French industry's competitiveness

The Gallois report about the French industry's competitiveness has just been made public (links here) and received a lot of publicity from the French media. As a trained economist and French patriot, I was eager to read it. The author, a respected businessman - formerly head of aerospace giant EADS -  describes rather briefly the declining state of the French industry over the last ten years, which accounted for 18% of GDP in 2000 and is now down to 12.5%.

What are the causes of this decline?

The author cites various causes, ranging from product quality, technology, labour flexibility, cost, competition, education and regulation. Standard economic theory says the government should increase labour flexibility, promote competition, support education and enact smart regulation. For example, the Porter Hypothesis (cf Ambec et al 2011) states that market-friendly environmental policy can enhance business competitiveness through innovation.

What are the main propositions?

  1. Create a new government department, "Commissariat a la Prospective". I very much doubt that increasing further bureaucracy in an already crowded public administration will help the industry.
  2. 30 billions euros tax brake for companies, funded by increase in VAT or reduction in public spending. This is more or less what the previous majority had settled for and that president Hollande scrapped when coming to power 6 months ago.
Having campaigned on a platform of increased public spending, tax hikes and little structural reforms, it will be difficult for president Hollande and the left wing majority to enact such competitiveness-improving reforms. However, we should still welcome the fact that the subject has been put forward...

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