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Developments of the French Economy Since the 30 Glorious Years

3260 words (13 pages) Business Assignment

9th Nov 2020 Business Assignment Reference this

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Introduction:

France is currently one of the largest economies in the EU, with a GDP of $3,037,360 in 2018 (OECD, 2019). After the Second World War, its economic situation was at its lowest during summer 1944, with its production falling by a third of pre-war levels. Les Trentes Glorieuses helped push economic growth substantially between 1950 and 1973; where France experienced unparalleled growth, averaging around 5% per annum. The growth model of post-war France was built on a series of institutional forms (Boyer and Mistral, 1983) that enabled rapid growth and industrialisation of the French economy. French governments exercised substantial influence through their connected mechanisms: a large ownership stake in the economy, a policy of indicative planning, and a system of credit allocation. However, in the 1970’s, there was a slowing down of growth, drops in profitability and a rise in unemployment. Another turn of events occurred following this, in the late 1980s onwards. Major developments such as decentralisation, privatisation and a change in labour markets played a major role in the change of the French economy; marking the evolution of the French economy, which then came to be known as the ‘French social model’ (Parsons, 2013)

The thirty glorious years was a time where the France was dominated by small and medium-sized enterprises, and the economy was led by a dirigiste model, where the state acted as a grand orchestrator of economic action. The Commissariat Générale du Plan was created, which established a 5-year plan for modernisation in order to control the French economy. Additionally, France had subsidies to ‘national champions’. These were firms selected by the state to receive government protection (McCann, 2013). They were usually large firms, with the state owning significant or controlling equity stakes and providing subsidies and cheap loans. Some of the examples of national champions were AXA, Renault and Gas de France (Holton,1986). France took a technocratic approach where there was a strong role of state bureaucracy. The 30 glorious years served a Fordist model, with large firms in bureaucratic organisational forms, technocratic and detached senior management. In addition, a low-skilled but highly controlled blue-collar labour force with conflictual relations and a Keynesian high-growth macroeconomic backdrop were implemented (Adams, 2010). This advancement “was engineered by continuous productivity gains, sustained by a more efficient use of resources” (Dormois, 2004). French firms embedded both paternalism and authoritarianism, with a large chain of command and a very tall hierarchy.

At the beginning of the 1960’s, "France’s Dirigiste confronted a less hospitable political and social environment” (Levy, 2008). The near revolution of May 1968 and the emergence in 1970’s of a powerful Socialist-Communist alliance undermined the state-led policy. The political environment of the 1970’s affected social policy but also the state-led economy, with political pressures diverting dirigisme capitalism from its post-war modernising mission (Berger, 1981; Cohen, 1989). There was also attempts to create an ‘advanced, liberal society’ and to shift away from modernisation and technocracy.

French economy in 1970 to 1983:

The 1970’s was a difficult decade. France was experiencing a decrease in growth, a decline in profitability, and a significant rise in unemployment. In 1978, only fewer than a dozen firms, were receiving more than 75% of all public aid to industry; with most of them being uncompetitive and many in declining sectors (Cahiers Français, 1983). The diversion of dirigisme was intensified when Mitterrand was made president in 1981. He campaigned to take dirigisme to new heights and restore growth and economy by running a ‘real industrial policy’. This was done by nationalisation, which covered 12 leading industrial conglomerates and 38 banks. 13 of the 20 largest French firms were 100% owned by the state (O’Sullivan, 2003). In addition, he launched a series of industrial policies designed to ‘reconquer domestic markets’ in all manner of troubled French industries, which comprised of coal, steel and electronics. The Socialist Party and Communist agreed that nationalisation was necessary to dispossess private capital of its power (Holton, 1986). Very quickly however, the socialist dirigisme under Mitterand was not producing the desired results. It was found difficult to shift resource from traditional to emerging sectors. The left’s break with dirigisme added to international and European pressures (Hall, 1990; Loriaux,1991). This led to the U-turn in 1983 and it triggered a range of reforms that struck at the core of the Dirigiste model (Cohen, 1989; Hall, 1990; Schmidt, 1996; Levy, 1999, 2000).

The ‘third spirit of capitalism’:

