The Blind Decades: Employment and Growth in France, 1974-2014

The Blind Decades: Employment and Growth in France, 1974-2014

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Product Details

ISBN-13: 9780520277991
Publisher: University of California Press
Publication date: 11/27/2014
Pages: 280
Product dimensions: 5.50(w) x 8.30(h) x 1.00(d)

About the Author

Philippe Askenazy is Senior Researcher at the Paris School of Economics and Director of Research at the French National Center for Scientific Research. He is the author of La croissance moderne (2002) and Les désordres du travail (2004), among other books.

Richard Freeman holds the Herbert Ascherman Chair in Economics at Harvard University and directs the Science and Engineering Workforce Project at the National Bureau of Economic Research.

Read an Excerpt

The Blind Decades

Employment and Growth in France, 1974â"2014


By Philippe Askenazy, Susan Emanuel

UNIVERSITY OF CALIFORNIA PRESS

Copyright © 2015 The Regents of the University of California
All rights reserved.
ISBN: 978-0-520-95995-8



CHAPTER 1

Four Decades of an Industrial Revolution


In both common perception and from the perspective of much modern economic history, a historic shift stands out in the industrialized world: three decades (1945–1973) were marked in the major market economies by strong growth and full employment, and followed by decades when crises and booms alternated, before they all crashed into the Great Recession in 2008. In France, the first period has been nicknamed les trente glorieuses (the Glorious Thirty), after a book published by Jean Fourastié in 1979. On top of economic prosperity came a modernization of the country's economic, social, and cultural structures. The second period, by contrast, some French scholars characterize as "piteous," because France proved incapable of curbing mass unemployment. Such a demarcation, whether implicitly or explicitly, makes the first oil crisis of 1973 the watershed of the economic turn from glorious to piteous. However, I will argue that this watershed had much more to do with the new industrial revolution, this time organized around information and communication technologies, which began in the 1970s. It is this revolution that forms the background for the four recent decades that this book covers.

A quick overview of the year 1970 will contextualize this chronology. Performance of the European economies remained good—even excellent. The fifteen countries that would form the European Union enjoyed annual growth close to 5%. Employment figures also seemed very good. The Federal Republic of Germany announced an unemployment rate of only 0.5%; Great Britain had 2.2%, and France 2.3%.

However, a deeper analysis shows that France, like several European economies, was experiencing the first disequilibria. Unemployment was slowly rising. In 1965, it had been 1.5% in France and 1.2% in Great Britain. The rise accelerated throughout 1970. In France, the number of job seekers increased by a quarter between January 1, 1970, and January 1, 1971; and the situation deteriorated even more the following year. Almost 600,000 French workers were unemployed. Jobs decreased in construction and in public works; young people and women were the most affected in other sectors. The British economy was the sick lady of Europe. Economic growth there was erratic, and the pound sterling was regularly devalued. Inflation soared starting in mid-1970, and a year later it exceeded 10%.

Meanwhile, across the Atlantic, the United States was apparently stuck in a situation that contrasted with other developed nations. The world's principal economy was carrying out a major war in Vietnam, with half a million men engaged on the ground. After a very remarkable 1969, the unemployment rate in 1970 rose back to 4.9%. This was still lower than in 1964, that is, before the massive American commitment to the war in Indochina. But the main reason for the unhealthy economy was that several years before the oil crises, the economy was in stagflation—a mixture of inflation and the absence of growth. Annual growth of GDP was only 0.2%, yet the rise in consumer prices reached 5.7% during that year. In fact, inflation accelerated after the second half of the 1960s and would not return to low levels until the end of the century. In 1970, the dollar fell sharply against the deutschmark. In August 1971, president Richard Nixon decided to suspend the convertibility of the dollar into gold, signaling the crumbling of a system that had been in effect since the 1944 Bretton Woods Conference. He also established a 10% tax on imported products, underscoring the loss of competitiveness of the American economy.


THE FIRST PRODUCTIVITY SLOWDOWN

Nevertheless, Western business, especially American business, was quickly developing automation in both the industrial and administrative spheres, meaning the use of automatic machines that required limited human intervention (robots and calculating machines). In reaction, the USSR made the automation of industry an essential axis of its 9th Plan (1971–1975).

But despite these technological advances, American growth had been faltering for several years. Fundamentally, the motor of economic growth and competitiveness—gains in the hourly productivity of work—was crumbling (figure 1). From an annual pace of 3% at the start of the 1960s, the gains gradually diminished, without any particular break during the oil shocks. A trough below 1.5% was reached during the 1980s. It was only after the mid-1990s that hourly productivity in the United States would recover an average growth higher than 2%.

