As French growth grinds to a halt, is the country’s economic model fundamentally broken?
Monday 1 August 2016 4:01am
Tim Worstall, senior fellow of the Adam Smith Institute, says Yes.
France’s economic model is irretrievably broken.
Along one axis we have a spectrum of possible economic models. We can have low tax and redistribution market economies and high tax and redistribution ones. Non-market economies do not work.
Further, the more we tax and redistribute, the more we must be free market red in tooth and claw. The Nordics, notably more keen on tax and redistribution than we are, are also notably more free market underneath that tax burden.
France attempts a high tax economy but with dirigiste direction of the economy – not leaving room for the free market to innovate and grow because of the thicket of regulations. This does not work. It’s just not one of the mixtures that ever will work.
France therefore needs to move in one of two directions (or, best of all, follow both paths a la Hong Kong). Either lower the state’s portion of the economy to allow growth to happen, or blow up the regulation to allow the innovation.
The Anglo Saxon and Nordic models both work in their own ways, the French does not. Thus, France has to choose.
Vicky Pryce, board member at the Centre for Economics and Business Research, says No.
France needs economic reforms, but so does every modern economy. Strikes that affected refinery production and distribution probably impacted on industrial output in recent months. And the unsettling security situation must also have contributed to the stagnation in growth in the second quarter of 2016 after a strong first quarter.
It is true that businesses still complain about labour costs and employment levels remain stubbornly high at just under 10 per cent.
But France has overtaken the UK as the world’s fifth biggest economy, and Airbus Industrie is outselling Boeing while French carmakers continue to flourish. French defence industry sales are strong.
Across the world, people want to eat French food and drink French wine. Nothing this side of the Channel matches French luxury goods exports.
France gets 82m tourists a year. The UK, 32m. Productivity levels there have remained some 30 per cent above those in the UK. With a few reforms, France would be even stronger.
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