Trade-Offs in the French Economy

Slate is running a series of articles by Claire Lundberg under the heading, “Dispatches from the Welfare State”. Last week’s, on shopping (though really about much more than shopping), is well worth a read.

Struck by the inconvenience of Parisian shopping, in which only the grocer sells vegetables, only the bakery sells bread, only the butcher sells meat, etc, she writes:

But here’s the thing: France, fundamentally, is not a country where the customer is always right. It’s not very interested in customer satisfaction. What it’s interested in are satisfied workers.

Once you understand this set of priorities, France’s bizarre shopping customs begin to make more sense. All hourly-wage employees in France are entitled to two full days off per week, which is why many smaller stores close for two days if they can’t rotate staff. Businesses are legally prohibited from opening on Sunday afternoons in order to prevent larger stores from having an unfair advantage over smaller ones. Large, Walmart-style superstores are not allowed within the walls of Paris, to preserve the city’s many mom-and-pop boulangeries and fromageries. You can only buy aspirin at a pharmacie and the local newspaper at the presse, again to protect each of these sectors from larger retailers. Book prices are fixed by the publisher—to prevent the massive discounting that Barnes and Noble pioneered and that Amazon perfected—and as a result, the independent bookstore scene in Paris is thriving.

In the U.S., we have a pretty ambivalent view of this kind of protectionism. We seem happy to engage in it when it comes to agriculture and manufacturing, but not in the world of retail…

And I’m not going to lie to you—there are some obvious problems with France’s worker protections. France is ranked 71st in the world in labor market efficiency, partly because it’s way too difficult to lay off or fire employees, even for cause, which makes hiring difficult as well (this is something I’ve written about previously). The level of taxation on small businesses is way too high. I’ve just started a small business of my own, and while the deductions are more generous than in the States, my social charges and taxes will come to between 45 and 50 percent. Of course, I benefit immediately from the public spending my tax dollars subsidize, with child care subsidies, free preschool, and essentially free health care.

This is a very useful way of framing the trade-offs involved in the regulatory choices France and the United States have made, respectively. But I think the context should be widened, and a chart from Sky News’ Ed Conway (by way of Eurasia Group’s Ian Bremmer) shows why.

The colors are (or at least were for me) a bit hard to distinguish, but as best I can tell it’s French real GDP which has, since collapsing in 20o8, not yet reached pre-crisis levels nor, since 2010, undergone a period of persistent and robust growth.

In Lundberg’s article, the regulatory choices and their subsequent economic effects are positioned internal to GDP. She acknowledges on the cost side of the ledger things like an inefficient labor market, high tax rates, and the inconvenience of having to shop at multiple small stores. But these are rhetorically positioned against the benefits of things like childcare subsidies, free healthcare, and free preschool. But we should also be concerned about what happens to GDP itself, unless you posit a stagnant or falling population. And as the chart shows, this is an area where France has underperformed in the last few years.

I think it would be silly to claim a straight line between laws preserving Parisian cheese shops and the fact that French GDP remains below pre-crisis levels. But that fact does suggest that, on a macro regulatory level, there’s more to consider than just the obvious trade-off between, for example, taxation levels and the provision of public services.