French Economic Order, A brief overview of the major shifts in the French economy,the economic sectors and companies in France

CONTENTS

Introduction

1. Major shifts in the French economic order

2. Historical overview of the French economic policies shaping the French economic order

3. Economic sectors in France- their development, their contribution to the GDP and to employment

4. French enterprises- sizes, employees, production and worldwide activity

5. French exports and imports

Conclusion

References

Introduction

This paper seeks to give a broad overview of the major developments in the French economic order since the Second World War. First by enlarging upon historical changes in the French economic policy and further by describing the structure of the economic sectors of the French economy today, focusing on the French companies. The strengths and weaknesses of the French industrial production will be reflected by an analysis of its export and import sectors.

As a theoretical base for the paper serves the Varieties of Capitalism approach by Hall and Soskice. In their theory of comparative capitalism they regard France as one possible model of capitalism, namely in between a coordinated and a liberal market economy (CME/LME). In this paper Hall and Soskice´s theory is supposed to have an explanatory function for the described institutional characteristics in the French economic order. Generally Hall and Soskice´s approach has to be seen in the tradition of comparative political economy, yet going beyond former theories as Shonfield´s modernization approach, neocorporatism or the social systems of production approach. By drawing on game theory Hall and Soskice even create a interdisciplinary approach addressing both econonomics and political scientists. Hall/Soskice try to provide a new theoretical framework to analyse and understand the national similarities and differences in political and economic institutions, shifting the focus of attention to the role of firms in the economic performance and the institutions that condition or alter interaction between economic actors. In these interactions, various actors e.g. firms rationally try to defend their interests. For firms the five most important interaction spheres vital for the firms development, production and profitability are industrial relations, vocational training and education, corporate governance, inter-firm relations and the interaction with their own employees. Interactions like these often create uneven information levels and thus entail coordination problems. Hall and Soskice take the view that the different ways in which firms handle these coordination problems can be used to compare national political economies. Firms in LMEs rather tend to solve their coordination problems with the help of market mechanisms. Firms in CMEs refer to non-market relationships, e.g. institutions that promote the exchange of information among actors. Firms may also opt for a third way (e.g. relations with other firms, which Hall and Soskice argue to be of utmost importance for the improvement of the national economic performance). Moreover it is the role of informal rules and shared understandings, shortly culture, that influence firms´ behavior. Thus Hall and Soskice make clear that many variations may occur in the two ideal type market economies and that firms´ strategies are conditioned by the institutional structure (e.g. on regional or sectoral level) even though they are not entirely determined by it. The institutional support firms enjoy in one nation often even leads to an advantage in the production of certain goods. Furthermore Hall and Soskice point out the system´s capacity to strengthen itself by institutional complementarities, meaning that nations develop complementary institutions in different spheres, which mutually increase their returns. That is also why it is more effective to establish economic policies which are complementary to the existing institutional framework.

This in turn explains why nations will defend their institutional advantages in international economic negotiations and firms challenged by globalisation will also try to preserve the advantages of their national institutional frameworks. If however changes in one part of the institutional framework in a market economy occur, this might lead to a complementary adaptation of the entire system, which is nowadays especially true for CMEs influenced by financial deregulation.

None of the market economies is superior to the other, rather both are prone to institutional change caused by external shocks, with the difference that generally it is carried out faster in liberal market economies than in coordinated market economies^[1].

1. Major shifts in the French economic order

The post-war French economy has been marked by two major shifts: The first shift in the French economy happened between 1958 and 1973- it was the successful transformation of France from an agricultural economy to a modern industrial power, catching up to the top group of western industrialized nations^[2]. The second significant shift took place from 1986 until 1995, when France turned to a more market-oriented economy , profoundly restructuring the French production regime. For the present situation Hancké concludes that:

„A new model has emerged, which still relies on many elements of the old French system, in which the state and the large firms are critical actors but it does so against a corporate governance background which is integrated in the international (Anglo-Saxon) capital market.“^[3]

The new equilibrium the French economy has found, corresponds with the assumption of Hall/Soskice, that national political economies often have to face external shocks, that challenge the existing coordination solutions of firms, leading them to modified practices to sustain their competitive advantage, including comparative institutional advantage^[4].

