In Praise of the French
by Joost de Jong - January 15, 2009
As we gently slide toward the second dip of our roller-coaster recession, it may be time to consider our oldest ally across the ocean. Britain, you might think, but alas, that is a relationship that took some time to develop after the nascent United States decided to take its own course some 234 years ago. No, I mean France, that stubbornly self-serving nation that enjoys a level of economic growth and stability that the US has yet to attain.
Much of the iTulip editorial for the past decade has been dedicated to identifying the poor monetary and regulatory policies that lead to a never-ending sequence of financial bubbles. In the spirit of offering constructive alternatives, we are compelled to look outside US borders for a better model, to another nation that appears to manage its responsibilities to its constituency better. For that, my choice is France.
Now, I am by no means blind to that nation's shortcomings, whether the dreary and depressing banlieues or the exaggerated francophone pride in the fading importance of their language. No, I mean to refer to their status as the 5th largest economy on the planet, the enduring success of both the entrepreneurial middle class and large corporations, excellent standard of living, good public services, and stable economic performance in these years of financial crisis. What is France doing right?
Forget all the nonsense about “Freedom Fries” and Bart Simpson’s “Cheese-eating-surrender-monkeys.” France is an unabashedly capitalist economy for which politicians are unafraid to claim special status and exemptions, especially if they consider them to be of national economic interest, and will advance their diplomatic agenda regardless of outside opinion or public outrage. How American!
Although home to strong unions, complex labor laws, strikes, and any number of social, environmental, and animal rights movements that are often at odds with corporate interests, France is in reality a well run corporate nation. An empowered central government manned by professional technocrats plans for the long term, yet without surrendering to the temptation of soviet style five year plans.
French banks are reasonably well regulated with clear rules on disclosure, remuneration, reserves, and investment advice and insurance. Remember, those French banks that got into trouble in 2008 – as well as other banks in Europe, got ithere by investing in mis-rated US financial products, the insurance for which turned out to under-capitalized as it fell outside the bounds of the existent regulatory regime. It would have been impossible for the French, or any other EU bank, to issue securities anywhere near as fictitious as those that were sold to them in the years preceding the credit market crash.
As a result, France has been able to avoid the more extreme cycles of excessive valuations and investment bubbles. Corporations operate within stable markets. Investments in technology and R&D are rewarded. Overall tax policy can be deemed reasonable, especially compared to some of the more confiscatory regimes in Europe.
Similarly, France benefits from a well thought out energy policy. As other nations swayed back and forth with the tides of public opinion on nuclear energy, France steadily invested ahead to become the world’s largest operator of nuclear power. Over 78% of France’s electricity comes from nuclear power, making it both cheap and reliable to the point where France has become a major exporter to the rest of Europe. Meanwhile, it has used its diplomacy well and pragmatically to maintain positive links with some unsavory regimes, if only to secure long term supplies of natural gas and petroleum.
Paradoxically, for all of its trappings of Socialist chaos - such as the near permanent strike of French Air Traffic control, French Farmer highway blockades, not to mention the many Paris bound civil servant marches - France operates in reality according to a fairly tight capitalist script. The result has been that France is weathering the global economic crisis better than any other economy on either side of the pond.
After two negative early quarters in 2009, the country’s GDP returned again to growth for the second half. Emergency government stimulus spending, in addition to adherence to social programs that are standard for a modern European nation, as not been excessive. The overall government debt level has remained reasonable, reaching some 76% of GDP. Hence, there is little risk that France's economic growth will slide towards a second dip in 2010. Unemployment has similarly remained at manageable levels.
There is much to be learned from France. With long-term plans and competent execution from a well funded public administration, much of the excessive gyrations we experienced these last few years could have been avoided. At the same time, France offers an enviable standard of living to its citizens. Food quality is excellent, education solid, health-care fine, environmental management good, investment climate reasonable and philandering politicians discreet. So, the next time when in Paris, before you complain of their arrogance, consider that perhaps they have a point, and a few lessons that we can learn.
Joost de Jong is an American economist and friend of iTulip who occasionally writes from Spain.
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