Thursday, May 21, 2009

The "French Model" (2) : the Downside...

Like any economic 'model', it's always a trade off, and as the Economist shows it well in their report, there's always the other side of the coin (even if of course, the Economist supports an ideology closer to the so-called 'Anglo-Saxon model', the following facts are undeniable.).
So after the upside in our previous post, (and to be fair) here's the downside :

- More endemic unemployment

A generally disappointing macroeconomic performance, with low growth and high
unemployment
One reason why French workers are more productive per hour than Americans is that firms employ so few of them. Many make widespread use of rotating interns and temps. France’s jobless rate (8.6%) may now be the same as America’s (8.5%). But, unlike America’s, it never falls much below 8% even in good times.

- Too much dirigism from the top for some things :
The Colbertist engineering culture is on the whole much better at devising and managing big planned projects than it is at dealing with bottom-up ideas and uncertain markets. France lacks start-ups, and its small firms have difficulty growing.
- A discriminating school system (even if it's a bit more complex that the following sentence seems to indicate):
In reality, France has two-tier higher education: its world-class grandes écoles cater to a tiny elite, and its broadly second-rate universities fail the masses. Tuition at universities is free. There is no undergraduate selection at entry.
- More protection and Less dynamism
As for the state as regulator, it may have protected the French economy from extreme volatility, but that goes for the upside too.

A more stable economy in a recession also means a less dynamic, less innovative economy in good times. For all its positive elements, the French model has not yet not incorporated enough flexibility, leaving it with the task of ensuring solidarity, but not the dynamic growth needed to sustain it in the long run.
So in the end, it's just a matter of choice. you can't have your cake and eat it too. My take is that there is no such thing as a 'model' for everyone to follow anyway.
Even if both France and the United-States are essentially capitalistic, each country handles its local economy differently and that's just fine because that's their prerogative. The US will never be France and France will never be the U.S. and in fact, comparisons are fultile since economic systems are also highly cultural (hey're the results of historical particularisms) and you can't expect people to adopt a paradigm that's alien to them. So let's just enjoy this diversity.

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