France

Overview

Famous for its revolutionaries seeking liberty, equality and fraternity, France continues to offer great freedoms and relatively low levels of inequality – but increasingly provides for pensioners at the expense of other groups. Managing to combine high levels of state ownership and rigid labour markets with an entrepreneurial flair for invention, France is the EU’s second largest economy (following sterling’s post-Brexit slide, it has overtaken the UK) and achieves standards of living comparable with those in the UK and Belgium. France’s overall ranking on the Wake Up 2050 Index of twentieth out of thirty-five countries is disappointing, however. This reflects strengths in knowledge and innovation coupled with significant weaknesses in demography and resilience.

STRENGTHS

The home of many world-beating companies from L’Oreal to Airbus and on to Danone, French workers, are productive thanks to high levels of capital intensity: they produce 25% more than their British counterparts and 50% more than Greeks. While not as equal as countries such as Germany or the Netherlands, nevertheless levels of gender equality are better than in either Spain or the UK. This helps to ensure that their economy makes good use of its workers’ skills.

It is considered a very open economy, with few constraints on the movement of trade and capital, and this, coupled with high levels of broadband penetration, supports the high value-added success of its now small (10% of GDP) manufacturing sector and its financial and marketing services.

French households, unlike those in Switzerland and Denmark, have avoided accumulating excessive debt. In relation to disposable income, levels are similar to Germany. This means that French households have the scope to respond appropriately to a future economic downturn.

WEAKNESSES

France is less well prepared for the future than it could be because of unresolved problems in its demography, openness and resilience.   Very few of its older workers are still in employment (just two percent) – even fewer than in Greece and well below the rates in the UK or Germany. This, coupled with generous entitlements (which incentivise workers to retire promptly) means that France spends colossal amounts on its pensioners: the third highest out of all countries studied (nearly 14% of GDP). The opportunity cost of such expenditure is large and serious for future economic success. In effect, this cost of public pensions is a supplement to spending on unemployment benefits, since an inflexible labour market and high unemployment are leading France to use pensions as a tool to reduce labour supply, when the opposite is required for the longer term.

While a full member of the EU, levels of trade in relation to GDP are a third lower than that in Germany, and less than half that in the Netherlands. Furthermore France’s economic resilience is somewhat hampered by rigid labour markets, high levels of state ownership and a complex tax system. At nearly 100% of GDP, levels of public debt are too high, limiting the scope of government to respond to future shocks.

FACT FILE

Population: 64.1 million (OECD, 2014)

GDP: $2,664 billion (OECD, 2015)

GDP per capita: $40,178 (OECD, 2015)