Something Terrible Is Happening in France | Economics Explained

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France's Unique Approach to the Industrial Revolution

France prioritized small artisanal industries over large factories, leading to a more egalitarian culture with workers having more power over employers.
This slower development resulted in lower productivity compared to other European countries but better working conditions, strong worker protections, and secure retirements for French workers.

France's current economic challenges stem from the need to modernize its economy while preserving its egalitarian traditions and strong social safety net.
The country is grappling with the tension between maintaining its unique economic model and the need to compete in a globalized economy dominated by large corporations.

France adopted "dirigisme" after World War II, involving the government actively directing the economy through state-owned enterprises.
Dirigisme aimed to balance communism and pure market capitalism by allowing private industries to grow alongside government operations.
State Enterprises were funded by the government and provided essential services such as national banks, high-speed rail services, and airlines.
The government's involvement in the economy allowed it to provide goods and services that were not easily transactable, such as national defense and emergency services.

While state-owned enterprises can be beneficial, they can also lead to inefficiencies and reduced productivity due to objectives other than profit maximization.
A large number of state-owned enterprises can drive up inflation by increasing employment and reducing unemployment below the natural rate, leading to a wage-price spiral.
France's dirigiste policies led to economic challenges in the 1980s due to high inflation and a decline in global competitiveness.

The country now faces the dilemma of maintaining a high standard of living for its workers while also addressing issues such as an aging population and brain drain.
France is attempting a combination of strategies, including reducing taxation and direct control while also introducing more competitive dynamics, to address these challenges.

France has an international reputation for artisanal craftsmanship, which allows it to sell goods at a much higher price point compared to their production cost.
Despite its advantages, France has been living beyond its means, providing its workforce with strong protections and a high quality of life, making it less economically competitive.
To address this, France is slowly changing its economy to be more like other advanced global superpowers, but this may involve difficult and necessary changes in the future.
The pushback against these changes makes France an interesting economy to observe, as French workers are vocal about their disappointment.