“French Disease” Cannot Be Cured

France is struggling with snowballing government debts and a high youth unemployment rate, and was recently diagnosed as “new Europe’s patient” by the American investment bank Morgan Stanley. The first “patient” was Germany in early 2000. Germany’s economy recovered through government reform measures and efforts to enhance labor market flexibility, thereby increasing exports.

France must now address this problem, but its politicians are not bold enough to put reform measures in place because they are too conscious of their constituents, wrote England’s Financial Times on April 16 in a special investigative article titled “The French Disease.”

GNP per capita ranked 19th-

The economic index tells how serious a situation France is in. Per capital GDP fell to 19th place from 8th place 25 years ago. France’s GDP in 1991 was 83% of America’s, but now it is only 71%.

The unemployment rate has been hovering around 8% for 25 years, and the youth unemployment rate is higher than 22%. The adult working population accounts for 41%, which is the lowest in the world. Jean Michel Camdessus, the former managing director of the International Monetary Fund, said, “American workers work 37 percent longer hours than their French counterparts until they retire.” Therefore, French workers should work harder to revive their economy.”

Along with the rigid labor market, the government’s growing size is sapping the vitality of the private sector. France is the only European country whose government spending has not come down for the past 10 years. Government spending accounts for 54% of France’s GDP, the largest in the world. The number of government officials is 5 million, a million more compared to the number in 1982. The government’s debt accounts for 66% of its GDP, or 42,000 euros (53 million KRW) per household.

Poor competitiveness stemming from its bulkier government is well illustrated in figures. The French market took up 4.3% in 2005, down from 5.4% in 1999. During the same period, French exports accounted for 14.5% of the economy over the same period, down from 17%.

Resistance to change by constituents-

The Financial Times is skeptical that France’s next president can treat the “French disease” with drastic measures, however. The majority of the public depends on the government for their benefits and pension that make them wary of the idea of changing their socialist model.

About half of France’s 577 parliamentarians are public officials, making it difficult to keep the government in check.

The French have an entrenched distrust toward the free market economy and a disbelief in a government-led economic system, which is the root of the problem.

According to a survey conducted by Maryland University in 2005 of 20 countries, including China, only French respondents on the whole did not agree with the premise that a free market economy was the best economic system.

David Dossmer, an economist, believes that the success of a government-led economic policy spearheaded by Charles de Gaulle after the WWII did harm to the French economy. According to him, since then, the French people have had the wrong perception that the government is capable of turning the economy around itself.

Former IMF managing director Camdessus said, “For countries that engage in reform measures only when faced with a crisis, reform efforts stop when the crisis ends,” emphasizing the need to put in reform efforts even before a crisis hits a nation, thus averting problems beforehand.

ecolee@donga.com