The United States was not the only country touched by the productivity slowdown. Angus Maddison's breakdown of growth over two sub–periods, 1950–1973 and 1973–1992, clearly shows the cost of the reconfiguration phase. The factors he took into account in economic growth arose from: 1) the evolution of the number of hours worked (the volume of labor); 2) the accumulation of capital; 3) the effect of foreign trade; 4) economies of scale in productivity; 5) improvement in the quality of the labor force (level of training); and 6) a residual component. These factors were combined to achieve total productivity growth, and this figure was interpreted as the visible contribution of technological progress in the wider sense.

The slowing of growth between the two periods (i.e. after 1973) is common to the United States, France, Germany, and Japan. The effect of foreign trade is systematically minor. The most striking thing is that the accumulation of capital remains rapid, accounting for more than 3 percentage points of the growth from 1973 to 1992 in all four countries. But this accumulation was accompanied by a drop in the productivity of capital. From 1973 to 1992, the technological transition was ensured by the renewal of capital, but this had not yet been translated into gains in efficiency. In fact, the apparent contribution of technological progress to growth fell between 1 and 2 percentage points between the 1950s and 1960s and the following two decades. Again, it was only in the mid-1990s that several countries began to recover sustained productivity growth.


INFORMATION AND COMMUNICATION TECHNOLOGIES

What does this abrupt break in the growth of productivity in the second half of the 1960s signify? I think it signals the transition from one industrial revolution to another, specifically from a Fordist regime to the "new economy" (or "knowledge economy") that was induced by the spread of information and communication technologies (ICTs), of which industrial automation was the prelude. The United States would henceforth be the cradle of successive technological waves, from computers to smartphones via the Internet. These technologies were, foremost, responses to demand from American firms, which possessed a breeding ground of personnel who were better educated than in most of the major industrialized countries (including France), employees who had the capacities to adapt and to be mobile. These new technologies (and the organizational styles that would be associated with them) favored the most qualified in the workforce; on the American model, ICTs would require flexibility in both the nature of work and in the structure of employment. American predominance would therefore have major consequences for the characteristics of the industrial revolution that we will examine more closely in the chapters that follow.

The ICTs are not neutral technologies. Like electricity, for example, they belong to the category of general purpose technologies (GPTs), which are characterized by three properties that explain their preponderant role in the growth and evolution of economic structures:

1. The performance of these technologies enjoys rapid progress that may extend over several decades. This progression is accompanied by a collapse in hedonic prices: from one year to the next, a more advanced version of the technology is available at a cost similar to that of the previous version. In the case of ITCs, the progression is dual. First, the basic components see their operating power, their storage capacity, and their miniaturization all advance in an exponential manner. On top of that, waves of innovation overlap each other: computers, for example, go from low-speed Internet to high-speed, then to the current mobility and immateriality of "the cloud."

2. GPT use spreads across the whole economy. And this use intensifies. For example, from 1992 to 2007, the proportion of Internet users within the OECD went from 2% to 66%. Moreover, this process is worldwide, extending over the last decade to countries with very low average incomes.

3. These technologies improve the processes of innovation. ITCs are widely utilized in all realms of creation. All scientific domains benefit from it, ranging from simulation in aeronautics to human-genome sequencing in biology. In addition to their calculating power, ITCs facilitate exchanges among actors engaged in various kinds of innovation.


By cutting through a mass of research in different fields of economics and management, we may penetrate into the "black box" of this industrial revolution and inspect the various mechanisms at work, and their consequences, over four decades of the "new economy" that was to last until the eve of the financial crisis of 2008. The key point is that the process generated by a GPT is long. It is only after a phase of reconfiguring the methods of production, of adaptation by institutions and workers, that we observe the productive benefits of this technology. This period would last two decades in the case of electricity. It would be of the same order of magnitude for the first wave of ICT.

What are the consequences of this protracted productivity leap?


INFLATION—THEN DEFLATIONARY EFFECTS

The collapse over several decades of productivity gains induced tensions in both prices and employment. The mechanism is simple, formalized since the start of the 1970s in the notion of NAIRU: the non-accelerating inflation rate of unemployment. Gains in productivity allow firms to respond to employees' salary demands without having to increase the prices of goods. But when these gains diminish, firms (in order to conserve their profit margins) finance salary increases by raising prices, thus creating inflation. This inflation itself modifies the employees' expectations: in turn they demand wage hikes, which stimulates demand, hence monetary creation. To avoid increasing prices too much, firms then cut jobs, which reduces their overall salary costs. At the macroeconomic level, this translates into a rise in unemployment; in turn, the fear of losing one's job associated with the rise in under-employment, and the competition for jobs, both work to limit wage demands. We then arrive at a new equilibrium characterized by both higher inflation and higher unemployment.

Thus, technological transition carries with it a risk of inflation. The oil shocks catalyzed this. In an exogenous manner, they increased costs for businesses, and they deeply affected agents' expectations about inflation. This led to a sharp rise in inflation—well beyond the impact of oil prices alone—in Europe as well as in North America, in the second half of the 1970s. As we shall see in the rest of this book, the policies adopted in most countries to break this vicious wage–price cycle would enable them to achieve lower levels of inflation starting in the second half of the 1980s.

