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France: Low growth becoming a thinkable scenario to be investigated

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Questioning economic growth is – if not a taboo – at least a very sensitive issue in most countries. Whether it is the continuation of growth in the future or the role it plays to ensure prosperity, being critical almost automatically establishes a reputation as a radical green activist promoting the return to the pre-industrial era. However, as more and more French economists far from this movement point out that low growth could well be the normal situation in decades to come, there may be hope for « post growth prosperity » to become an issue for dialogue and not only for fierce and sterile opposition.
In early September this year, the French and very influential newspaper Le Monde revealed on its front page that three economists were just about to release a report stating that the growth potential of France in the coming decades could be low, much lower actually than projections used by the current government and previous ones to determine their mid and long term budgetary sustainability. According to these economists, productivity gains in the long term may well be below 1%, whereas governments and their administration usually rely on figures between 1.5 and 2%. This is not the first time economists speak up to question over-optimistic growth assumptions, but for once these economists are all members of the economic advisory board to the prime minister (the Conseil d’Analyse Economique) and their expected report was to be an official report.

What is interesting is how this low growth scenario was depicted in Le Monde in early September. Le monde labelled a low growth scenario a “catastrophic scenario”, and many figures were taken out of the leaked report draft to support this idea. For example, the article argued that France would be “much poorer” by 2040, with a GDP increase of “only” 26% compared to a 50% increase under a more optimistic assumption. Note how weird it is to consider a country with a growing GDP as impoverished. More seriously, the article of Le Monde insisted on the fact that the welfare state would be under pressure with a public deficit reaching 15% of GDP by 2040 if not more reforms were undertaken.

On this basis, you may expect the public debate to focus on how to reform drastically the French welfare State: can we make it radically more efficient? Do we have to abandon parts of it? Alternatively, what are the conditions for higher taxes to be acceptable? But this is not the kind of discussions that the leaked report triggered. Instead, debates were rather simplistic. Ignoring all the substantial arguments that explain why economic activity may grow slowly in coming decades, comments were all of the same type: as the governor of the Banque de France put it, either we increase our growth potential or we will decline.

What all this shows is that it remains very difficult in France as in many other developed countries to discuss a plan B: what if low growth was the new normal? How does a post growth society looks like? France is not the only country where such a discussion is difficult, but it seems particularly challenging for two reasons. Firstly, the Welfare state is highly developed in this country, with more than half of GDP being used for social transfers or for providing public services, whereas low growth is before all a challenge for Welfare states. It implies reforming them and at the same time reduces the ability of policymakers to reform it.

Secondly, France is a country in which debates tend to polarize quickly and, in the case of growth, this translates into two camps on various issues: those who think that we can sustain a 2% growth rate over decades and those who think we are condemned to degrowth, be it for energy scarcity reasons or to fight climate change; those who think we can not ensure prosperity of the nation without growth, and those who think that less growth means more happiness. In between, there is no or little space left so far for people recognizing the uncertainty of the future of growth or considering that low growth may well be the normality for developed economies; there is no or little space for those thinking that low productivity gains is a challenge for the Welfare State but not for employment or happiness. Hence, discussing post growth is particularly difficult in France, despite the relatively high weight of the degrowth movement and – one may assume – it may be particularly difficult because of its claimed radicalism: the word “décroissance” has been chosen for its “punchy” nature.

However, recently, reputed French economists such as Thomas Piketty or Daniel Cohen highlighted that low growth, let say around 1% per year, is far from being an unrealistic assumption. The former takes this assumption very seriously when analysing the trends in inequalities in his now famous book “The capitalism in the XXIst century”, and the latter called in an editorial of Le Monde for building a growth independent economic model. Although the report of the economic advisory board finally released in Oct. 2014 does not endorse the low growth scenario and makes plenty of recommendations to increase innovation and productivity, its first recommendation is a positive signal. The economists suggest that an independent body should publicly evaluate the budgetary sustainability of France using various growth potential hypotheses, including a very low one. Let’s hope this recommendation will be followed and will trigger a fruitful debate. Indeed we urgently need such a debate, because whether you like it or not low growth may well be there for the decades to come – even after the current economic crisis is over. This will force us to make strong political choices if only for the future of Welfare states.

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