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Changes in French capitalism since the Second world war Essay

Changes in french capitalism since the second world war

It should be stated that a widely known stereotype about French capitalism being an ideal-typical of post-war state capitalism in Europe is true, in spite of this, it is believed  that the case of France is not unique.  Let us look deeper in the depths of the economical science to come out with the ultimate answer as to what changes had France sustained in the past decades and what potential it has entering the third millennium.

Post-war Capitalism

In the post-war period France was, of course, the exemplar of state capitalism (Schmidt 1996).

Government policies differed widely among European countries in the post-war period.  However, as far as the French variety is concerned, State capitalist France’s dirigiste  or interventionist state, sought to direct economic activities through planning, industrial policy and state-owned enterprises in addition to in all the ways the other states promoted business, while it administered the rules itself, as often as not through the derogation of the rules in favour of business (Hayward 1973; Hall 1986; Schmidt 1996).

Business practices in European countries were equally varied.  In state capitalist France, business practices were state-led. The state mediated inter-firm relations, set medium-term corporate strategies through

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planning and industrial policy, and underwrote the investment of traditionally undercapitalised business, sometimes demanding no financial return at all if the state’s medium-term goals were being fulfilled, such as maintaining employment or increasing production in strategic areas (Schmidt 1996).

Labour relations. In state-capitalist France labour-management relations were as adversarial as in Britain and employer associations and unions even weaker and more fragmented, leading to much confrontation.  But here, rather than acting as a bystander, the interventionist state organised wage-bargaining and even imposed wage settlements when business and labour were unable to reach agreement, thus moderating wage rises and managing confrontations more effectively than in Britain but not nearly as successfully as Germany (Howell 1992).

Competitiveness. German competitiveness benefited from monetary policies that created a stable and favourable economic environment for business. British competitiveness, by contrast, suffered from monetary policies that created an unstable and unfavourable economic environment for business; French competitiveness was somewhere between Germany and Britain.  It benefited from monetary policies that created an unstable but favourable economic environment and from industrial policies that underwrote business investment and product innovation in strategic areas (especially in state-owned enterprise in public utilities and infra-structural services such as electricity and railroads).  But it suffered from business practices that, absent state support or outside the state sector, failed to invest in new plants, machinery, technology, or human resources and from industrial relations and labour policies that fostered low waged, poorly trained labour and high production costs (Schmidt 1996; Hall 1986).

Government Policies and the Role of the State

In response to the economic challenges beginning in the mid 1970s, governments in Britain, Germany, and France all sought to make their economies more competitive through policies that liberalised financial markets, privatised and deregulated business, and decentralised labour markets.  But the timing and extent of the reforms differed, as did their effects on the role of the state.  In France, reforms began slightly after those of Britain but way before those of Germany, transforming the state’s role from one of leadership to an ‘enhancing’ role in which the state still intervened more-albeit now more indirectly to improve the environment of business and labour-than either the British or the German,.

The Comparative Differences in Government Policies

For Britain’s post-war model of market capitalism, crisis came early, and so did government responses.

For France’s post-war model of state capitalism, crisis came as early as in Britain, and so did government responses.  In the early 1980s, however, the Mitterrand government sought to enhance economic competitiveness by increasing the dirigiste  state’s interventionism through a massive program of nationalisation and restructuring, before beginning by the mid 1980s to engineer the retreat of the state from the leadership of business and the control of labour relations.  Successive governments of the left and the right accomplished this task through financial market liberalisation, business deregulation and privatisation, and labour market decentralisation.   Their success was due in no small measure to their capacity to impose reforms without crippling protests (other than in 1995-96), aided by policies that bought off the most affected interests through much of the 1980s and a discourse that spoke to the necessity of reform in the face of economic crisis and its appropriateness in terms of national sacrifice (Schmidt 2001; 2002, Ch. 6).  With their reforms, they transformed the state, which went from a leadership role to an ‘enhancing’ role.  In that role, while the state for the most part sought to create and preserve market institutions that located decision-making power in companies, much as in Britain,  it continued to intervene strategically to protect business and/or labour from the worst effects of the markets, including trying (but failing) to create something akin to German non-market co-ordination in corporate governance and management-labour relations..

French Government Policies

 The government’s liberalisation of the financial markets and the privatisation programme were also a great boon to the financial markets.  Full or partial sell-offs of industrial or banking enterprises, which began in 1986 and continued intermittently but increasingly through the 1990s, raised a total of 70 billion euros in public share offerings by 2002 (Le Monde, April 9, 2002).  Public sector ownership went from a peak of 10 per cent of the economy in 1985 down to its pre-war level of 5 per cent by the late 1990s (Israelewicz 1999: 120) and public employment as a percentage of all employment went from 10.5 per cent in 1985 down to 5.3 per cent in 2000 (Le Monde, April 9, 2002).

Business Practices and the Impact of the Financial Markets

Business practices in France also continue to differ from those in Britain and Germany.  This is not only a consequence of differences in government policy reforms but also of the differing ways in which firms have been affected by the increasing turn to the financial markets.  In France, CEOS are generally more autonomous than British CEOs because less subject to the dictates of the financial markets, than German CEOs because less constrained by network-based relationships, and than French CEOs of the past because out from under the tutelage of the state.

