Invest in France

The Louvre, Paris

France ranks as the world’s 6th-largest economy, with a GDP of approximately US$1.9 trillion in purchasing-power-parity terms.

Dirigisme and the "Thirty Glorious Years"

After World War II, France was left with a relatively intact base of human capital (compared to its depopulated neighbors), but a demolished material-capital stock. The postwar French government under Charles de Gaulle implemented a massive program of re-industrialization known as dirigisme, in which the state heavily subsidized credit so that industrial conglomerates could expand at a rapid pace.

As was the case with Japan (which adopted a very similar policy not long thereafter), dirigisme yielded blistering early growth rates. The French model eerily presaged Japan’s later experience, as France achieved average real GDP growth of 10.6% annually during the 1950’s.

After stunning initial success, in which worldwide media began to tout dirigisme as the “planned-economy, public-private partnership” wave of the future, growth slowly receded, although France did not slip into a pronounced slump until 1975. During the 1945-75 “thirty glorious years,” France annual GDP growth clocked in at a brisk 4.5%. High liquidity and growth fostered very strong unions, bureaucracies, and other “countervailing” institutions which redistributed wealth effectively during boom times, but which severely hampered reform further down the road.

Slowdown and Underperformance (1970's-2006)

Since the late 1970’s, the French (and German) economies have significantly underperformed relative to the United Kingdom and the United States. Like other Western economies, France was adversely affected by the 1973 and 1979 oil shocks, but adapted extremely effectively via a nationwide conversion to nuclear power. (France today derives some 70 percent of its electricity generation from nuclear power plants, and has much less exposure to oil price volatility than any other Western economy.)

Although dirigisme could boast numerous showcase successes such as a nationwide nuclear program, its larger impact on France was inflationary. Because French corporations had borrowed promiscuously with state assistance over the previous thirty years, French lenders suffered significantly during France’s bout of “stagflation” during the late 1970s and 1980s.

Additionally, Francois Mitterand’s staunchly left-wing French government during the 1980’s rejected the laissez-faire policies embraced by Ronald Reagan and Margaret Thatcher, who significantly reduced taxation, regulatory burdens, and union power the US and UK, respectively. As a result, return on investment in the US and UK increased dramatically relative to France, and France did not share in the Anglosphere’s growth spurt during the 1980’s.

French underperformance continued through the presidencies of Alain Juppe and Jacques Chirac, both of whom made half-hearted and abortive attempts to reform the French pension and labor markets.

A Brighter Future

In 2007, France finally elected its first authentic reformer-president in Nicholas Sarkozy. So far, Sarkozy has slashed the top tax rate on French citizens from 60 to 50 percent in a bid to lure back high-earning French citizens. Significant labor market reforms are also in the works, and financial markets are exceedingly optimistic that the new regime in Paris sees enormous potential for private investment.