Abstract: The French economy is much stronger than people think. France should aim to create jobs, not to protect them. Two comforting but destructive myths are alive in some parts of Europe, particularly France. The first is that average US workers have a lower standard of living than workers in Europe, the second that US companies lift their profits by laying off workers. These myths are comforting because they justify the Europeans' continuing resistance to market forces. They are destructive because that resistance is causing financial capital to flee Europe and seek richer rewards on the other side of the Atlantic. US companies create jobs by using this capital to finance growth in capacity and, hence, in sales. But France's high minimum wage, generous mandatory social benefits, and obstacles to eliminating redundant jobs have made French industry loath to hire, though the country's unemployment rate is almost three times that of the United States. To help redress this unfortunate state of affairs, the French government has shortsightedly cut the work week, depriving healthy, expanding companies of the effort of an eager workforce. In a sad irony, the US model, which is officially indifferent to the problem of joblessness, creates not only bigger revenues and profits but also more jobs than the European model, which misguidedly accepts slow growth as the price of job security. In truth, the French dilemma rests on an even deeper irony. Fundamentally, the much-maligned, much-protected French economy is one of the hardiest in the world. That is at least partly the result of those job protection rules, which for a long time have given French companies no choice but to invest in technology as a substitute for expensive and entrenched labor. This commitment to technology had the happy effect of boosting productivity, and a productive economy, as the US example has proved, doesn't need to protect jobs; it generates them. By contrast, the crutches that French regulations require the economy to lean on have had the perverse effect of making it walk more slowly. If France were to develop ambitions appropriate to its stature, it could become the European locomotive of growth, employment, and rewards for savers. There is a route into virtuous circles of this kind: a world-class increase in capital productivity. But from 1990 to 1997, the French economy, in competitive terms, actually lost ground. In those years, the sales of the 100 top US corporations grew at an average annual rate of 9 percent and their net profits by an average of 13.1 percent. Over the same period, the sales of the top 100 European corporations grew by just 5.6 percent a year and their net profits by 8.3 percent. This difference has led to an imbalance in the distribution of profits of the Fortune 500 largest global companies. Although one-third of them are located in Europe and one-third in the United States, the US third captures 54 percent of the total profits, the European third only 35 percent. There are also surprising differences in the factors of production. US companies, which account for 41 percent of total employment by the top global 500, are very good at creating jobs but have a relatively small (27 percent) share of total assets. The European companies, by contrast, are capital heavy (44 percent of total assets) but weak in employment (just 37 percent). US businesses are thus both more profitable and better at creating jobs. Thanks to higher profitability and better growth prospects, they also have higher market capitalizations. Two basic elements explain the capital productivity gap between the United States and Europe: the size of their respective domestic markets and the number of hours people work. The nations of Europe are overcoming the first obstacle; with economic and monetary union and the introduction of the euro, the real domestic market for French companies is, increasingly, Europe itself. …
Publication Year: 2000
Publication Date: 2000-03-22
Language: en
Type: article
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