French candidates miss the point on globalisation

Bulletin article
Patrick Artus, Elie Cohen and Jean Pisani-Ferry
01 February 2007

The debate in the French presidential election has become dangerously protectionist. In the past, the EU’s commitment to free trade has prevented French politicians from advocating naked protectionism. But this taboo is now broken, and both main contenders for the presidency have resorted to protectionist rhetoric. The Socialist Party candidate, Ségolène Royal, says “tax firms when they relocate abroad or reimport”; her rival on the right, Nicolas Sarkozy, calls for “a middle way between protection and protectionism”. Both say the EU should raise its tariff barriers.

Let us be clear. Trade sanctions can be a legitimate response to unfair commercial practices, or a way of persuading economic partners to accept some responsibility for tackling global challenges. But the candidates’ emphasis on protectionism plays to the public illusion that the next French president can build an economic ‘Maginot line’ (the famously ineffective fortresses that France built in the 1930s to deter German invasion) to fight globalisation. This election should be about something more: convincing the public why France needs new policies.

Until recently France’s political centre had left protectionist talk to fringe parties. Its political elites were reluctant to suggest economic policies that would put France at odds with its European partners, or breach international commitments. This reluctance did not stem from political conviction. The French political class has never been enthusiastic about free trade, but it was prepared to accept EU and WTO obligations.

The French popular rejection of the EU constitutional treaty changed this. The EU’s name counts for less, and the focus has shifted back to finding national solutions. A recent poll shows that the French are the most anxious people in Europe about globalisation: 72 per cent see it as a threat to their jobs and French businesses. Meanwhile, the sidelining of the Doha multilateral trade negotiations and the election of a more protectionist US Congress have weakened the cause of multilateralism in France. Everything points to an increasingly protectionist trend between now and the election – with a real risk of a French shift towards isolationism. The consequences of this would be grave.

First, there is no way of stopping the global shift now underway. It is not being driven by trade rules, but by a changing world. China, India and other emerging countries want prosperity, and have leapt into the world labour market to get it. Their social or environmental standards may be questionable, and we can pressure them – forcefully if necessary – to bring them into line. But no one should believe for an instant that eliminating dubious practices can make any fundamental change to the terms of global competition. The rise of China is not the result of repressing trade unions or ignoring the environment. To promote such an idea is self-delusion.

Second, all Maginot lines suffer from the same defect: by offering the illusion of safety, they delay an effective response. Historically, the best way to protect prosperity has been an offensive economic strategy. Every country that has tried to isolate itself from global changes has paid a high price. To suggest that relocation can be prevented by protectionism is to pretend that preserving traditional industries will increase French prosperity. A glance across the Rhine exposes the fallacy of this thinking. Over the last five years German companies have profoundly reorganised themselves by relocating faster and further afield than their French counterparts. The result: Germany has regained its position as the world’s top exporter, though German manufacturing workers have suffered no more than the French. If a new French government attempts to prevent firms relocating, it will simply make them less competitive than the European firms that are allowed to do so. Furthermore, taxes on imported goods that are no longer produced domestically have no economic effect other than to increase prices.

Third, France’s economic woes are not due to excessive imports or to relocation. Nor do they stem from the cost of labour or the constraints of being a eurozone member. Other European countries are performing better under the same conditions. Our problem stems from the narrowness of our export supply base: too few French producers are able to compete on quantity or quality, and they have been too timid in reaching out to the new areas of growth in the world. For a decade, this problem was hidden, initially by the weakness of the euro, and subsequently by the temporary loss of German competitiveness. But today it is clearly visible. This is the problem we must tackle, and there is nothing in the protectionist’s toolbox that can offer even the beginnings of a response.

Fourth, the loss of jobs at a local level should not be interpreted as a nationwide crisis. Of course the victims of globalisation must be helped, with redundancy payments, retraining and job placements. But there is no surer way of increasing unemployment than by protecting obsolete jobs. When we focus disproportionately on the decline in traditional French industries or yesterday’s high-tech industries, we forget that European businesses are better placed than most, including their US counterparts, to exploit international trade. The EU exports a lot of capital-intensive goods that emerging countries scarcely produce. We depend less on the technological consumer goods industries, where emerging countries present a real competitive challenge to the US. French and European exports are in high demand and benefit from world growth, and we stand to gain from the process of international specialisation.

We need a serious debate on how to respond to globalisation. Should more public funds be invested in research and education, and where should the money come from? Is innovation most effectively stimulated by more competition, or less? What sort of business environment do we need for Europe to create its own Googles? Should the labour market be deregulated? Can the Danish model of ‘flexicurity’ be adapted to France? Should a geographical concentration of economic activity be accepted, or even encouraged? How can France’s conspicuous lack of small and medium-sized businesses be remedied?

These are the issues that presidential candidates with a vision for France’s future should be thinking about, instead of harping on about protectionism.

Patrick Artus, Elie Cohen and Jean Pisani-Ferry are French economists. An earlier version of this piece was published in Le Monde.

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