In 1960 almost one third of French wealth came from industry – making stuff, from steel to shoes to cars. In 2023, only one tenth of French GDP comes from manufacturing.
All big western economies have seen their industrial production plunge in recent decades, as we turned instead to cheaper imports from the Far East.
In France, factory output has fallen further than in most other places. In Germany, almost one quarter of GDP is still generated by industry.
First, the good news. In the last six years, after six decades of almost continuous decline, France has started making (a few) things again. The manufacturing share of GDP is edging upwards. The number of new factories each year has marginally exceeded closures.
Second, the even better news. France expects a record haul of foreign investment this year – €13 billion. More than half of the money will go into manufacturing industry, including two large car- battery factories in Dunkirk announced by President Emmanuel Macron last week.
E-batteries, solar panels and medicines: France’s €13 billion of new foreign investment
Thirdly, two pieces of bad news. This new industrial investment in France is, so far, producing comparatively few jobs per billion euros. The country’s trade deficit – €163 billion last year – remains enormous, partly because of expensive energy imports but also because of a huge deficit in manufactured goods.
This week the government unveiled its proposed “green industry” law. The aim is to use the transition to a climate-friendly economy to rebuild, rather than further dismantle, French industry.
The logic is reasonable. The mass steel, textile, car and chemical industries of the past are never going to return.
France, after Britain and Belgium, was one of the first countries to join the early 19th century industrial revolution; it largely missed out on the information technology revolution of the last two decades. If France wants to remain prosperous, it must be at the leading edge of the new, “carbon free” industrial and economic revolution of the 21st century.
The government says that it hopes to increase the manufacturing share of GDP from 10 percent to 15 percent. By when? It gives no time-scale.
An obvious question arises. Why has France become attractive to foreign investors in the last six or seven years? Why are more factories opening than closing for the first time in decades?
There was a time, not so long ago, when American business in particular was unwilling to invest in a country with a 35- hour working week and a reputation for endless lunch breaks and union militancy.
There was also the fact that high pay-roll taxes (to fund pensions and other social benefits) made the cost of employing a French man or woman much higher than the cost of employing a German or a Briton. French employment law was complicated and made it difficult to fire someone on a long-term contract or to use short-term labour.
Little by little in the last ten years, starting timidly under President Nicolas Sarkozy, these things have changed. Employment law has been simplified; pay-roll taxes have been reduced.
That process continued under President François Hollande (when Emmanuel Macron was his finance minister) – to the fury of many on the Left. The changes have accelerated under President Macron.
Arguments can be made that business has not played the game fully and has pocketed some of the benefits. It is also true that the cost of employing someone in France remains higher than in many other EU countries.
Nonetheless, unemployment has fallen in the last six years from around 9 percent to 7.1 percent (or according to the OECD 6.9 percent). France, in terms of cash investment but not yet the number of jobs created, has become the most attractive country in the EU for foreign investors.
The green industry law published this week aims to consolidate these gains. There will be €7 billion in grants and tax-breaks for investment in the so-called industries of the future, including new batteries, heat-pumps, wind and solar-power.
The typical period for granting permission for a new factory will be reduced from 17 months to nine; there will be new training programs for technicians and engineers.
Crucially, there will also be a shift in state aid policy for electric cars and other ‘ecologically’ friendly products to ensure that French retail subsidies are denied to foreign manufacturers (such as Chinese car-makers) unless they observe EU environmental regulations. Protectionism? Perhaps, but also common-sense.
It is possible to criticise the green industry law for its imprecision and its relative lack of ambition. It is nonetheless a welcome new step towards the recreation of a balanced economy in France – less dependent on services, luxury goods and tourism and better able to generate more-than-minimum wages.
One of the underlying causes of the Gilets Jaunes provincial revolt of 2018-9 was the obliteration of local sources of prosperity and pride. France’s big industries – aviation, cars, trains, weapons – have largely survived the manufacturing holocaust in the last 25 years. Thousands of small and medium factories have vanished.
The reaction of opposition parties to this “good news” has been interesting. Jean-Luc Mélenchon of the hard left La France Insoumise dismissed the Choose France investment conference for world business leaders this week as Macron hob-nobbing with “les riches” in Versailles.
Other left-wing leaders said it was just blah-blah to try and distract the country from Macron’s pension reform.
The job of the opposition is not to praise the government. All the same, there is a large part of the French Left – and the Far Right – which detests all glimmers of national success and prefers to surf on failure.
They may yet get their wish. It appears that the four months of strikes and street protests against pension reform – and the publicity given to the violence of a minority – have dampened foreign investors’ enthusiasm.
President Macron denied that there had been any impact during his TF1 TV interview on Monday. The French media reports that long-term investor inquiries have fallen by one third.