France still has a place in the sun

It's clever, productive and fashionable - don't write the country off yet, says Hamish McRae
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The Independent Online
Post-election France: the commentators seem to have decided that the country has turned its back on economic reform and will now condemn itself to a further five years of stagnation. Unemployment will stay high; consumers will remain depressed; and whether or not the euro ever happens, the economy will remain burdened by high taxation, a bloated social welfare system and continued social unrest.

But economic bottles are usually half full as well as half empty. If, instead of focusing on the structural changes that France is finding it so tough to make, you look instead at the fundamental strengths and weaknesses of the French economy, a rather different prospect emerges. To see this, start with the tough question that any rich, developed country should ask: what can this country do that other countries with much cheaper labour cannot do as well or better? The answer, in the case of France, is: quite a lot.

In a world where manufacturing know-how crosses national boundaries in a matter of weeks, comparative advantage will lie less in the size or competitiveness of a country's manufacturing, and much more in qualities such as intellect and culture: how clever people are; how attractive their culture is to other nations. Basic, mass manufacturing will continue to shift to low-wage countries, leaving two types of production in high- wage ones: those that have a high design content, and those with a high craft content. Apart from that, the growth in developed country economies will be in services.

Looked at in this light, France has many advantages. So whatever the bumps that the French economy will encounter during its five years of cohabitation with a president of the right and a government of the left, the longer-term outlook for the economy through the first couple of decades of the next century is rather more encouraging than the present deluge of gloomy comments may suggest.

Let's list the strengths, and see how they dovetail with the sort of things that the world is likely to spend more money on during the next 25 years. Tourism is France's second biggest industry. This is enormously important, for, if defined widely to include travel, tourism has now become the world's largest industry and its largest source of employment growth. France has a clear competitive advantage, partly because of its location at the centre of Europe, but also because of the variety of experiences it offers: from the beaches of St Tropez to the boulevard of St Michel. This is not an area in which France is likely to suffer from competition from countries such as South Korea or Japan, as it will in, say, cars and computers. Tokyo is an extraordinarily interesting city, but it will never be a holiday destination like Paris.

Next, Paris itself. The le de France region - greater Paris - generates higher gross added value than any other region in Europe and produces about 30 per cent of France's GDP. There is some danger in this, in that the country may have too many of its economic eggs in one basket. But it is a great centre of clever people: 47 per cent of its employed people are engineers, executives, technicians or supervisors, and most of the rest are skilled; only 13 per cent of its workers are unskilled. The visitor sees the glitz, but would not appreciate that about half of the country's jobs in aerospace, pharmaceuticals, data processing and electronics are in greater Paris. He or she would not know, either, that productivity in these areas is generally higher than anywhere else in Europe.

Paris is also the leading European conference centre, well ahead of London, and has more than double as many visitors to trade fairs and exhibitions than any other European city. The blend of providing an efficient location for a business conference and a tourist destination is particularly powerful.

Finally, Paris dominates the luxury goods trade. Here is a clear area where France has global leadership. That leadership in fashion has enabled Paris to retain a large clothing industry, located in the Sentier district close to Les Halles, one of the very few manufacturing industries still in the centre of a giant city. Physical proximity to the market offsets the higher costs involved. But, of course, the strength in luxury goods goes far beyond clothing: there is a string of top global brand names in drink, perfume and related industries. France, perhaps to an even greater extent than the UK, has been adept at crafting high-mark-up products that are attractive to the newly rich of East Asia.

There are other areas in which France will remain globally important. Obviously it will remain a big food producer; it will remain, ahem, the world's second or third largest arms exporter. Trade in food seems likely to increase over the next generation, along with the increase in population; and, sadly, it would be surprising were trade in arms to diminish significantly.

It would be astounding if, over the next generation, the process of globalisation that has dominated the last 30 years, and particularly the last 15, were to go into reverse. In France globalisation is often resented, even feared, for it is perceived as a threat to the French way of managing things. It is tied up with resentment of the force of Anglo-Saxon culture and what are seen as Anglo-Saxon market reforms.

But in reality France - with its excellent high technology and its craft industries, and with its powerful, exportable culture - seems better placed to profit from globalisation than countries that are just pre-eminent as manufacturers. France is often seen as the weaker partner in the Franco- German alliance, but on a 25-year view its economy may be better placed to compete globally than its more populous neighbour.