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. Even though France now has one of the highest levels of expenditures on income redistribution in the world (see at end of this outline), it also has one of the lowest level of social mobility. It takes 6 generations for a person born into the lowest 10% to reach median income. Rooted in social discrimination and disparities in access to the better schools, housing, and jobs. .  See more here

France Social Mobility

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.

The Economist has quipped that the French response to COVID-19 has been "Napoleonic":
" The day after lockdown was announced, the central bureaucracy had, naturellement, drawn up a new form, which each individual must sign to justify any trip out of the home. Policemen and gendarmes, patrolling the near-empty streets, parks and beaches, have since carried out a staggering 5.8m checks on such paperwork and imposed 359,000 fines. There has been scarcely a murmur at this, nor at the government’s “state of health emergency” law which, among other things, gives it powers to control prices of certain products and requisition stocks. Old habits die hard."

MacronNapoleon

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

1986-2001  A series of "cohabitations" of Presidents and Prime Ministers from different parties - sometimes conservative and sociaolist

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

2007-2012 Nicolas Sarkozy (UMP) succeeds Chirac with François Fillon as his PM. Stronger law/order, closer to U.S./U.K.

2012-2017 François Hollande (Socialist) served with three Socialist Prime Ministers.

2017 Emmanuel Macron (En Marche!, a moderate party he created the previous year) defeated Marine Le Pen (National Front - a populist nationalist party).

On April 10, 2022, France will begin its presidential election. According to current polls, Macron is expected to gain 28% support in the first round, significantly ahead of Le Pen (20%) and Jean-Luc Mélenchon (15%), a hard-left politician who broke from the Socialist party in 2016 to form the movement, movement La France Insoumise ("France Unbowed") that opposed the Lisbon Treaty. His little red book calls for "a political and diplomatic battle for a new European treaty … which respects the sovereignty of the peoples." (somewhat ironically, a left-wing version of Gaullism/Thatcherism). Polls also indicates that Macron will win a second-round election, but by a smaller margin than in 2017. If he wins, Macron will be the first 2-term president in France since 2002.

 

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, and then in 2013 into that Commissariat général à la stratégie et à la prospective (AKA "France Stratégie"), still operating directly under the Prime Minister. This new organization is responsible for forecasting, consulting, and international comparisons of public policies.

 

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.  Currently the largest, the CFDT, takes a fairly moderate line, and generally has supported recent efforts by President Macron reduce divisions between labor and management.  The CGT, which has close relations with the French Communist Party, has been less conciliatory. 

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.


VI. The Governmental Sector

Allocation of Capital - Before the 1980s, the French government exercised substantial direction (dirigisme) of the economy through its its role in indicative planning, nationalized companies, and influence on the banking system. All of those sources have diminished through globalization, the decline of planning, privatization, and independence of the central bank, giving way to the European Central Bank.  

Redistribution of Income - Long tradition of social stratification. Since 1970s, rising percentage of national income devoted to social welfare programs.  Now it has bypassed Scandinavian countries as having the highest level of social spending (as % of GDP) in OECD. In the French case, about 81% of the expenditures go into health care and care for the elderly. Compared to the UK and some other countries, waiting times to see doctors are relatively brief in France. Notice, below, that Sweden had the highest rate of social spending in 1980, but has been bypassed by France and several other countries.

Social Expenditures as Percent of GDP, 1980-2018

 

1980

1990

2000

2010

2018

France

20.1

24.3

27.6

31.0

31.2

Belgium

23.1

24.4

23.5

28.3

28.9

Finland

17.7

23.3

22.6

27.3

28.7

Denmark

20.3

21.9

23.8

28.6

28.0

Italy

17.4

20.7

22.7

27.1

27.9

Austria

21.9

23.1

25.7

27.6

26.6

Sweden

24.8

27.2

26.8

26.3

26.1

Germany

21.8

21.4

25.4

25.9

25.1

Norway

16.1

21.6

20.4

22.0

25.0

Spain

15.0

19.2

19.5

24.7

23.7

Greece

9.9

15.7

17.8

24.9

23.5

Portugal

9.5

12.2

18.5

24.5

22.6

Japan

10.0

10.9

15.4

21.3

21.9

Slovenia

..

..

22.0

23.4

21.2

Poland

..

14.2

20.2

20.6

21.1

UK

15.6

14.9

16.2

22.4

20.6

Hungary

..

..

20.1

23.0

19.4

New Zealand

16.2

20.3

18.2

20.4

18.9

Czech Rep.

..

14.1

17.9

19.7

18.7

United States

12.8

13.2

14.3

19.4

18.7

Estonia

..

..

13.8

18.3

18.4

Australia

10.3

13.1

18.3

16.6

17.8

Canada

13.3

17.5

15.8

17.5

17.3

Slovak Rep.

..

..

17.6

18.0

17.0

Netherlands

23.3

24.0

18.8

17.8

16.7

Latvia

..

..

15.4

19.5

16.2

Lithuania

..

..

15.4

19.4

16.2

Switzerland

12.7

12.1

13.9

15.1

16.0

Iceland

..

13.5

14.6

16.9

16.0

Israel

..

..

16.2

15.4

16.0

Ireland

15.7

16.8

13.2

24.6

14.4

Turkey

2.2

3.8

7.5

12.3

12.5

Korea

..

2.7

4.5

8.2

11.1

Chile

..

9.8

10.4

10.4

10.9

Mexico

..

3.1

4.4

7.4

7.5


Source: OECD

Since he took office in 2017, French President Emmanuel Macron has carried out or proposed several controversial reforms to get the budget under control. He replaced an overall wealth tax with a tax on real estate. He raised gasoline taxes by about 30 cents per gallon - on top of prices already above $7 per gallon. That led to sustained protests in the "yellow vest" movement, which broadened to other working-class grievances.

In December 2019, he announced a plan to reform the old-age pension program, which consumes 14% of national income. The less controversial part was to simplify the system, which had 42 different profession-specific plans. The more controversial part involved spending cuts, aimed at penalizing early retirement and encouraging later retirement.
French workers can retire with benefits at 62 - one of the youngest ages in the world - and Macron wants to raise that to 65. For the French, who place a high value on leisure, this is a tough sell. Macron tried to impose the reform by decree in 2019, but then Covid forced him to put the reform on hold. Now he says he will make the change if he is re-elected.