The French Financial Markets and their Impact on French Business Practices

With the end of state interventionism in business, corporate governance in France has come to sit somewhere between that of Britain and Germany. Although the state had intended for privatisation to reproduce the German managed capitalist pattern of corporate governance through ‘hard-core’ industrial and financial investors, it produced only a very pale imitation of it which started breaking apart in the mid to late 1990s, as hard-core investors sold and foreign institutional investors-mainly North American pension funds-bought.  For some, this break-down in the hare-core shareholdings spelled the victory of ‘Anglo-Saxon’ market capitalism in France, with the evidence in the high level of foreign share-ownership, CEOs’ discourse of shareholder value claiming a new focus on profitability, new corporate governance rules, and an increase in take-over activity (Morin 2000; Orl?an 1999).  But in truth, although these elements point to significant changes in French business practices, the finance-driven view of French capitalism overlooks considerable factors that ensure that France falls far short of a market capitalist revolution.

Labour Relations and the Differences in Production Systems

Here, again, France remains distinctive, albeit closer to Germany than Britain in terms of its production and industrial employment systems, having greatly improved on all measures since the early 1980s.

French Labour Relations and Production Systems

First of all, French workers are generally more highly skilled, better-paid, and better-trained, with products of generally higher quality and less mass-produced than in market capitalist Britain.  This marks a significant improvement over the past:  Whereas in 1982 close to 60 per cent of workers were semi-skilled or unskilled performing narrow tasks (d’Iribarne 1989), by the late 1990s, workers’ skills had vastly improved and they mostly worked in polyvalent teams rather than individually (Duval 1998; Hanck? 2001).

Changes in inter-firm relations have also improved productivity, as a vertically-integrated pattern based on large firm dominance has replaced the state-organised pattern of the past.   Large firms tend to dominate regional economies even more than before by integrating suppliers organisationally and technologically into their production systems, while being themselves subordinate to the strategies developed at firm headquarters, normally in Paris (Amable and Hanck? 2001). But with the adoption of new production processes in the 1980s, in particular collaboration on design and ‘just in time’ delivery systems, the largest French firms have modernised their relations with suppliers in ways that bring them into a much closer collaboration or ‘partenariat’. The relationship itself enables the large firms to ensure continued improvement of the quality of their suppliers’ products and the efficiency of their operations while the suppliers gain more easy access to financing and  stable demand (Hanck? and Soskice 1996; Hanck? 2001).

Conclusion

Traditionally state capitalist France has been transformed by the radical reduction in state interventionism, the dramatic increase in firm autonomy, and the radical turn to market-reliance in industrial relations. (see Table 2).

French firms are now more autonomous than either their network-linked German or financial market-dependent British counterparts, let alone the state-led French firms of the post-war period.  France retains a more active role for the state than either in Britain, where the state acts primarily to preserve the market, or in Germany, where it seeks to protect non-market co-ordinating mechanisms.  In France, the state continues to intervene, albeit in a more limited, supply-side way, through laws and incentives intended not only to make the economy more competitive but also to ‘moralise’ business and labour relations-even though as often as not its intervention has served only to further marketise those relationships.  In addition, France sits somewhere in between Germany and Britain with regard to its production system based on medium skills, wages, and product quality, with a higher productivity rate than the Germans and higher skills than the British, and with a higher capacity than Germany for radical innovation-in particular in formerly state-dominated sectors-and than Britain for incremental innovation.

In the state-enhanced capitalist system of France, change is firm-led in those domains where business now exercises autonomy-in business strategy, investment, production, and wage-bargaining-but change is still state driven in those domains where neither business nor labour can exercise leadership-in labour rules, pension systems, and the like-or where the state sees a need to reshape the general economic environment to promote competitiveness.  .

However, what lies in the nearest future for one of the most influential European countries as far as economy is concerned, even the most eminent economists cannot predict with the 100% guarantee. Thus, the only thing left is to live and see, and probably, France has yet another pack of surprises in store for us.

Table 1 :  Postwar Capitalism in France (1950s-1970s)

French State Capitalism
Government Role      Policies toward business    Policies toward labour
Interventionist Director Organiser
Business Relations      Inter-firm relations           Investment sources            Time-horizons            Goals
State-Led State-mediated    State Medium-term view National political-economic priorities
Industrial Relations      Management-Labour     Relations   Wage-Bargaining
Adversarial    State Controlled

Source:  Adapted from Schmidt (2002)

Table 2 :  Changes in  French Capitalism by the end of the  l990s

State Capitalism        (France)
Government Role      Policies toward business   Policies toward labour
Newly  “enhancing” Much more liberal but still seeks to influence Newly bystander, ‘moraliser’
Business Relations      Inter-firm Relations    Investment Sources    Times horizons    Goals
Competitive, end of state mediation; autonomous Firm, Capital Markets Less medium-term view Firm Autonomy
Industrial Relations      Management-Labour     Wage-bargaining
Neutral Radically Decentralised

Source:  Adapted from Schmidt (2002)

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