Is France's stature in decline?

Daniel Cohen, Professor of Economics, Icole Normale Supirieure Paris, Project Syndicate

The French are notoriously sensitive -- if not defensive -- about France's stature in the world. The French state spends vast amounts of money to propagate the French language and French culture, yet the French are painfully aware that the global position of their country is not what it once was.

No surprise, then, that during the last presidential election, the publication of a European Commission report claiming France's economic rank among European countries had fallen from 3rd to 10th place in the span of ten years caused soul searching and controversy. Soon, President Jacques Chirac was accusing his rival, Lionel Jospin, of causing the "French decline."

The OECD and Eurostat, the European body in charge of such data, thought they put an end to this aspect of the debate by showing that France, Germany, Italy, and Great Britain all enjoy roughly equal per capita living standards. But the broader controversy wouldn't go away. Worried talk about "French decline" reappeared with this year's street protests against pension reform, mounting disputes over fiscal policy with the European Commission, and bickering with America over the war in Iraq.

Today's best-selling non-fiction book in France is a polemic by Nicolas Baverez, La France qui tombe (Falling France). Baverez's book is filled with quotations from de Gaulle and Napoleon. According to the author, France's last great achievements were in the 1970's, when the fast train, the TGV, and Airbus were launched. He castigates both Mitterrand and Chirac for their "common talent to win elections and turn France into a loser." The book's success is itself a sign of a kind of "malaise." But of which kind?

Baverez's evidence of degeneration is not as convincing as he believes. For example, he cites the draining away of industrial jobs as the most glaring evidence of France's decline. But deindustrialization is common to all advanced countries. Indeed, France does actually better than most of its rich country rivals and, unlike Germany, the UK, or the U.S., has retained the same global market share in the industrial sector that it had in the early 1970's.

Moreover, according to a better measure of competitiveness, foreign investment, France does very well. According to a recent report by the Economic Analysis Council, direct investment in France grew to 60 billion euros in 2001, almost twice that of Germany. French cost competitiveness also improved (by 20 percent) in the last three decades, with higher productivity offsetting rapid wage growth.

But the core of France's long-run economic problems is precisely the fear of losing industrial jobs. France remains a strong industrial power in traditional areas such as automobile and aerospace industries, but it is falling behind in innovative markets, where smaller companies spread new technologies. France, for instance, spends only US$30 billion annually on high tech R&D, compared with $51 billion in Germany, $98 billion in Japan, and $265 billion in the U.S.

In short, Baverez's analysis points in the wrong direction. France has undergone a set of critically important reforms over the past two decades: Economic and financial liberalization, elimination of price and foreign exchange controls, the end of credit restrictions, European liberalization, reduced inflation and trade deficits, the advent of the euro and the forced globalization of the country's firms. The French malaise has nothing to do with any of them.

France's problem is that it fails to recognize the new world of which it already is a part. French state capitalism is dead, and France is finding it hard to come to terms with its passing. Indeed, France must be the only country in which a Prime Minister, Lionel Jospin, feels obliged to apologize the day after for saying on TV that "the state is not omnipotent."

There are many reasons for this French schizophrenia, but a critical one has to do with the political game of the past 20 years. Until 1981, France had a clear division between right and left. Since then, both the Mitterand and Chirac administrations blunted their ideological edge in order to carry the difficult process of adjustment towards Europe and globalization.

A round of "shock therapy" ` la. Thatcher two decades ago might have forged a new political consciousness. But the consensual dribbling out of reforms allowed the French to live in one world and think in another. This is a key reason for the political cataclysm that exploded during the last presidential campaign, when the far-right leader Jean-Marie Le Pen reached the second round of the presidential election, ahead of the incumbent Prime Minister, Lionel Jospin.

The rise of the extreme left, which gathered 10 percent of the vote during that presidential campaign, also attests to this political failure. France needs a political revolution more than an economic one if it is to come to terms with reality, part of which is that "French decline" is a fear of the French people's own making.