One of Ezra’s co-bloggers, John, writes:
Mark Weisbrot has a good column explaining that, no, France’s economic problems are no more severe than those faced by any other G8 country, including the US. At the very least, there’s no convincing evidence that the usual proposed “solution” — more liberalized market reforms — is going to solve the problems France faces.
I thought Weisbrot’s column was an half-assed attempt to explain away France’s poor economic performance by someone who would like to see failed French policies implemented in the U.S. But who cares what I think?! One thing’s for sure, Weisbrot isn’t going to win the Nobel Prize in economics, unlike Edmund Phelps, who won it last year and wrote in February:
As is increasingly admitted, the economic performance in nearly every Continental country is generally poor compared to the U.S. and a few other countries that share the U.S.’s characteristics. Productivity in the Continental Big Three–Germany, France and Italy–stopped gaining ground on the U.S. in the early 1990s, then lost ground as a result of recent slowdowns and the U.S. speed-up. Unemployment rates are generally far higher than those in the U.S., U.K., Canada and Ireland. And labor force participation rates have been lower for decades. Relatedly, the employee engagement and job satisfaction reported in surveys are mostly lower, too.
Why does it suck so bad there “compared to the U.S. and a few other countries that share the U.S’s characteristics?”
In my thesis, the Continental economies’ root problem is a dearth of economic dynamism–loosely, the rate of commercially successful innovation. A country’s dynamism, being slow to change, is not measured by the growth rate over any short- or medium-length span. The level of dynamism is a matter of how fertile the country is in coming up with innovative ideas having prospects of profitability, how adept it is at identifying and nourishing the ideas with the best prospects, and how prepared it is in evaluating and trying out the new products and methods that are launched onto the market.
There is evidence of such a dearth. Germany, Italy and France appear to possess less dynamism than do the U.S. and the others. Far fewer firms break into the top ranks in the former, and fewer employees are reported to have jobs with extensive freedom in decision-making–which is essential at companies engaged in novel, and thus creative, activity.
Further, I argue that the cause of that dearth of dynamism lies in the sort of “economic model” found in most, if not all, of the Continental countries. A country’s economic model determines its economic dynamism. The dynamism that the economic model possesses is in turn a crucial determinant of the country’s economic performance: Where there is more entrepreneurial activity–and thus more innovation, as well as all the financial and managerial activity it leads to– there are more jobs to fill, and those added jobs are relatively engaging and fulfilling. Participation rises accordingly and productivity climbs to a higher path. Thus I see the sort of economic model operating in the Continental countries to be a major cause– perhaps the largest cause–of their lackluster performance characteristics.
Another thing Weisbrot is not going to do is write a comprehensive, top-notch economic history of The European Economy since 1945, like Berkeley’s Barry Eichengreen just did. In a lecture just over a week ago, Eichengreen concluded:
So, in a month when we mark the EU’s 50th anniversary, it is worth remembering that Europe has a lot on its plate. It needs further deregulation of labor and product markets. It needs stronger incentives for innovation and entrepreneurship. It needs more immigration-friendly policies. It needs lower tax rates and more efficient delivery of public services.
Funnily enough, John’s post is titled, “Is it something about France that makes people stupid?” Maybe!
Will Wilkinson 