The 1990’s was a period of turbulent economic change for all the major industrialised economies (Culpepper, 2004), signified by the increasing role of financial markets and information technology, which was used across all sectors in the French economy. The movement from state to market direction was stimulated during a wave of privatisations which was permitted by the Right government when they returned to power in 1986. The rightist government of Jacques Chirac privatised 13 large groups, including some of those which have been nationalised by Mitterrand’s first government in 1981 (Levy, 1999). This meant that the state’s direct control was reduced to only the care areas of public service. Chirac’s government inspired the reinforcement of existing patterns of corporate cross-shareholding, creating noyaux durs – hard-core owners. The noyaux durs companies held each other’s shares and provided mutual takeover protection and patient capital, attenuating the short-term bias of liberal market regulation induced by focusing on share price and quarterly reports (Clift, 2007). This allowed French managers to be free from the supervision of state planners and to be autonomous in developing their strategies, in order to raise the necessary resources independently. Privatisations were allowed to create a system of interlocking directorates to shelter French companies from hostile takeovers. French business was given more liberty, such as the deregulation of financial markets which came about in 1985, and this enabled firms to raise funds by issuing equity. This reduced their dependence on state-allocated credit (Culpepper, 2004). Price controls in 1986 were removed and this enabled companies to benefit from successful competitive strategies. In addition, the eradication of capital controls in the late 1980’s facilitated the expansion of production abroad and gave managers an ‘exit option’ if domestic conditions were not to their standards. These reforms aided in boosting profitability from 9.8% of value added in 1982 to 17.3% in 1989 (Faugère and Voisin, 1994). This shaped the French capitalist model in terms of the money that it brought to the state treasury (F70.8 billion) and its popularity (Schmidt, 1999). Most stock offerings were heavily over-subscribed, and the number of shareholders increased rapidly from 1.7 million to 8 million by the end of the privatisation programme. Financial institutions such as banks and insurance companies acquired a significant share of industrial capital for the first time. Before this, banks had held a negligible interest industry, lending money but not holding shares in the companies or having seats on the boards. The privatisations ensured the internationalisation of French capital through the participation of foreign firms in the hard core of investors and board of directors; allowing foreign operations, cross-border mergers, acquisitions and joint ventures (Schmidt, 1999).

Change in labour markets – increased flexibility:

The change in labour markets has influenced the French capitalist model considerably. In the 1980’s, greater market flexibility was introduced with an increase in part-time and temporary work. The reform was vital due to changes in the global economy structures; caused by substantial rise in unemployment in the 1970’s. The Left attempted to reduce and reorganise working hours to reduce unemployment, and this was the first step towards the plans of a 35-hour week contract. Mitterrand had a very bold expansionary economic programme which consisted of raising the minimum wage, reducing the working week, releasing a fifth week of paid holidays, and creating the Auroux laws. The Auroux Laws of 1982 intended to extend industrial democracy and increase labour protection, which made it mandatory to negotiate annually at the firm level on wages, work time and organisation. The objective of the laws was to encourage work-place participation and contractual partnership between labour and management, without imposing a “heavy legislative burden” (Amable, 2016). The Auroux laws strengthened firm-level bargaining, nonetheless, these laws required the rewriting of about one-third of the existing labour legislation. The legal changes towards ‘travail différencié (peripheral work) was introduced by a decree of August 1986, followed by the addition of a further law in June 1987; which allowed companies to introduce more flexible working patterns. These flexibility initiatives “accelerated the pre-existing trends towards ‘atypical’ forms of employment” (Grahl & Teague, 1989). What made a big change to the capitalist model of France was the first Aubry laws of 1990 which mandated a new legal work time in 2000 for firms with more than 20 employees and 2002 for other firms. It introduced the 35-hour working week which fostered firm-level bargaining on work-time reduction and enabled the establishment of quid pro quo agreement where workers would accept greater organisational flexibility in exchange for work-time reduction. The Aubry first and second laws reduced unemployment, which fell to 8.9% by 2002. Despite all of this, the Aubry laws were opposed by employers (Trumbull, 2002), which led to a withdrawal of CNPF from all national-level negotiations except on youth employment.

When Sarkozy won the 2007 presidential election, he mentioned three topics that should be up for negotiation: the labour contract, flexicurity and the unemployment benefit regime. The Accord National Interprofessionnel (ANI) (2008) was introduced. This law proposed an extension of the trial periods for open-end contracts, which made the early termination of a work contract easier, and relaxed the necessity to have a “real and serious cause for dismissal” (Amable, 2004). Additionally, it created a new contract for high-skilled employees, with duration linked to the accomplishment of a mission. The most important outcome from the ANI was the introduction of mutually agreed termination of the employment relationship, also known as “rupture conventionelle” (Amable, 2004).  This termination does not need a motive and helps the employee by conferring the right to unemployment benefits and dismissal indemnity. The advantage for the employer is the avoidance of a dismissal procedure and its costs involved, as well as uncertainty. However, this was not able to be implemented due to the Great Recession and the rise in unemployment. (Amable, 2004). Nonetheless, the ANI of 2013 by Hollande chose to focus more on high-skilled employees. Whereas the Left governments focused their efforts on organisational and work-hour flexibility and keeping legal employment protection intact. In addition, firm-level negotiation was dropped instead of national-bargaining. The ANI (2013) was a first example of a new method promoted by the government. This was a step towards flexicurity, and there was increased social contributions on short-term contracts, the portability of rights for the unemployed and co-financing supplementary health insurance for employees and firms. This transformed the French economy, by providing for flexibility to the economy and reducing unemployment. 

