

There is a general agreement about acceleration of growth in capitalist development over such period. According to A.Maddison, it must be characterized as a «golden age»; a french sociologist Jean Fourastié, was still more dithyrambic, designating this period as the «Trente Glorieuses» («Glorious Thirty» ??[1]). This seems quite excessive, since begining of this period, i.e first years after WWII may be considered as reconstruction period , and that «golden age» ins interrupted well bedore 1975. Anyway this is a period of fast growth and full emplyment. Why ? According to A.Maddison again, this golden age has clear characteristics:

«Several special characteristics enhanced economic performance in the 1950s and 1960s. they were:

1.  successful reappplication of liberal policies in international transactions

2.  governmental promotion of buoyant domestic demand

3.  policies and circumstances that kept inflation relatively modest in conditions of very high demand

4.  a backlog of growth possibilities, which made the supply response in Europe and Japan very sensitive to high levels of demand»[2]

As noted by the author, high level of demand maintained full employment and encouraged investment to rise rapidly. Capital stock rose at an unprecedented pace. Labour moved from low productivity activities to more profitable employment. Barriers to international trade were removed and international specialization improved.

Maddison’s book analyses thoroughly these global characteristics. Growth acceleraation is quite general up to 1973. As far as France is concerned, several points must be noted:

(i) French development ranks quite high among the main industrial countries (with the exception of course of Japan).

Explanation of this development is far from being clear: if we refer to table 1, augmented factor input explains only 20.2 points out of 5.04 of growth rates; if we refer to table 2, inputs volume explain only 1.45 points out of 5.4 points of growth rate leaving 4.0 points unexplained; with introduction of many corrections one comes to «corrected total productivity» (i.e ..measure of our ignorance...) amounting to 3.1; so that about 60 % of growth still remains unexplained. Maddison’s evaluation seems better leaving just 1.79 point out of 5.04 unexplained (which means however 35 % unexplained...). However corrections introduced are just guesses: very few precisions are given explaining how «foreing trade effects», «structural effects, «technology diffusion», «scale effects»... are taken into account.

(ii)Average growth rate is about 5 % per year but «growth cycles» still exist however; deviations from trend amount to 15 or 20 %. A brief chronology has been established[3]

(Table 3) Growth cycles: France 1955--1975

Trough / Peak
Feb. 1953
Oct. 1959
Jun. 1965
May 1968
Aug. 1971 / Nov. 1957
Feb. 1964
Jun. 1966
Nov. 1969
Jul. 1974

Source P.A.Klein (1981)

3) From the «GloriousThirty» to the «Piteous Twenty» ?

It must be remembered that in 1967 M.Bronfenbrenner organized an important international congress with the provocative tittle : Is Business Cycle obsolete ? Was it possible to eliminate business cycles through fine tuning, based on simplified macroeonomics tools with «keynesian» flavour, clever mixing of fiscal and monetary ? Of course the answer was quite negative ?

However, the new situation which appeared from 1973 was quite a shock. Business cycle analysis which had been neglected, and nearly forgotten during the «golden age» of the «Glorious Thirty» has a strong revival during this period.

In France, the situation which has developped since 1973 has been very often characterized as a «crisis». Is such a qualification relevant? average growth rate, quite lower than in the precedent period, is still twice higher than in the pre-war phase; moreover, the average standard of living has increased very consequently, say from 30 to 50%. Of course, such figures are average ones: on the other hand rate of unemployment grows heavily, new forms of poverty appear, inequality is strongly developing, and the importance of cycles is increasing. Let us give some precisions one some points.

(i) Slackening growth with increasing importance of business cycles.

Average annual rate of growth of GDP is about 2.2% (cf table 1 and 2). But (cf. fig.1), there are very few periods, and indeed very short, characterized by falling GDP, negative rate of growth: as a matter of fact, 1993 is the single period of true decrease; it is still quite limited (less than 1 %).

Moreover, there appears two kinds of periods: periods with high rates of growth (1970-73, 76-79, 81, 87-89) as opposed to recession periods (74-75, 79-80, 82-84, 90-93).

(Fig.1) Growth of GDP in France: annual rates of growth -


(ii) Another characteristic of this period is the impressive growth of unemployment: it is only 2% at the end of the 60’s (quasi-full employment and may be over-employment) and more than 12% at the end of the 80’s.

