France and some near-neighbours

After a run of posts on immigration, or indeed on Reserve Bank issues, I often feel like something completely different.  No doubt that is a relief to readers, but it also helps remind me that I intend to write about what takes my fancy and interests me, and not primarily pushing particular causes.

And it is not as if I want to weigh in to the Herald vs Winston Peters contretemps, in which (at least on my reading) the Herald was using numbers that were accurate but seriously misleading (whether with an agenda, or just because they weren’t famliar with the better data, or some combination of the two, I have no idea), while Winston Peters was also, as far as I can tell, factually accurate but really rather distasteful.

But France is coming towards the end of a fascinating election campaign, which (for political junkies) has meant lots of fascinating articles about French politics, French society, and so on.   It has resolved to a race between two unconventional candidates, neither with strong parliamentary support, and so potential challenges in governing.  And if, as seems likely, Macron wins, the challenge to the “globalist” establishment seems unlikely to go away any time soon.

No doubt there have been some articles around on the French economy, but I must have missed them.   So I decided to download some data, mostly from the IMF World Economic Outlook database, and amuse myself by looking at a few comparisons between France on the one hand, and Belgium, Netherlands, and Germany on the other (with a sideways glance at the rather different UK economy from time to time).  They seem like good comparators for France, as Australia often is for New Zealand.    References to New Zealand will be few and far between, but just note that these are all countries with materially higher real GDP per capita than New Zealand has.   And the productivity gaps –  using real GDP per hour worked –  are much larger again.    For those four continental countries, the OECD estimates that average GDP per hour worked is now more than 60 per cent higher than that in New Zealand.

First up is a comparison of real per capita GDP growth, in national currency terms (although of course all four continental countries use the same currency now) since 1990.

real GDP pc growth Fr etc

Over that full period, France has been clearly the worst performer, but interestingly that has only been clear since about 2010.   Until then, on this measure Germany and France had been tracking very closely together.

And some of the difference with Germany may still “just” be cyclical (things that economists put “just” in front of can still matter quite a bit in elections).  Here are the IMF estimates of the respective output gaps.

output gap fr

There is materially more excess capacity in France than in the other four countries.

Consistent with this, the unemployment rate is materially higher in France than in the other countries.  It is about 10 per cent in France, compared with a range of 4 to 6 per cent for Germany, Netherlands and the UK (with Belgium in the middle). France probably has a higher NAIRU.    But here is the IMF estimate of this year’s unemployment rate, less the actual unemployment rate for 2007, the last year of the previous boom.

U rate FranceFrance is, again, the worst performer.

The government debt position is pretty poor too (although not that much worse than the UK’s).

govt debt fr

I’m never quite sure why people think Germany should increase government spending and increase its government debt –  especially in a country with little or no population growth.   France’s numbers –  among the very highest in any advanced country –  don’t look like something to emulate, no matter good the resulting school lunches might be.

govt spending france

Current account numbers aren’t that easy to interpret without lots of context, but even for an advanced economy with modest population growth, surpluses the size of Germany’s (or the Netherlands) look, at very least, anomalous.   There isn’t anything inherently virtuous about France’s near-balance position, but it typically wouldn’t be an indicator of serious trouble either.


With a bit more demand and a stronger cyclical position – hard to engineer with such high public debt, and no national monetary policy – the current account deficit would no doubt be a bit wider.

It isn’t all a bad news story.  Here, for example, is total investment as a share of GDP.

investment fr

The investment share of GDP in France last year was higher than that of any of these countries –  far higher, for example, than in cyclically more-stretched Germany.   At least some of those big, really successful, global French companies must have been seeing some good opportunities at home.

Despite all that government spending and generous welfare provision, nothing really stands out about the French national savings rate either.

savings fr

Even within common currency areas, real exchange rates can move – at times quite considerably. We saw that a lot in the run-up to the crisis, with real exchange rate appreciations in peripheral countries (such as Ireland) relative to core euro countries. Perhaps such movements help explain, or mitigate, France’s disappointing relative performance?

These are the BIS’s broad real exchange rate measures for France and Germany.

exch rate fr

The two countries’ real exchange rates have moved all but identically ever since the creation of the euro.    It isn’t clear why there hasn’t been more movement (especially in recent years) but it isn’t hard to suspect that if the franc and mark were again different currencies, we wouldn’t have seen anything like as strong a common trend.