Indeed, the two shifts in the economy were accompanied by changes in industrial policy, notably the change of the relationship between the state and the economy in France: The post-war period was marked by interventionist policies, extensive control over business, shortly called dirigism.

“Dirigisme [...] has traditionally been characterized by close relationships between ministry and industry and a “statist” pattern of policymaking in which governments formulate “heroic” policies minus business input”^[5].

Such active industrial policies go back to Jean-Baptiste Colbert, finance minister under Louis XIV., who strongly supported the French industry and protected it from foreign competitors. The modern version of “Colbertism” is “dirigism”^[6]. The culmination of dirigism was reached during the early 80ties, when a major part of the enterprises was nationalized and restructured. These economic policies give evidence to Hall´s argument, namely that policymaking can be best understood as a case of social learning in which the state accumulated experience and expertise over time^[7].

The break with tradition and the U-turn to a more market-oriented economy in France came in 1983 with deregulatory reforms and privatization of the French companies, subjecting those to new forms of competition, new ways of financing and reducing the state´s role during the 80ties. It was not only the macroeconomic situation of France, that triggered the change, but also a worlwide recession after two oil shocks, marked by high unemployment and decreased competitiveness. Even more important were the membership in the European Community with its liberal bias and the rules of the European Monetary System^[8].

Nevertheless a hint of dirigism in the French economy remained, as the state controlled the selection of the shareholder of the newly privatized enterprises by means of creating a “noyau dur”, a hard core of shareholders who own 20-30% of the company^[9]. Possible options were other companies undergoing privatization, already privatized companies or nationalized companies. The shareholdings sold were usually small, perhaps 2 or 3 percent each in any case, shareholders were obliged to keep their shares for a period of two years (no matter what happens to the price or the dividend), by that protecting the companies from foreign takeovers. It was customary to give the noyau dur shareholders representation on the board of directors, with the result that there is not only an interlocking network of shareholdings but an interlocking network of directorships as well^[10]. According to Hall/Soskice such networks of cross-shareholding function as

“institutions that reduce the uncertainty actors have about the behavior of others [...] providing capacities for the exchange of informations among the actors, the monitoring of behavior and the sanctioning of defection from cooperative endeavor”^[11].

The strong French state had always been effective in inducing economic actors to cooperate with the government. “Inducing economic actors to cooperate more effectively with each other”^[12] in order to improve their own and the overall economic performance is more difficult in the opinion of Hall/Soskice.

“The French state has had difficulty implementing schemes for regional and technological development that require coordination among private-sector actors, partly because it concentrates power in Paris and cannot find encompassing producer groups to operate them.”^[13]

The improvement of the functioning of markets and the creation of “noyaux durs” were certainly more effective steps to secure the coordination among private-sector actors, but also balancing a market strategy with a coordinated market strategy to preserve the institutional advantage.

Hancké confirms this view but he also shows that this policies shifted the balance in the relationship between state and the economy in favor of the economy.

“The modernization of the French economy over the last two decades was not a state or market-led process, but a firm-led one, whereby large firms used public resources and institutions on their own terms [...] and then induced other actors, through power, competition, and cooperation, to act in a manner which supported their trajectory.”^[14]

[...]

^[1] Hall/Soskice (2001), pp. 1-67.

^[2] Kempf (1997), p. 309.

^[3] Hancké (2001), p. 307.

^[4] Hall/Soskice (2001), p. 62.

^[5] Schmidt (1997), p. 105-106.

^[6] Wirtschaftswoche Nr. 21, 13.05.2004, p. 20.

^[7] Hall (1986), p. 16.

^[8] Schmidt (1997), p. 109.

^[9] Schmidt (1997), p. 106, 110.

^[10] Raymond (2000), p. 84-86.

^[11] Hall/Soskice (2001), p. 10.

^[12] Hall/Soskice (2001), p. 45.

^[13] Hall/Soskice (2001), p. 48.

^[14] Hancké (2001), p. 312.