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La France sans ses usines by Patrick Artus
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La France sans ses usines

by Patrick Artus

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Recently added bydavidgn, mercure
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    Exorbitant Privilege: The Decline of the Dollar and the Future of the International Monetary System by Barry Eichengreen (mercure)
    mercure: People interested in the euro crisis (2011) may want to read Exorbitant Privilege and La France sans ses usines in tandem. La France sans ses usines looks at France's problems to keep its exports going. Exorbitant Privilage shows that this is a problem persisting from well before the introduction of the single currency.… (more)
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The costs of de-industrialisation

Since the 1990's the consensus had been that manufacturing would disappear to emerging markets, whereas the developed world should concentrate on new technology and services, the two extremes in terms of value creation.

This model has been proven untenable, because new technology employs too few people (only 4% in the US and 5% in Sweden) to absorb the loss in manufacturing. The loss in manufacturing reduced the averagely required job qualification, and consequently, the standard of living could only be maintained through increased debt and a quickly worsening balance of trade. Equally, the loss of manufacturing increased structural unemployment and sub-standard contracts for many workers. Industrial production is important, because beyond tourism, services contribute little to the balance of payments. De-industrialisation and a falling domestic savings quote are linked. In the end the reduction of domestic savings also diminishes the consumption of services. Additionally, at about 1%labour productivity in services rises more slowly than in industry.

French manufacturing lost half a million jobs in a decade. However, France would not need to suffer from de-industrialisation, given positive pre-conditions like a qualified workforce, cheap energy and a good infrastructure, this book argues.

The authors point at multiple causes that are macro economic or institutional in character. Together with the United States and Spain, France has done a lot worse than Germany and the Nordic countries. In 2010, the same year that France had a negative balance of trade of 50 billion, Germany had a positive balance of 150 billion. German manufacturers add 30% value, whereas France adds just 16% (which is equivalent to Britain, but Britain and the US have "competitive services"). In car manufacturing, "multi-localised" companies like Renault operate in cheaper market niches where price and costs matter more. This has consequences for French jobs at Renault, but also for suppliers and the development of new products in France.

Germans work fewer hours on average (1390) than the French (1554, p.40) and retire around the same age. Labour costs per hour in manufacturing are too small to make a difference. The Germans have outsourced more production (to Eastern Europe) and more sophisticated production (due to lacking craftsmen) than other countries in the euro-zone. German exports have not suffered from the rising value of the euro: production costs do not seem to matter much. With its average products and limited innovation, French exports suffer far greater price elasticity. French companies spend relatively little on R&D (unfortunately the book does not explore why Americans spend more than Germans and still have issues with their balance of payments), and less on higher education than peers. It allows Germany to excel particularly in "medium-high" technology across the board, where France only remains competitive in certain niches. France has large companies that try to find the cheapest producer around the globe, where Germany's Mittelstand cooperates with companies closer to home. French small and medium-sized companies also have limited access to "business angels", instead relying on risk-averse banks. Such companies are quickly absorbed by large corporations and lose their innovative power. This culture of risk aversion is also found in regulation. France defends its consumers better than its producers. Certain industries like chemicals suffer from decreasing acceptance. Manufacturing no longer has a good reputation. High corporate taxes and social security charges, particularly for medium-level jobs, also give French companies a disadvantage.

Since the introduction of the euro, France has lost the often used instrument of devaluation of its exchange rate to maintain its industries in times of wage increases or lacking innovation. The euro has not led to convergence, but to productive specialisation of economic models within the currency zone. Diversification because of changing exchange rate, interest or inflation differences is no longer necessary. In a monetary union industry tends to move to the centre and services to the periphery, because of transportation costs. Curiously, the authors see Germany, Holland and Ireland as central (p.71). Spain, Greece and Portugal concentrate on non-exportable services and construction, with their solvability evaporating. France and Italy are somewhere in the middle. In America this applies to Oregon vs. Hawaii.

The service jobs available to former industrial workers (often in tourism, now France's major job creator) from medium-level industries require lower qualifications and reduce the economy's growth rate. Such workers earn 20-30% less, leading to greater social inequality.

As a peripheral country, Greece may have to concentrate on services, but this does not apply to France. There are various ways to defend industries in developed countries. (p.125). The book sees Sweden as rock star de la crise. It came out of its own problems in the 1990's and used almost every trick in the book: reduced labour costs (rising again after 2008), exchange rate policies, concentration on products with a high added value through increased R&D and education, as well as reduced costs of social security. It led to high growth, budget surpluses and reduced government debt. Innovation and the quality of labour are the most important.

France still has enough graduates in the hard sciences, its companies are capital-intensive enough, its R&D is reasonable, its infrastructure is good and energy is cheap (p.132).

France should move up the quality ladder by developing small and medium sized enterprises rather than the traditional grand projets. Policies should become more business friendly in general. Education and research require promotion. Research policy initiatives can aim at specific industries or at businesses in general.

A break on labour costs has helped Germany to increase competitiveness in a situation where a reduction in the exchange rate is not possible. However such an approach has negative effects in places where services dominate (Greece, Spain and to a lesser extent France and the US, p.137).

Euro currency policies should aim at the needs of both industrial- and service-oriented economies through fiscal and budgetary integration, including transfer payments.

Unfortunately, La France sans ses usines is more a pamphlet for the French elections in April 2012 than a thorough study. Its use of statistics aims to bring the message across and not to offer a broad comparison, nor does it contain a mathematical model or much in footnotes. The book is somewhat rambling in structure, as if it were made up of various (newspaper) articles. Still its combination of the traditional Heckscher-Ohlin-Samuelson model and the attention to structural issues could serve as an example for quite a few pundits in the financial press.

A somewhat different view at the situation in the US can be found here. ( )
2 vote mercure | Jan 13, 2012 |
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