San José State University
Department of Economics
& Tornado Alley
THE ECONOMY OF FRANCE
The economy of France in the eighteenth century was problematical. France was a major power, but not because of the degree of her development. In terms of the degree of development France was rather backward compared with England. But because of sheer geographic and demographic size France was powerful and important in economic and political affairs of the time. Although the average educational level in France was inferior, the intellectual elite was second to none in Europe. This shows up in terms of the names of the prominent figures in science, mathematics, technology, literature and so forth.
As a whole however France was still a country of peasants when the industrial revolution was taking place in Britain. In the ongoing political competition that was taking place between France and Britain, France was consistently losing. In many ways the position of France with respect to England was analogous to the Russian Empire/Soviet Union with respect to Western Europe and the United States in the twentieth century. Both France in the eighteenth century and the Russian Empire/Soviet Union in the nineteenth and twentieth centuries were formidable military powers because of their size and vast pool of soldiers. On land their military mass was undefeatable but at sea and abroad they were vulnerable.
France used much less coal than England and Belgium during this period. This was in part due to the lack of suitable coal deposits in most of France but there were coal deposits in the north. Furthermore France could and did import coal from England and Belgium, but she used less coal because she had less industry needing coal rather than vice versa. The answer seems to lie in the more centralized, authoritanian government that French business had to cope with. First the aristocracy oppressed business then when the aristocracy was overthrown there was the radical and turbulent political regimes to contend with. This retarded the development of French industry beyond the time when the greatest profits could be made from industrialization. The net result was that French industry tended to be smaller and more family controlled than industry in the United Kingdom and Belgium. Such indutry was more dependent on government protection, intent on surviving rather than expanding.
Germany defeated France in a six week campaign in 1940. Germany then occupied northern France, including Paris, and put the rest of the country under the control of a puppet fascist regime in Vichy. The French economy thus operated under a corporatist, state capitalist system during the war. There was a resistance movement that united all elements of the French political spectrum; conservative, socialist and communist. This united front continued after the end of the war and there was mutual agreement that it was necessary to promote a renewal of France and avoid the economic stagnation that existed before the war. All parties assumed that economic planning was essential to this goal and a Ministry of National Economy was created.
General Charles de Gaulle had been head of Free France during the war and he was elected Head of Government in 1945. He immediately declared that he would nationalize credit and electricity. His government went on to make the coal mines, the large banks, the large insurance companies, the electrical and gas companies, Air France, and Renault Auto into public enterprises. The government acquired direct control over 20 percent of industry.
This policy was in keeping with the traditional policy of dirigisme in France. Although there was widespread support for this role of government in the economy, there was a great many small businesses that did not welcome these measures. The united front of the Resistance began to unravel. The Communists withdrew from the government in 1947 and the Socialists withdrew in 1949.
Jean Monnet drew up a set of goals in 1945 of what the French economy should accomplish by 1950. In addition to achieving target outputs Monnet called for the modernization of French industry. Monnet noted that the French Government did not have the resources to reconstruct all of the French economy so he called for the public investment in key economic sectors. These key sectors included the transportation system, coal, electricity, steel and agricultural mechanization. Later fuel and fertilizers were added to the list. Monnet's formulation, extended to 1952, became known at the Monnet Plan.
In each key sector under the Plan the details of the planning were left to the modernization committees made up of representatives of the Planning Commission, the major firms in the sectors, public enterprises and unions, and technical experts.
These committees did not have the power to enforce their decisions, compliance was voluntary. This process came to be known as indicative planning.
Inflation was a chronic problem in the postwar period, but it opted to not implement price controls. The statistics on the price level were:
|Wholesale Price Index
Private enterprises generally supported the Monnet Plan because they agreed with its goals for France, but the fact that the Government guaranteed bond issues in approved sectors did hurt either. The production targets were generally achieved and productivity gains were substantial.
The war-time coalition further fragmented. Rival trade union federations were created to counter the Communist-dominated Confederation Generale du Truvail (CGT). When the CGT called extensive strikes in 1947 which failed, these rival confederations gained legitimacy.
Military spending for Viet Nam (French Indo-China) and Algeria drastically affected the government budgets. Budget deficits contributed to the ongoing problem of inflation. The persistence of inflation resulted in a program of subsidies for businesses that prevented them from developing the efficiency they needed for international competition.
Although the French economy grew it did not grow nearly as fast as the West German economy. Agriculture in particular was rather backward. The perceived success of the Monnet Plan led to a plan for 1954 to 1957. This plan was called the Hirsch Plan. The targets for the Monnet Plan had been increases of about 10 percent in key sectors over a five year period. The Hirsch Plan called for 25 percent increases over a three year period in a much broader range of industries. France achieved the targets of the Hirsch Plan.
Charles de Gaulle once again won the presidency in 1958. He chose a prime minister committed to planning. A Third Plan was formulated for the 1958-1961 period. It called for an increase of 23 percent in GDP but attempted to develop an integrated program of national development and called the achievement of social goals as well. Except for agriculture the Third Plan's targets were achieved.
The Fourth Plan covered 1962 to 1965. The planning methodology had become highly sophisticated. Social goals were given as much emphasis as economic ones and the Fourth Plan became the model of indicative planning. The French planning establishment felt they had found the ideal middle ground between a laissez faire market economy and Soviet-style central planning.
The Fifth Plan (1966-70) was similar to the Fourth Plan and called for a strategy of "balanced expansion." Despite a near revolution in May of 1968 the Fifth Plan's goals were attained.
General de Gaulle was defeated in the election of April of 1969. Although French productivity increased the increase did not match that of West Germany. The problem was apparently insufficient investment, both in physical equipment and research and development. Also the scale of French establishments was significantly smalled than that of German establishments, even though the French Government encouraged mergers and consolidations.
Agriculture remained a problem and many French farmers were little interested in efficiency and productivity.
For the economic histories of other countries click here.
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