The Challenge of Restoring French Competitiveness

Since the beginning of the decade, France has seen a marked decline in its export performance, leading to growing concerns on the part of the authorities and of civil society about the economy’s capacity to adapt to the intensified globalisation of trade and investment in goods and services. The poor foreign trade performance of recent years is related to a series of factors, rather than to any single cause. It cannot be explained by external determinants alone, such as the exchange rate, the trade inroads of emerging countries with strong export potential or the sharp rise in oil prices in 2007-08. Indeed, it is not so much the loss of market share itself that is of concern (many countries have experienced this), but rather the extent of that loss, which reflects problems in responding to the acceleration in global demand earlier this decade, before the apparition of the current crisis. An analysis of the deterioration in competitiveness points to supply-side factors such as the relative inability of French firms to service foreign markets, and the pursuit of industrial strategies of offshoring the entire production process. Restoring competitiveness will require steps to strengthen the country’s growth potential and to address the main long-term determinants of that potential, such as fostering research and development, promoting innovation, reducing the tax burden, boosting competition and creating favourable conditions for businesses to grow rapidly. The lack of competitiveness is more often a symptom than the cause of one or more underlying economic weaknesses. What is called for, then, is a comprehensive policy response that addresses the sources of the competitiveness problem, rather than targeted interventions designed directly to remedy the growing trade deficit. This Working Paper relates to the 2009 OECD Economic Survey of France (www.oecd.org/eco/surveys/France).