More about the French Economy

Some of the throngs of shoppers along the Champs-Elysées

Some of the throngs of shoppers along the Champs-Elysées

Although we have not reported much about the French economy, I do follow it. In the second quarter the French economy grew .5% after being in recession 3 of the 4 previous quarters. This was cause for rejoicing. In contrast the much maligned US economy grew 2.5% last quarter and has had 9 straight quarters of positive growth (and 15 out of 16 positive). France continues to miss the EU mandated public deficit goal of 3 %. 2013 will probably end up at about 4%. In contrast, the US has no such mandate and had a public deficit of 8.5% in 2012. Unemployment in France (March 2013) was 11%, a level not reached in the US during many of our lifetimes (though in the Great Depression US unemployment was 25%).

Trade union membership in France includes only 8% of employees, one of the weakest in Europe. There’s probably something I don’t understand about this – US membership in 2010 was 12.3%. What is curious is that with such a small percentage actually in the French unions, they have no problem mobilizing large numbers of people in support of protests and definitely are a force in making government policy.

Some other interesting facts about the French economy:

1. France has the 2nd largest economy in Europe and is 5th largest in the world by nominal GDP and the 9th largest by PPP (purchasing power parity – where cost of living and exchange rates are factored in).
2. France is the wealthiest European country.
3. France leads the world in the use of nuclear energy with about 78% of its energy coming from nuclear power.
4. France is the world’s 6th largest agricultural producer and 2nd largest (after the US) agricultural exporter. Nearly half its exports go to EU member states.
5. France is the world’s most popular tourist destination with over 81 million visitors annually, ahead of Spain (58.5 million) and the US (51.1 million) – so no other country is even close to France in tourism.

This week I saw an article that gives some broad perspectives about how business is done in France. We have personally encountered small business owners who abhor the intrusive government controls on business – one we met said his dream was to relocate to the US. The story is about the impact of the government forcing stores to close at an earlier hour as a result of union complaints, but the article does a good job of discussing the supporting and opposing viewpoints. It also points out other aspects of doing business here that would be very foreign in America. It’s apparent that the French have more tolerance for government control than we have in America. Government expenditures are about 56% of the economy, highest in the EU. By comparison our government expenditures in US are about 40% of our economy (GDP).

Here is a link to the article – I’ll post several quotes from it below:

http://ca.news.yahoo.com/unemployment-high-france-forces-stores-close-early-163751855.html

France has a raft of regulations governing shopping, and its labor unions ensure that they are strictly enforced. As well as strict limits on opening and closing hours, the rules only allow sales during certain periods of the year, price promotions are circumscribed, loss leaders are illegal, store sizes are limited and even the types of shops allowed to open up are regulated.

This week a Paris court of appeal ordered the cosmetics chain Sephora to close its flagship store on the avenue at 9 p.m., rather than staying open until midnight during the week and until 1 a.m. on Fridays and Saturdays.

The cosmetics chain reckons it does about 20 percent of its business after 9 p.m., and the 50 sales staff who work the late shift do so voluntarily — and are paid an hourly rate that is 25 percent higher than the day shift. Many of them are students or part-time workers, and they have publicly expressed their indignation about being put out of work by labor unions. The judge refused to take into consideration a petition they presented to the court, saying the case was a matter of public order, so now they are taking their campaign online, including with a Facebook page.

Two big department stores near the Paris Opera, Galeries Lafayette and Printemps, both very popular with tourists, have calculated that they could increase their revenues by at least $200 million per year and employ an additional 1,000 full-time staff if they were allowed to open more often on Sunday.

Retailing regulation is the most visible, but many other consumer-oriented businesses are also subject to rigidly-enforced rules. Taxis, hairdressers, public notaries and many others are governed by “obsolete regulation,” according to an official 2008 report on ways to open up the French economy, written by Jacques Attali, a writer, consultant and former top government official, who argued that it was time to blow up the rules and liberate producers and consumers alike in order to create jobs and give a boost to the economy. Among other things, he recommended eliminating a 1973 rule that limits the numbers of bars with alcohol licenses; enabling hairdressers with five years experience to open a salon without having to pass a special exam; dumping a quota system that limits the number of pharmacies, and breaking a taxi monopoly in Paris that restricts the number of cabs in the French capital and can make it hard to find one at peak hours or when it’s raining.

So far, President François Hollande and his socialist government have shown no signs of wanting to change the status quo. To do so would mean taking on the labor unions, a core constituency. But when jobs and growth are so obviously at stake, letting people buy lipstick at midnight seems a small price to pay.

Despite all these negative sounding circumstances, we don’t see them – life here seems fine. Like some of what we don’t see in the US, there is beneath the tranquility and high quality of life some signs that the ship of state can’t keep this up much longer. The government’s next step to make things better is about as clear as our own government’s plans to reduce the long term deficit. We’ll see. On verra.

Comments

  1. Great information, Hugh. Thanks for sharing it!

  2. As always, you are a wealth of info Hugh!

  3. Peter Nelson says:

    Working for an international automotive supplier, what happens to the French economy directly affects me. It will be nice when the French start replacing their aging automobile fleet. Thanks Hugh.

  4. Ann Pyles says:

    This is amazing. As an entrepreunerial person, I would feel stifled beyond words there.

  5. Alors! Don’t tell everyone, but there are shopowners that skip around the rules and regulations. Talk to those that live outside Paris.
    What I found particularly interesting was the fact that most goods were taxed at the 17.60% rate; however, books are taxed at only 5.50%. I liked the sound of the rate for the books, but various shopowners bemoaned the high rate of imported goods. When we talked about ways to try and circumvent this, one of them told me that the folks at her local post office will look at the return address and the size of the package and make a judgment that it is newly purchased imports, and they will open it up and assess a tax on it! On their own individual judgment!
    I just don’t see how they can make a living if they need to import anything. I do understand, however, that the government is trying to keep the jobs in the country, and thus the high tax on imports. But, is it working?

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