Decentralisation of the French economy:

Lastly, a prominent change in the French capitalist model was decentralisation. The Law of 2 March 1982 laid the foundations of decentralisation. (Sauviat, 2017). The reform consisted of three essential aspects which were sufficient to give impetus and scope of the change. The “a priori” administrative supervision of local authority regulations vanished, giving way to “a posteriori” administrative and budgetary review, pursuant to Article 72 of the Constitution; which confirmed the principle of freedom on administration. One of the reasons for this change was the ideological evolution of the Left, which became more decentralist in the 1960’s and 1970’s under the influence of the increasing strength of the Socialist Party (Preteceille, 1988). Following the adoption of the Law in 1982, decentralisation was trying to be put into operation. By June 1983, ten laws had been adopted. These concerned the freedoms of the communes, departments and regions. The Departmental Executive power would be transferred from the Prefect to the President of the departmental council, and there would be a creation of regions with full powers and recognition as territorial Collectivities.  The other laws deal with the organisation of the regions in Corsica and French Overseas Territories and implement the first transfers of powers and finance (Sauviat, 2017). The financial part of decentralisation was distinguished by the transfer of a number of fiscal resources and the allocation by the State of decentralisation subsidies. The Government did two things, which was to transform a number of specific subsidies into a block grant and guarantee the transfer of necessary resources to allow decentralisation to be effective. (Preteceille, 1988). The image of the local institutions went through a substantial change. Despite the progress marked by the 1982 reform, the scheme did not achieve the wanted results and local institutions needed improvement. “The success of the 1982 reform and the decentralisation movement in Europe coupled with the recurring shortcomings of the territorial organisation, highlighted the ambition of ensuring the progress of decentralisation in France”. (Sauviat, 2017). Through more than 20 laws and 200 decrees adopted since 1982, the territorial structure of the State has been reorganised in the sense of giving more power, more autonomy of decision and control of resources, more responsibilities and competences to the non-central tiers of government: the municipalities, departments and regions. When the Left government introduced this reform, it was claimed as one of the major steps in socialist oriented social change (Preteceille, 1988). 2002 and 2004 were the second attempts of decentralisation, where the Constitution introduced the principle of financial autonomy of territorial Collectivities. Other changes included the possibility of holding local referenda and the right to petition. This has transformed the French capitalist model in a way that France is more cost-effective and has a greater co-ordination, efficiency in public resource utilisation, as well as financial autonomy and the distribution of powers is clarified.

Conclusion:

To conclude, France has managed to experience rapid growth since post World War II thanks to the 30 glorious years. France indeed underwent a deep transformation from the 1990’s, mainly affected by politics and the issues between the Left and Right government. Most prominent was financialization of the economy, the prominence in shareholder value in corporate governance principles, and the increasing weight of banks as well product market competition and the opening to foreign trade and investment. Major reforms, beginning with decentralisation, consisted of non-central firms receiving more scope for autonomy and responsibilities, this was an ambition for the government since the early 1970’s, when the economic oil shock of 1973 came about. Privatisation came about in the late 1990’s, which changed the structure of corporate ownership and control, and it has moved the country from a highly state-controlled economy to a more market-oriented one. This has allowed France to be on the financial market. Lastly, labour market reforms changed the capitalist model in the sense that, workers had more job security and contracts for highly payed workers was also included. The working hours had been relaxed to reduce unemployment and austerity was avoided. All of these have contributed to the capitalist model which exists today, and makes France one of the biggest economies in the world.

References:

  • Adams, W. (2010). Restructuring the French economy: government and the rise of market competition since World War II. Washington, D. C: Brookings Institution Press, pp.2-54.
  • Amable, B. (2016). The Political Economy of the Neoliberal Transformation of French Industrial Relations. ILR Review, 69(3), 523–550. https://doi.org/10.1177/0019793916630714
  • Clift, B., (2007) ‘French Corporate Governance in the New Global Economy: Mechanisms of Change and Hybridisation within Models of Capitalism’, Political Studies, 55: 546-467
  • Culpepper, P.D. (2004) ‘Capitalism, coordination, and economic change: the French political economy since 1985’, Working Paper, Kennedy School of Government, Harvard University:
  • Culpepper, P., Hall, P. and Palier, B. (2008). Changing France. Basingstoke: Palgrave Macmillan.
  • Dormois, J. (2004). The French economy in the Twentieth Century. Cambridge: Cambridge University Press, pp.11-70.
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  • Levy, J, D. (2008) From the Dirigiste State to the Social Anaesthesia State: French Economic Policy in the Longue Durée, Modern & Contemporary France, 16:4, 417-435,
  • McCann, L. (2013) International and Comparative Business: Foundations of Political Economies, London: Sage, 5:129-143
  • OECD (2019), Gross domestic product (GDP) (indicator). doi: 10.1787/dc2f7aec-en (Accessed on 12 December 2019)
  • Parsons, N., (2013) ‘Legitimizing Illegal Protest: The Permissive Ideational Environment and ‘Bossnappings’ in France’, British Journal of Industrial Relations, 51, 2: 288-309
  • Preteceille, E. (1988). Decentralisation in France: new citizenship or restructuring hegemony? European Journal of Political Research, 16(4), pp.409-424.
  • Sauviat A. (2017) Decentralisation in France: A Principle in Permanent Evolution. In: Ruano J., Profiroiu M. (eds) The Palgrave Handbook of Decentralisation in Europe. Palgrave Macmillan, Cham, 157-200.
  • Schmidt, V. (1999). Privatization in France: The Transformation of French Capitalism. Environment and Planning C: Government and Policy, 17(4), pp.445-461.

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