Monday, July 30, 2012

Competitiveness

"Competitiveness" seems to be the watchword of the day. Much of Hollande's economic strategy is concerned with restoring French competitiveness by reducing unit labor costs. So just how bad is the situation?

The very term "competitiveness" is a contested one. Some observers, like Paul Krugman, think that it doesn't make much sense to talk about national competitiveness. A new paper (gated access) by Delgado, Ketels, Porter, and Stern begs to differ. Entitled "The Determinants of National Competitiveness," the paper constructs an index based on both macroeconomic and microeconomic factors. The authors then go on to consider labor costs relative to this competitiveness index and produce the following graph:


According to the authors' reasoning, France, as you can see, has a high "competitiveness score," which is a measure of its potential output per worker, but also a somewhat high unit labor cost compared to its potential output ranking (the point marked "France" lies above the regression line). As you can see, France looks relatively good compared to its main European competitors. Germany's residual is higher than France's; Spain, Italy, and Greece are off the charts in terms of labor cost relative to potential output. And countries like Singapore, Malaysia, China, India, and Chile are relatively attractive for investment.

So this graph more or less sums up conventional wisdom. But does it make sense? That depends on what one thinks of the index constructed by the authors, which, if you look at the details of the paper, in many ways reflects (and quantifies) conventional wisdom--or conventional neoliberal ideology, if you will. So take these findings cum grano salis. But there is food for thought here.

7 comments:

Anonymous said...

art,

where in hollande's plans do you see an effort to reduce unit labor costs or decrease the rigidity in the labor market?

to my eye, he has offered only the emptiest of rhetoric on france's "reindustrialization" at this point: what new jobs or factories will be attracted by the return of taxes on overtime, for instance?

if peugeot and the rebates on green cars is the approach - which is essentially the same thing as the fateful "prime a la casse," which allowed industry to be complacent, to avoid painful adaptation - it seems to me the goal is, more precisely, to avoid reform altogether.

i would, of course, very much like to hear thoughts.

best

Art Goldhammer said...

The plan to revise the CSG includes eliminating a portion of the employer's share of CSG contributions and shifting this to the broader base of employees. This will reduce unit labor costs.

Flogistix said...
This comment has been removed by a blog administrator.
Anonymous said...

@Art Goldhammer And that's it? The biggest economic crisis facing Europe since the 30s and Hollande offers that single dose as his magic potion! Socialism has no answers to this crisis. People have to start thinking outside the box seeing as how banker racketeering has brought the world to its knees. I would really like to some some unconventional alternatives broached.

Art Goldhammer said...

No, of course that's not "it." You asked a question about reducing labor costs. Obviously there are many other parts to the Socialist program. Whether it's adequate or not is another question. I don't think it is. But Hollande cannot act alone to resolve "the biggest economic crisis facing Europe since the 1930s." That requires coordination.

Anonymous said...

you can have competitive labor cost but no one to buy your products. for decades France has favored national champion, big export contracts intead of helping small and mid companies. It will takes years to feel the difference if the government goes in the right direction.
I sincerely doubt it. Most politician on the
right and even more on the left have never work in the private sector.

Art Goldhammer said...

France is a major exporter in numerous product areas, including chemicals, pharmaceuticals, insurance, nuclear power, high-speed rail, and luxury goods. Its lost competitiveness is most noticeable in specific industries. And France has not relied on national champions for quite some time. As for the skills of politicians, I don't think experience in the private sector necessarily teaches one how to run a government. And in France the private sector and public sector are closely tied via the Grandes Ecoles, pantouflage, etc. So I don't think your critique focuses on the heart of the problem.