Something Terrible Is Happening in France | Economics Explained

France's Unique Approach to the Industrial Revolution

• France prioritized small artisanal industries over large factories, leading to a more egalitarian culture with workers having more power over employers.
• This slower development resulted in lower productivity compared to other European countries but better working conditions, strong worker protections, and secure retirements for French workers.

France's Economic Challenges

• France's current economic challenges stem from the need to modernize its economy while preserving its egalitarian traditions and strong social safety net.
• The country is grappling with the tension between maintaining its unique economic model and the need to compete in a globalized economy dominated by large corporations.

Dirigisme: France's Post-World War II Economic Policy

• France adopted "dirigisme" after World War II, involving the government actively directing the economy through state-owned enterprises.
• Dirigisme aimed to balance communism and pure market capitalism by allowing private industries to grow alongside government operations.
• State Enterprises were funded by the government and provided essential services such as national banks, high-speed rail services, and airlines.
• The government's involvement in the economy allowed it to provide goods and services that were not easily transactable, such as national defense and emergency services.

Challenges of Dirigisme

• While state-owned enterprises can be beneficial, they can also lead to inefficiencies and reduced productivity due to objectives other than profit maximization.
• A large number of state-owned enterprises can drive up inflation by increasing employment and reducing unemployment below the natural rate, leading to a wage-price spiral.
• France's dirigiste policies led to economic challenges in the 1980s due to high inflation and a decline in global competitiveness.

France's Current Economic Dilemma

• The country now faces the dilemma of maintaining a high standard of living for its workers while also addressing issues such as an aging population and brain drain.
• France is attempting a combination of strategies, including reducing taxation and direct control while also introducing more competitive dynamics, to address these challenges.

France's International Reputation and Economic Competitiveness

• France has an international reputation for artisanal craftsmanship, which allows it to sell goods at a much higher price point compared to their production cost.
• Despite its advantages, France has been living beyond its means, providing its workforce with strong protections and a high quality of life, making it less economically competitive.
• To address this, France is slowly changing its economy to be more like other advanced global superpowers, but this may involve difficult and necessary changes in the future.
• The pushback against these changes makes France an interesting economy to observe, as French workers are vocal about their disappointment.