Today, I came across this interesting article in The Guardian:
The short version is that a lingerie factory near Auvergne is shutting down and outsourcing production to Tunisia. This makes sense economically since the wages and benefits French workers demand are too high to justify production in France, when Tunisian workers are able to do the same work for significantly less.
Since many of the workers belong to communist or socialist parties, their first inclination is to protest the closing of the factory to the government in dramatic fashion and demand their jobs stay in France. It’s not clear how they would achieve this as the only two options involve either physical force of special breaks for the manufacturer.
Sarkozy’s reaction does not appear to be much better. He calls in a personal favor from a friend, who will make Louis Vitton purses at the factory instead. The article goes on to say Sarkozy believes the key to maintaining French industry is to lower wages. Another politician, whom the article labels as a “centrist” suggests the only way to stop the tide of industrial jobs out of France is to only buy products with a “Made in France” tag on them.
Three dimwitted solutions from three different political ideologies. And even the economist quoted in the article seems to be overtaken by the same industrial-mania. They seem to believe the problem is ‘not focusing on industry enough’, rather than the completely flawed economic policies that France has put into place over the past several decades.
Sarkozy’s idea that the French workers should simply ‘take lower wages to stay competitive’ may seem realistic on the face of it, but it also doesn’t seem like much of a productive solution. The reason the jobs are migrating out of France is because French workers demand higher market wages than other nations. In order to earn those wages, French workers must create more value. Yet, it’s difficult to see how they can achieve this when the French government’s philosophy is that there need to be more jobs in low-wage, low-skill industries.
France’s Dismal Growth Problem
While all of the above might seem like conjecture on my part, what is abundantly clear is that France has one of the worst run economies in the developed world over the past several decades. From 1990 to 2010, only Italy and Japan has lower annualized per capita GDP growth rates than France.
In 1980, Germany, France, and the UK had roughly equal per capita GDP. By 2010, Germany’s per capita income was 10% higher and the UK’s was 19% higher.
The figures become even more depressing when you compare France to an economy that has actually performed very well over the past 30 years, In 1980, France’s per capita income was 40% higher than Singapore’s. By 2010, Singapore’s was 26% higher than France’s. Another comparison: Israel trailed France by 12% in 1980, but by 2010, was within 5% of France.
Overall, France’s economic story is not looking very good over the past several decades. Even the figures I’m quoting may be painting a rosier picture than the true reality. While per capita GDP is, in my view, one of the best measurements of wealth creation for a nation, there are some flaws with it. For one, if a nation experiences a lot of immigration, it will tend to knock down per capita income, as new immigrants are normally much poorer than established residents.
This seems quite relevant here, because France has some of the most restrictive immigration policies in Europe. All the other nations I’ve compared it to have less restrictive immigration policies, therefore, if you were to look at per capita GDP growth of only ‘long-time established residents’, all those nations would likely have even higher growth rates than France.
In case, you are wondering, the US has significantly higher growth as well, with an annualized real per capita GDP growth rate of 1.43%, while France’s rate is only 1.00%. Once again, immigration into the US would seem to imply that the US’s real growth rate is actually higher than that.
Overall, the lesson here is that if there’s any economy in developed Europe that we should not want to model ourselves after … well, it’s still Italy (bunga bunga!), but France is not far behind at #2.