Inflation is about 15 % during the first years of the 70’s and comes with many difficulties under 10% during the 80’s

Why did the golden age came to its end ? why the end of the «Glorious Thirty» ? are we out of the «Piteous Twenty»? It is very difficult to give precise answers to such largely controversial questions. Let us try anyway

A preliminary remark may be useful. There is general acceptance that 1973-74 is the end of the period of high rates of growth, and quite convenient to attribute heavy responsibility to oil shock of 1973-74. As a matter of fact, difficulties appear much sooner. The word «stagflation», characterizing the dfficulty of conciliation between full employment and price stability appears as soon as the late 60’s in the United Kingdom. Moreover, in the last years of the 60’s and the beginning of the 70’s, social conflicts, strikes and important rises in wages appear in many developed countries[4] If is quite difficult to ascertain a date of change, it is quite clear that a general slow down appeared post 1973. Why ?

According to A.Maddison, «the real mystery of the post-1973 slow-down is the sharp deceleration of productivity growth in the lead economy, the USA. In the followers countries, there is no mystery, and their slow-down had some elements of inevitability. As the productivity gap between the followers and the lead country narrowed, the scope for easy growth by replicating lead country technology was reduced. A great burden of inovation fell on the followers, the profitability of high levels of investment faltered. Capital stock ceased to grow as fast. Similarly, the scope for easy stuctural change waned, because the relative size of low productivity sectors such as agriculture had fallen. One the major barriers to trade were removed, further specialization gains accrued more slowly...»

«However, there were other forces at work.....In the 1970s, the economic system of these countries suffered major shocks: the collapse of the Bretton Woods fixed exchange system, the twelvefold increase in oil prices as a result of the two OPEC shocks, and the significant acceleration in the upward movement of other prices. These required major changes in the discretionary weapons of macroeconomic policy and the rules by which central banks and finance ministries operated. They also brought changes in the expectations of the private sector and in the behaviour of entrepreneurs and trade unionists.....In addition the general switch from Keynesian-type to more cautious macropolicies acted as a long term dampener...»[5].

A complementary view starts from observations relative to distribution of national income which has suffered serious variations all along these period. From all analyses refering to national distribution problems in France, as well in all european countries, it appears high tensions since the beginning of 60s; these tensions have been exacerbated by oil shocks which may be considered as transferring outside some part of national product. Fig. 2 is specially interesting to consider since it represents the evolution of «taux de marge des societes», i.e ratio of profits revenue to national income in France over the three last decades (1970-1998).

Such a problem is not completely specific to France. In all OECD countries (an exception for UK) this share goes significantly higher in the second half of the sixties. This tendency to higher share of profits comes to an end at the very beginnnig of the 70s in most countries, with an exception for France: there, this ratio remains relatively stable until 1973; it comes down suddenly in 1975, remains approximately stable at low levels till the end of the 70s with a new decline at the beginning of the 80s; (such decline has mainly its source in social security problems, and not in wage increases).

A complementary analysis is given by fig. 3 which represents the evolution of wage share in the national accounts (making allowance of social security charges): this ratio which is around 60 % at the beginning of the 70s, goes still down in 1973, then comes up around 66 to 68% until approximately 1983.

From 1983, situation goes better for firms (cf. fig 2); such improvement has two reasons: first the oil «counter-shock», second the change in economic policy (provisional «freeezing» of wages and prices consecutive to changes in policy conducted by government Mauroy, J.Delors being in charge of Department of Economics and Finance. Improvement in firms profits and accounts continue from 1984; in 1986, share of profits in national income (cf fig. 2) is higher than before first oil shock. . Here is certainly one on the reasons of posterior evolution, and specially of the paradox which appears at the end of 80s.


Fig 2

Fig 3


II. Last ten years’ surprising evolution

The end of 20th century, say last ten years, may be characterrized by three questions:

·  Emergence of the 1988-1990 boom from the 1987 krach

·  End of he 1988-90 boom: why such a recession in 1990-1993 ?

·  What are the reasons of contemporary expansion? is «new economics» relevant for France’s last three years’ evolution ?

1.  How a boom comes out of a krach

The importance of 1987 Wall Street krach, quite comparable to 1929 situation is well known. Considerable preoccupation appears in all financial markets and for all policy makers. Expectations are quite pessimistic. However it appears that quick denials appear; it is quite surprising to see how French public expectations quite pessimistic in oct.nov. 1967 change progressively; world growth is not affected; 1988 is a period of considerable recovery in France; 1988-1990 are years nearly comparable to years of high growth of the «Glorious Thirty»; employment goes better, creation of jobs are quite impressive, inflation deccelerates. This paradoxical evolution seems to have two explantions, one quite general, the second specific to French economy.