France: Planning in the Market Economy

I.    The Environment

A.  Conflict of ideologies: "laissez faire, laissez passer" and "liberté, égalité, fraternité" versus Colbertism (form of mercantilism), Bonapartism (military dictatorship), Gaullism (nationalism and state intervention in framework of private enterprise), étatisme (state authority), dirigisme (direction, interventionism), and elitisme.

B.  Deep Historic Class Divisions - Bred chronic political instability and  invited authoritarian central government.

C.  Authoritarianism tempered by:

1.   Rule of law. Code Napoléon, enacted in 1804-1810, based on relatively strict adherence to rules.

2.   Professionalism of the bureaucracy. Elite educational institutions.

D.  Fifth Republic - Postwar instability remedied by strong presidency. Became model for Russian 1993 constitution. 

1958-1981  Coalition of Gaullists and other conservative parties.

1981-1986  Socialist-Communist coalition led by Francois Mitterrand

1986-1988  "Cohabitation" of Mitterand (S) and Jacques Chirac (Gaullist)

1988-1993  Mitterand (S) reelected with Cresson (S)

1993-1995  2^nd cohabitation-Mitterand and Edouard Balladur (G)

1995-1997  Chirac wins presidency, RPR-UDF coalition

1997-2001  3^rd cohabitation—Chirac and Lionel Jospin (S)

2002-2007  Chirac reelected, reorganizes conservative parties into the new UMP (Union pour un Mouvement Populaire)

2007 Nicolas Sarkozy (UMP) succeeds Chirac with François Fillon as his PM. Stronger law/order, closer to U.S./U.K.
 

II.   Indicative Planning

A.  The Plan and Compliance - Planning initiated after World War II to rebuild the capital stock.  Never meant to replace the market, but to improve its operation.  Compliance was voluntary even for nationalized industries. Ideally, a self-fulfilling prophecy.  The government urged compliance through influence over nationalized industries and banks, monetary and fiscal policies.

B.  Planning Institutions - Headed by General Planning Commissariat, much work was performed by Modernization Commissions, with labor, management, and government representatives.   

C.  Planning Procedure - During "options phase," Planning Commissariat formulated macroeconomic options, and one was chosen by Parliament.  During "specification phase,"  Vertical modernization commissions prepared plans for individual industries.  Horizontal commissions review these plans for consistency.  The final draft is prepared by the Planning Ministry and approved by Parliament.

D.  The Planning Record- The Monnet Plan was successful because of business-labor cooperation, governmental encouragement, and Marshall Plan aid.  Statistical methods improved with subsequent plans, but cooperation declined.  The Ninth Plan established a closer connection to the governmental budget through Priority Implementation Programs . 

E.   Did Planning Help? - The planning process may have been more important than the final plans.  Forecasts inaccurate, over half of the large firms reported that plan forecasts had a significant impact on their investment decisions. 

F.   Strategic Planning Today -  Role of the Commissariat was weakened by globalization and by victories of conservative governments. It became a think tank on long-term issues, such as social security system reform and implementation of EU projects. In 2006, it was converted to a new Centre d’analyse stratégique, still operating directly under the Prime Minister.

III. Industrial Organization

A.  Private Sector - Companies are generally small, perhaps because of market size, finical institutions, culture (“humane living”). Preference for larger “national champions” arose during 1966-75, and then subsided.

B.  Nationalized Industries - Long tradition of nationalized industry.  Major program after World War II.

1981-1983  Mitterrand nationalized 5 industrial groups, 36 banks, 2 other financial institutions.

1983-1986  Program on hold during economic crisis.

1986-1988  Privatization begins under Chirac

1988-1993  Cohabitation neutral policy

1993-          Privatization resumed. 

C.  Public/Private Management - Nationalization/privatization often causes little change in management behavior because of close personal, educational, and business links among leaders. Cross-holdings of corporate stock, organized around groups of stable investors (noyaux dur) provide capital for privatization, but may protect elite privileges, avoiding foreign investment.

IV. The Labor Market and Labor Relations.

A.  Unionization - Relatively small percentage of labor force, about 10%.  Divided between five major confederations.  The oldest and largest, the CGT, has close relations with the French Communist Party. 

B.  Worker Participation - Limited law passed in 1969, strengthened in 1982. All enterprises and companies with more than 50 employees required to establish a works council. State-owned companies were required to allot one-third of their board seats to staff representatives. Works councils have sometimes defeated lay-offs in court.

V.  The Financial Sector

A.  Banking - Bank of France and three largest commercial banks were nationalized in 1945; joined by 39 other commercial and savings banks in 1982. Many have been privatized since, but control facilitated a selective monetary policy to support planning. 

B.  Securities markets - Traditionally very limited.  Liberalization has led to some development.

VI. The Governmental Sector

A.  Fiscal/Monetary Policy - Stagnation before World War II.

1945-1976       Emphasis on growth, but with recurring inflation and balance of payments problems. 

1976-1981       Barre monetarism, rising unemployment.

1981-1983       Mitterand expansion and crisis

1983- 2005      “Franc Fort” and Euro - declining inflation, high unemployment

B.  Redistribution of Income - Long tradition of social stratification. Since 1970s, large percentage of national income devoted to social welfare programs.  Moved from bottom to middle of equality ranks.