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:

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.

Some Comments about the French Economy

We are here struggling to learn the language and understand French on the TV. We have no close contacts who keep us in tune with the pulse of the French economy. Everything seems OK to us living inside this bubble of foreignness. The French people have personally been wonderful to us. Still we are aware that the economy is struggling. This editorial in the Wall Street Journal by Romain Hatchuel, a French citizen working for a New York asset management firm, pushes hard on some of the economic anomalies confronting the French government. Among them:

  • unemployment at 10.6%, a 13 year high
  • public debt at 90% of economic output
  • failure to meet current year deficit reduction targets
  • government expenditures are 56% of GDP, more than 15% higher than in the US
  • consumer spending, the main economic driver, fell last year and continues to fall for the first time since 1984.
  • real compensation for public employees has grown the most of any euro zone country since 2009

The article notes that the electorate hoped that a coalition backing the Socialist candidate would have more success negotiating economic concessions than the center right administration of Nicolas Sarkozy. So far they have raised taxes on the wealthy and… not much else. Sounds a bit like the political impasse in the US, except without the strength of the US economic recovery. Last night President François Hollande was on national television asking that austerity programs be put on hold and promising not to raise taxes. As in the US, politics drives politicians to support programs that seem contrary to good economic principles. From our perspective, we are wishing for the French (and for the US) a speedy economic recovery.

Romain Hatchuel: Whats French for Economic Nonsense? –