France’s economic woes reflect deep structural malaise

Stephane Garelli

S France-bashing time again. The sport never really went out of fashion, but poor economic data are raising fresh concerns about French competitiveness. In February, unemployment hit a 16-year high of 3.18m, and business surveys released yesterday showed the decline in French services is now its steepest since the 2008-9 recession.

What is going wrong? Criticism often starts with work habits. The average French employee labours for just 1,580 hours a year, compared to more than 1,900 in the US. And the French love to go on strike. Between 2008 and 2010, France lost an average of 27 working days a year for every 1,000 people, compared to just 3.4 days in Germany. Perhaps uniquely, workers even have preventive strikes – a sort of warm-up to warn employers that a real strike might be next.

But French workers are still among the most productive in the world, generating $107,000 (£70,700) of GDP for every person employed – compared to just $86,000 in Germany. And if France is so uncompetitive, why does it have a foreign direct investment (FDI) stock of more than $1 trillion, compared to about $700bn in Germany? The country must be doing some things right. So what is wrong with France’s competitiveness? I would highlight three things:

A low employment rate. The French are productive, but not enough are working. Only 40 per cent of the population is employed, compared to almost 60 per cent in Switzerland. France has high social expenditure for a developed country, and relatively high taxes on those in work.

A local outlook. Competitiveness is about being correctly positioned. Despite FDI, the French economy is very local. Its small and medium-sized enterprises (SMEs) are much less export-oriented than in Germany, and the French are not at ease with the global economy. In our 2012 World Competitiveness Yearbook, France came last among 59 countries in its attitude towards globalisation. Its goal, it seems, is to preserve France’s way of life rather than to be globally competitive and generate wealth.

Finally, over-centralisation. France is a nation of individuals, and it has traditionally needed a highly-centralised political system to hold things together. Today, 29 per cent of people who have jobs are employed by the public sector. Administration is everywhere, slowing down and blocking reforms. This is why any good idea in France takes an eternity to become reality.

Although the French are optimistic as individuals, they are pessimistic about their future as a nation. This is a real issue. But we still shouldn’t write off France. Despite its problems, it is competitive in luxury goods, aviation, energy, pharmaceuticals, telecoms and IT. And it is still Europe’s second largest economy.

There is still energy and innovation in France, but it flies all over the place. Pliny, the Roman writer, once wrote that “there is no favourable wind for the one who does not know where to sail”. This is true for France. Instilling this sense of direction is a huge task for the French government – as it is for any government, come to think of it. In the end, competitiveness is always a hostage of politics.

Professor Stephane Garelli is director of IMD Business School’s World Competitiveness Centre.