Over the longer-term, it is hardly as if France is some hopeless case.   If we look at meausures of labour productivity, real GDP per hour worked (in PPP terms)  in each of France, Belgium, Netherlands and Germany are among the highest anywhere, averaging something very similar to the US numbers  (the UK is quite a bit lower).   The OECD’s series for that data goes back to 1970.  Here is how France has done relative to the other three continentals.

fr real gdp phwFrance caught up over the first few decades and has largely held its own since, at least relative to these comparators.

Of course, one of the striking things about France is how little labour input is used.

employment rates fr.png

Since, as we saw above, the French unemployment rate is higher than usual, the picture is slightly exaggerated at present.  but the difference between France (and Belgium) and the other three countries is stark.      (In New Zealand, by the way, the employment rate in the same quarter was 66.9 per cent, while the US is similar to Germany, Netherlands and the UK.)

The differences are just as stark, if not more so, if we look at hours worked per capita.  Here I use the Conference Board’s Total Economy database.

hours worked per capita Fr

The average French person –  man, woman, child, young middle-aged and old –  worked around 600 hours last year.  The average New Zealander worked more than 50 per cent more –  and still managed clearly the lowest real GDP per capita of any country in this chart.   So little output for so much input.

There are lots of stories about the possible connections between hours and productivity.  If, for example, you impose tough regulations and make employing labour very expensive, firms will have to adapt such that the people who are employed are highly productive (they have to earn their keep).   The less productive firms and people are simply priced out.   But higher taxes –  certainly than somewhere like New Zealand –  and provisions of retirement income policies also play a part in discouraging French working hours, and not just from the unproductive.  Plenty of very capable people have long holidays, shortish work weeks, and relatively early retirements.   As a result, French GDP per capita is lower than those of the other continentals in this sample, even though productivity per hour worked is very similar.

I don’t have strong lessons to draw from this post –  it was a discursive tour, as much out of curiosity as anything.  But I’ve long been a sceptic of the euro and –  disruptive as a break-up or withdrawal inevitably would be –  it isn’t obvious that French voters could look on the single currency as any sort of unalloyed blessing for them, and their country, especially in the years since 2007.

There are good reasons to be glad not to be in France –  Islamic terorism among them. But when one looks as these data –  not just for France but for each of the continental countries here –  from a New Zealand perspective, aware of all the regulation and high taxes etc in France, it is a reminder of how much location really does seem to matter.  I’m in the middle of reading a wonderful new book by a leading academic expert on trade, convergence etc –  which I expect I will write about here soon.  As he notes, technological innovations made extensive trade in goods possible from the 19th century, and then trade in ideas (all that ICT), but if anything face-to-face contact now seems to matter more than ever, and firms and global economic activity seems increasingly concentrated in cities and regions like those of northern Europe (or east Asia, or North America), not in the isolated peripheries.


8 thoughts on “France and some near-neighbours

  1. I simply cannot imagine a NZ with a 10% rate of unemployment – it sounds a catastrophic kind of number to me, particularly when you break that out into youth unemployment rates. I can only imagine that the social net in France (and perhaps most of the European continent) must be so much better than ours – otherwise I’d expect we’d be getting much more news about social disruption/rioting, high rates of crime/imprisonment, etc… the sort of news coming out of the US and SA, for example.

    I’d say if we ever get to 10% unemployment here – we’d become a very different place to live/society.

    Liked by 1 person

  2. We had it, back in the early 1990s. Fortunately it didn’t last long.

    Of Spain is – generally and not just now – materially worse than France.

    All those lives blighted etc, and yet on average they are still richer than we are. I sometimes what you could do if the utilised talents/people more fully.


  3. Three subject matters: Reserve bank / Immigration / France. The 1st is rather boring the 2nd ever since I read ethically important and now you have chosen France where my son has spent the last 25 years and I’m looking forward to revisiting him in Lille again. I will continue to read with great interest.

    The character of the two potential presidents is interesting and how much either can achieve as political outsiders will be an interesting comparison with Trump.

