Wednesday, May 29, 2013

French Manufacturing

The Current Moment, a blog run by two young scholars on which I have posted in the past, has an interesting argument on French industry in response to an FT article. The bottom line:
There has been much debate about how France can regain some of its competitiveness. Some suggest a strategic reorientation away from traditional manufacturing towards more hi-tech activities. What seems obvious is that lowering wages is still the strategy overwhelmingly favoured by businesses. Given how unlikely it is that this occurs via internal adjustment in France, the most probable outcome is that French companies continue to exploit outsourcing opportunities.
I don't agree with my colleagues at The Current Moment. If the wage bill were all that mattered, or what matters "overwhelmingly," all manufacturing would have moved to Bangladesh years ago, and Germany, even with the advantage it derives from outsourcing to Eastern Europe to lower labor costs, would not be the export powerhouse that it is, because whatever competitive advantage in labor cost it enjoys over France, it does not enjoy over China, Greece, or Spain. So clearly there are many other factors at work. Technology is certainly one of them, and France is right to try to take advantage of its relatively well-educated labor force by shifting investment to industries where scarce skills, organizational capacity, and slowly-acquired engineering knowhow are important inputs. Nor is there any necessary reason to disdain outsourcing of labor-intensive parts of the production process to lower-wage countries. This can benefit both partners in the exchange, as Economics 101 teaches. This is indeed "exploiting outsourcing opportunities," but, if everyone benefits, without the negative (perhaps Marxist?) connotation attached to "exploit."

To be sure, there is a numbers game to be played here. Can the shift of investment to new sectors which employ relatively fewer workers per unit  of output really ensure employment for all those who lose their jobs in more labor-intensive sectors? There are reasons for doubt as well as reasons for hope. But it is not helpful to portray the global economy as a cutthroat race to the bottom. It is not that and never has been.