Wed Jan 31st, 2007 at 10:48:29 AM EST
In Do capital goods account for the huge German export lead over France?, bruno-ken pointed out that Germany is currently exporting far more than France. There's an informative and well-argued article on the subject (De quoi souffre l'industrie française? by Guillaume Duval) in this month's Alternatives Economiques. Unfortunately it's not online. I'll try to lay out my understanding of what Duval says, with a few quotes and charts.
There's no disagreement on the facts: while Germany's current account shows a whopping surplus, France's has plunged, since 2001, into the red to the tune of €30 bn (2% GDP) in 2006. Rising costs of energy imports (€45 bn, twice as much as in 2003) don't explain this, (they're not specific to France), nor does trade with Asia, pretty much stable at a €25 bn deficit. Exports of capital goods are however falling - Airbus is responsible for a fair amount of this - while the French automobile industry is stalling exportwise. Value added in French industry rose from €175 bn in 1997 to €207 bn in 2001, only to slide since to €201 bn, with the car industry losing 29% since 2004.
Duval notes these structural problems for French industry:
- The range of French products and firms on international markets is too narrow:
|Il suffit qu'Airbus tousse au moment où Renault et PSA ont du mal à sortir un nouveau modèle attrayant pour plonger toute l'industrie dans le marasme.||Airbus only has to sneeze just when Renault and PSA are having problems bringing out an attractive new model, for all French industry to fall into the doldrums.|
- The size of French firms: compared to Germany, France has 50% more industrial enterprises with fewer than 10 employees, and only half as many with more than 50 employees.
- France is absent from a number of (non-specified) high-growth future market opportunities.
- French investment in R&D is insufficient.
But these are previously-identified, persistent structural problems. They play their part in the current situation, but don't explain the sudden comparative change in the current account.
| So the work-week is too short?|
You'd expect the think-tanks and pundits to point their finger at the 35-hour working week introduced by the Jospin government between 1997 and 2001, and they do not fail to do so (if tomorrow's news says it's raining frogs, it'll be blamed on the 35-hour week...). A bosses' union-friendly thonk-tink called COE-Rexecode brought out a report (fr, pdf) placing the responsibility squarely on the 35 hours law. However:
- the timing of the reform doesn't back this explanation. The 35 hours law was phased in between 1997 and 2001, and French industry did well in those years. The trade deficit set in and accelerated only recently.
- productivity in French industry remains high.
- though the work-week in French industry, at 38 hours on average, is among the shortest in Europe, the German industrial week is even shorter at 36.7 hours on average.
- businesses made important gains in labour flexibility thanks to the 35 hours negotiations (shift re-organisation, increased weekend work). This has led to a rise in the rate of use of capital goods, which is essential to industrial competitivity.
|Grâce aux 35 heures, la durée moyenne d'utilisation des équipements a fait un bond dans l'industrie, passant de 50 heures par semaine en 1996 à 55 heures en 2000, niveau où elle stagne depuis. Autrement dit, on a réussi à fabriquer 10% de produits industriels en plus sans avoir besoin d'investir un euro supplémentaire.||Thanks to the 35 hours law, the average rate of use of capital goods in industry jumped from 50 hours a week in 1996 to 55 hours in 2000, where it has since remained stagnant. In other words, 10% more industrial goods were made without having to invest a single extra euro.|
|Must be the strong euro...|
Since the end of 2000, the euro has risen:
- 47% against the USD
- 41% against the yuan
- 20% against the won
- 13% against the GBP
Unit labour costs have undergone a considerable relative shift:
cost of 1 hour's labour in industry, 2000 to 2005 and percentage change, France=100
This undoubtedly plays a part; but two objections can be made. One, the strong euro cheapens imports at the same time as it raises the price of exports; two, Germany manages to export in spite of the strong euro.
Analysis of Germany's export figures shows that the trade surplus of about €60 bn with countries outside the EU has remained stable over the past 5 years. But, since 2002, an annual surplus of €30 bn within the EU has kicked in. This is particularly true as far as France is concerned - France is running a trade deficit with Germany as high as its deficit with China.
How does this come about? "Reform" in Germany, particularly severe wage moderation, compresses internal demand at the same time as it reduces the relative cost of German products (even within the eurozone) by bringing down unit labour costs.
unit labour costs, France / Germany, 1995=100
French industry, says Duval, faces the strong euro effect outside the eurozone, and, within it, the restrictive "market-competitive" policies of the principal rival and partner, Germany. (Spain, too, appears to be suffering from the same double whammy).
Well... Duval points out that a high current account surplus like Germany's is not necessarily a sign of excellent economic health.
|Ce qui détermine l'équilibre des comptes extérieurs d'une économie, c'est principalement la relation entre l'épargne et l'investissement en son sein; quand l'épargne, c'est-à-dire l'argent que les agents économiques n'ont pas consommé immédiatement, y devient supérieure à l'investissement, cela se traduit par un excédent extérieur, et vice versa. ||What determines the balance of an economy's external accounts is principally the internal relationship between savings and investment; when savings, that is the money economic agents have not immediately consumed, become greater than investment, this translates into an external surplus, and vice versa. |
Total savings in France, from 1999 to 2006, went down from 21.7% to 18.7% of GDP. Investment, between 1997 and 2006, rose from 17.4% to 20.3% of GDP. This means consumer spending (savings drop), and capital goods acquisition (investment). The result is a current account deficit.
Meanwhile, in Germany, savings rose from 19.5% of GDP in 2001 to 22.1% in 2006. Investment, traditionally strong in Germany, dropped 21.4% of GDP in 2000 to 17.6% in 2006.
See the curves cross over:
Duval says the French deficit is not alarming, while consumer spending and investment testify to a certain amount of confidence in the future. On the other hand, the fall in investment is not an encouraging sign for the German economy.
Bringing the euro down by lowering interest rates would not essentially change the trade balance between eurozone countries. Though he doesn't stress the point, Duval's article underlines the lack of coordination in the economic governance of the eurozone. Particularly as, in this case, it's France and Germany, the two prime movers of the EU and then of the euro, that are not reading from the same page.
To me it looks like the kind of break-up the neo-liberals want: an EU (even the eurozone) that is a free-trade zone made up of independent member states that enter into competition with one another rather than cooperate. The competition game is 1) cut taxes 2) offer cheap, disposable labour. It's sometimes called a race to the bottom. It depends which way you look at it. If I were wealthy, I might be tempted to call it a race to the top.
[For those who read French, I cannot too highly recommend Alternatives Economiques. Abonnez-vous!]