Sunday, February 13, 2011

Elie Cohen on French Competitiveness

Elie Cohen considers the question of French competitiveness. The French share of global exports has declined, but, he argues, this is not simply a matter of loss of market share to low-wage countries. France's share of exports within the EU has also declined. Furthermore, French unit labor costs have increased much more rapidly than Germany's. On the other hand, growth of French GDP per capita has kept pace with Germany's. So does the loss of export share matter? Cohen argues that it does: "It was formerly possible to believe that a debt held in euros by European investors did not pose a problem, but the sovereign debt crisis in peripheral countries of the Eurozone has changed that. A current account balance is therefore desirable [for each Eurozone country], for both domestic and European reasons. No one can remain in surplus or deficit indefinitely."

Extra credit: compare and contrast Cohen's argument with Paul Krugman's well-known contempt for the concept of competitiveness, as exemplified here and, more recently, here. And note, too, that Krugman observes the same problems of limited fiscal centrality and factor mobility in Europe as compared to the US that Cohen invokes.

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