Then, starting in the 1990s, the rising power of the new economy took over. On the one hand, North American and many European economies recovered a total productivity growth based on long-term factors. On the other hand, ICT products, either by themselves (for example, computers) or as incorporated into other products (automobiles) or into services (communication), represented a significant proportion of consumption. But thanks to rapid technological progress, the prices of the latter declined quickly, with a major deflationary effect. This mechanism is still at work today, leading to low underlying inflation. Thus, despite major budget deficits in 2009 in all the OECD countries, no inflationary pressure has emerged. Inflation stabilized below 2% in the eurozone in 2013, while Japan was trying to extricate itself from protracted deflation.


REVAMPED WORKPLACES AND LABOR RELATIONS

The return of sustained growth in productivity (which initiated a virtuous circle) came about through a reshaping of the organization of work within firms. American and then European companies developed innovative ("high-performance") work practices that gradually took the place of Taylorist modes. These practices enabled extracting productivity gains from the use of information technologies, generating a new and flexible style of production. Thus, even a country that did not produce ICTs could gain in performance by means of industries that made use of these technologies.

We may observe recurrent adoption of certain key and complementary work practices: work in autonomous teams, rotation of tasks, approaches to quality control and to just-in-time workflows. These approaches comprise a set of procedures implemented to achieve high quality standards. The procedures might be formalized—in order to obtain an ISO (International Organization for Standardization) certification, for example, in Europe—or they might evolve slowly, continually improving the production process. The spread of innovative work practices was rapid in the 1990s. The growth in the number of ISO-certified firms was remarkable, with a quintupling in most OECD and emerging countries in five years. Organizational changes also affected the frontiers of enterprise. Just-in-time production allowed a segmentation of wealth creation through increased use of subcontracting. The complementarity between technology and work organization involved all sectors, in industry as well as services. For example, ICTs enabled optimizing flows—of products, clients, and employees—in major corporations. The accelerated modernization of the retail and wholesale trade in North America, associated with the takeoff of the big-box distributor Wal-Mart, would contribute around half a point annually to American growth in the second half of the 1990s.

Beyond the technical complementarity between technologies and innovative practices, ICTs increase the exchange of data and the effectiveness of the innovation process. The consequent acceleration of innovation then pushes the ensemble of businesses in all sectors, even those that are not very ICT-intensive, to engage in just-in-time production.

In parallel, the search for flexibility requires both an intensification of work and an enlarged pool of precarious workers, either temps or on short-term contracts; firms have found young people who are just leaving the educational system to be a breeding ground for short-term hires. Moreover, the pace of business creation and destruction adds to the instability of jobs. Even if large enterprises try to maintain an internal work market by retraining their existing personnel, the process of organizational—and especially technological—innovation is associated with high employee turnover. In the European countries, the proportion of the working population that from one year to the next has either changed occupation, found a job elsewhere, or become unemployed has typically increased from 15% to 30%. This pattern specific to flexible production has been everywhere accentuated by the restrictive policies of the "rigid" labor market; the rationale of these policies is precisely that the right to work should not be an obstacle to the processes of innovation and wealth creation.

Flexible production also has a direct impact on the activity and influence of trade unions. The flexibility of schedules, the reduction in work breaks, the direct transmission of instructions among employees, and project teamwork all tend to eliminate periods when employees can find each other within the company and thus organize collectively. The development of multitasking and task rotation also tend to reduce the pertinence of classification by detailed occupation, making it difficult to mobilize collectively around a common identity. The intensive use of on-site subcontracting and of fixed-term or temporary contracts fragments the personnel within the same workplace, adding an additional obstacle to the emergence of a union counterweight to management. Moreover, the unions that were powerful in the 1960s were built on a working-class identity. The acceleration of tertiarization of the economy and the rise in education have likewise reduced the pool of union recruits.


(Continues...)

Excerpted from The Blind Decades by Philippe Askenazy, Susan Emanuel. Copyright © 2015 The Regents of the University of California. Excerpted by permission of UNIVERSITY OF CALIFORNIA PRESS.
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Table of Contents

Foreword

Introduction
Chapter 1. Four Decades of an
Industrial Revolution
Chapter 2. 1974–1981: The Creation of Mass Unemployment
Chapter 3. 1981–1986: The Socialists Try
Chapter 4. 1986–1993: From Hard to Soft Economic Liberalism
Chapter 5. 1993–2002 : “New” Effective Policies?
Chapter 6. 2002–2007: The Decay of French Economic Policy
Chapter 7. 2007–2013: From Optimism to the Great Recession
Chapter 8. The State of France: Four Decades after the First Oil Crisis
Conclusion

Index

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