    “if anything face-to-face contact now seems to matter more than ever, and firms and global economic activity seems increasingly concentrated in cities and regions …, not in the isolated peripheries”. I’m not sure this is true. Firstly isolated peripheries are by definition not areas of economic activity. Innovation (and successful sportsmen) disproportionately evolve outside the main centres. Victorian businesses like Boots and Beechams started in the provinces and the founders stayed in the provinces; it was their descendants who moved to the city. One of the UK’s rare manufacturing and exporting successes is JCB with its headquarters in Rocester, Staffordshire and that is an isolated village. Then consider the USA’s wealthiest self made billionaires: Bill Gates in San Jose which used to be a remote village 80km from California’s second city and slightly farther from Oakland and its university; the sage of Omaha Nebraska, Sam Walton’s Walmart still in Bentonville Arkansas.
    I’m no investor and Fonterra doesn’t sell shares but I wouldn’t invest in a company that chooses to move into central Auckland. It may become a company more interested in lawyers and marketing than milk. Look for success in the provinces: the jetboat, Gibbs amphibious vehicles, Bungy jumping.
    The reason: innovation requires a focused single mind and the city is a distraction (the same for sportsmen ref McCaw and Carter).
    Given modern cheap air travel, cheap manufacturing and online video a new concept can become a great business irrespective of location. The most determined and least distracted will succeed.


    • I’ll save a substantive response for another day but just two quick points:
      – on my telling, the whole of NZ is an isolated periphery (and San Jose is certainly not)
      – plenty of smart innovative businesses can be started, by able people with reasonably supportive environments, in any country – even very remote ones. But even if they get going, many/most will find that they are better off (more valuable to owners) if relocated somewhere that isn’t peripheral. Sometimes dominant family owners will stop the shift, but in the grand scheme of things not thst often.


      • Businesses are one thing and creating them another. It is the later NZ needs. I trust more in the number 8 wire than immigration.
        On the other hand the internet will produce more geniuses equivalent to Srinivasa Ramanujan. He had sheer luck to come across a difficult maths book while a child and good luck that his letter to Hardy was read and comprehended. Now any child can find any maths book and even lectures from Harvard professors and if they originate a new concept they can easily broadcast it.


  4. I’ve read your blog for a while but haven’t posted so far, but something on these continental European countries prompted a question I’ve had.

    I actually live in Germany right now (previously UK for 7 years and before that NZ) – undoubtedly Germany is a wealthier, and clearly more productive country than the UK or NZ. The low wage, low regulation style labour NZ and UK has doesn’t feature here. Things you see guys doing manually in NZ (digging to get at underground cables/pipes) are done by German made little diggers here brought in by shiny German trucks.

    What I do wonder though, is how much demographics is behind this. Germany is unmistakenly older and more childless than NZ and even UK – I really noticed this on my last trip back home. The stats bear this out – the median German age is same as Japan and despite the big rush of refugees in the last two or so years, not much migration has gone on (the total refugees comes to about 1.2m across two years, which is what NZ is proportionally taking each year net for the last two years 1.2m/80m = 67k/4.5m).

    From a personal anecdotal experience, German colleagues doing same level work as I am are often much older, experienced than perhaps the similar counterpart in NZ or UK (London). Most have been in post with the same company for much longer than I am used to… I think Netherlands and Belgium must be almost the same across all these areas.

    Do you think this has some part to play? Fewer children = less economic deadweight, more experienced less encumbered adult workers. What happens to these GDP per hour worked if adjusted for say median age?

    France of course is the odd man out – it is kind of a half northern, half southern european state. The other side of the european coin is of course the Italy/Spain/Portugal/Greece group whose misfortune seems to be the inverse of the northern good fortune.


    • The demographics will play a bit of role in the GDP per capita numbers. Some analysts try to look at GDP per person aged say 15-64 (or even 75), but putting that together for a range of countries take quite a bit of effort.

      Re median ages, Germany is 45.7 years just behind Japan. Belgium, Netherlands, and France are 43,42, and 41 respectively. The UK is 40, and NZ is around 37.

      Having said all that, there is an argument that when it comes to productivity there is a dividend from a yuonger population (more fresh ideas etc), and so it is sometimes used an argument for immigration. In practice, I suspect any such effect is quite small, and might be outweighed from the productivity gains from greater experience in post (the point you make).

      Demographics are likely to be quite important in a lot of economics, but understanding the overall effects isn’t that easy.


  5. I liked this article on the French elections: I think that unless they do something about migration and youth unemployment the pressure will not go away.

    I asked my au pair what she thought – she voted for Macron, but she said there are new terrorist incidents all the time and the perpetrators are usually from “within Schengen”.

    Liked by 1 person

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