More competition for better economic outcomes in France

By Antoine Goujard,
Economist, Country Studies, OECD Economics Department

Strengthening competition would have positive effects on French competitiveness, employment, equity and well-being. The OECD (2015a) estimated that five sets of measures in the “Macron Law” – the reform of regulated professions, the extension of Sunday and evening trading, the opening-up of passenger coach transport, the simplification of redundancy rules and easier procedures for obtaining a driving licence – could potentially increase France’s GDP by 0.4% over 10 years. Streamlining entry requirements in some professional occupations and easing entry conditions for micro-enterprises, as recently announced, would also be good moves. However, there is scope to go much further and increase synergies with labour market reforms (OECD, 2014, 2015a and 2015b).

Over the last decade, France’s export market share losses have been slightly greater than those experienced by the other main euro area countries (Panel A). In particular, French export growth was relatively slow compared to its export markets before the global financial crisis in 2008 (Panel B). French wages have increased faster than labour productivity, and unit labour cost growth has exceeded the corresponding German rate (Panel C). This trend is mainly explained by developments in economic sectors that are partly sheltered from international competition (Panel D). Strengthening competition in those sectors would benefit all industries that use them as inputs in their production process and improve the cost-competitiveness of French exporting firms, their profit margins and investment capacities.

Changes in export market shares and unit labour costs

Fig_2_2_E.png

1.Difference between export growth and export markets’ growth, in volume terms (with export markets as of 2010).
Source: OECD (2015), Economic Outlook 96 and Productivity databases.

The OECD analysis highlights three main areas of reforms to improve competition, productivity and employment:

  1. Simplify the business environment.

Streamlining administrative procedures, including the tax system and government support for firms, together with improving public procurement practices, would allow substantial productivity gains and growth. The guidelines issued by the OECD (2011) should be used to systematically review existing regulations from a competition perspective according to a set schedule, and measures should be implemented rapidly.

  1. Continue to open up regulated professions.

For architectural, accountancy and legal services, barriers to entry and controls on practice in France were among the highest in the OECD in 2013. Streamlining entry requirements, opening further the capital ownership and increasing or lifting numerical quotas for selected professions would strengthen productivity and allow economies of scale and scope.

  1. Ease further retail regulations.

The new rules governing urban commercial development and Sunday opening remain unnecessarily complex. Urban zoning rules are still a constraint for large stores, and heterogeneous Sunday openings’ regulations distort competition and limit employment. Moreover, the sales of certain products, such as over-the-counter drugs, and the periods during which clearance sales can be held, are still tightly controlled.

 

Find out more:

Goujard, A. (2015), “Enhancing Competitiveness, Purchasing Power and Employment by Increasing Competition in France”, OECD Economic Policy Papers, No. 14, OECD Publishing, Paris.
OECD (2011), “Competition Assessment Toolkit”, OECD Publishing, Paris.
OECD (2014), “France, Les réformes structurelles : impact sur la croissance et options pour l’avenir”, OECD Publishing, Paris.
OECD (2015a), “France, Évaluation de certaines mesures de la Loi pour la croissance, l’activité et l’égalité des chances économiques et perspectives de futures réformes”, OECD Publishing, Paris.
OECD (2015b), “OECD Economic Surveys: France 2015”, OECD Publishing, Paris.


2 thoughts on “More competition for better economic outcomes in France

  1. Whenever I read policy proposals about rebooting growth in France, and more generally the Eurozone in the post-crisis period, I’m always struck by the derisory economic significance of the measures proposed compared to the importance of the economic problems the region faces. France alone has +10% unemployment, Spain is worse, there’s Portugal, Italy, Greece…

    But even just to stay on France: what economic modeling, what theoretical or historical data, do policymakers have, to think that regulatory changes to labor markets are enough to fix France’s chronic unemployment problem? It’s not that I’m fundamentally against these measures. I just feel like the policymakers and institutions (like the OECD) are largely unable or unwilling to propose measures up to the task.

    France and the southern european economies have been hit by a series of problems, one of which is low competitiveness. But instead of having countries with excessive surpluses like Germany inflating somewhat to balance things out, the burden of adjustment is solely on the weaker economies, that must go through a painful and destructive deflation. But nevertheless, we are told by all the institutions that all that is needed is some tweaks to labor regulation and liberalization of a few professions and voila growth will be back.

    Another problem is that in the post-crisis, the private sector, which had been over indebted, is desperately trying to deleverage. Except that at the same time, thanks to self-imposed constraints, we have public sector belt tightening at the same time. The over-leveraged private sector has no source of money to deleverage (except for the lucky countries running a trade surplus, which also happen to be the countries least in need of deleveraging), and so we get deflation as government and the private sector hoards cash at the same time to pay off its debts. The ECB can lower interest rates all it wants, unless somehow the private sector is allowed to deleverage, there will be no demand for more debt and we will continue with this deflation.

    While structural reforms would probably be positive in a lot of cases, they are neither up to the task of pulling the continent out of what in a few decades will be known as a “Depression”, nor is a depression the right time to get them through a legislature. The much-lauded Shröder reforms of 2005, which are apparently a model to be followed for all of Europe, were passed during a boom economy when Germany was breaking the Stability deficit rules (!). Why would other countries, supposedly even less disciplined than the Germans, be able to pass such reforms during a depression while also trying to curb public sector spending. It is simply delusional.

    Please start coming up with policy proposals that match up to the incredible task of pulling the Eurozone out of a Depression. This obsession with tweaking regulatory frameworks is ridiculous.

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    1. In the recent OECD interim economic outlook, we called for more coordinated fiscal action and well-chosen public investment, together with structural reforms, in order to improve prospects for the Euro area and global growth. Structural reforms would allow the private sector to benefit more from the additional public investment.
      In France (see our 2015 Economic Survey), such measures should ease firm entry and growth, strengthen lifelong training opportunities, notably for the low-skilled and unemployed workers, and reduce further taxes on labour as public spending declines over the medium term, to improve productivity, growth and employment opportunities. Indeed, our simulations based on panel-data evidence from OECD countries point out that product market and labour market reforms could have significant positive effects on medium-term growth prospects in France.
      We have a detailed description of our structural policy recommendations for France in our 2015 Survey (overview there, p. 2) and in our 2016 Going for Growth report. The cumulation of these measures would have a profound impact on economic growth.

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