For more than ten years, France's economic policy has been focused on restoring the competitiveness of companies and on reindustrialisation. If growth is to be achieved sufficiently to reduce unemployment significantly and sustainably, both objectives must be achieved. But the results so far have not been in line with expectations. Growth has never exceeded 2% for two years in a row, unemployment has been slowly reduced but has just started to rise again and France's unemployment rate remains one of the highest of the major developed economies. Finally, the external deficit in goods excluding energy is still high, whereas France had a surplus until 2003. The cost of labour was then identified as the main cause of this disappointing performance.
But this had not always been invoked. Shortly after the creation of the euro, the deterioration of the trade balance began and the creation of the single currency was blamed for this deterioration. The conversion parities between the euro and the national currencies would have been unfavourable to France and hampered exports. But the observation of the situation in Italy, whose companies were accumulating external surpluses, quickly made it clear that the euro had nothing to do with the increase in deficits and the resulting slowdown in growth.
It was then that the idea emerged that it was the cost of labour that handicapped companies and that explained both the reduction in market share and the rise in relocations. Social protection and pensions are financed by contributions based on wages, paid by companies and employees. This increases the cost of labour while having a negative effect on the employee's perception since his or her net remuneration is reduced due to the sums that are deducted.
The result was the "supply-side policy" based on the reduction of social security contributions paid by companies in order to reduce the cost of labour. It was accompanied by a reduction in the corporate tax rate. But this policy has still not produced the expected results in terms of competitiveness. The trade deficit as a percentage of GDP was 3.6% in 2024, compared with surpluses of 5.5% in Germany and 2.4% in Italy. Excluding energy, it was still close to €30 billion in 2024. The reindustrialization of France has not started either.
The modalities of reducing the cost of labour are also debatable. By concentrating it on low wages, we exclude skilled jobs that are at the heart of industrial competitiveness and we encourage service activities which, for the most part, are not subject to international competition. Finally, the attractiveness of high value-added professions is reduced, since jobs in these companies are generally paid above the ceiling and benefit less from the reductions.
The analysis of foreign trade also shows that the reasoning based on the cost of labour is wrong. There are indeed very strong disparities between the performance of the industrial sectors. For example, aeronautics and luxury goods generate growing surpluses that reached 45 billion in 2024. Conversely, the automobile and mechanical and electronic capital goods are in deficit for 60 billion. However, they benefit from the same system of tax reductions. If these were an appropriate response to the problem of competitiveness, there would be no such differences from one sector to another.
This policy of reducing labour costs was originally financed by an increase in taxes on households in 2013 and 2014, which weighed on growth. Secondly, it has led to a considerable increase in public deficits and debt, the levels of which today require the adoption of more rigorous budgetary policies that will weigh on growth, purchasing power and therefore employment. The policy focused on lowering the cost of labour has therefore not produced the expected results and has penalised the French economy.
The deterioration in trade in industrial products is nevertheless very real, but it is not solely due to the cost of labour. It is also the result of major strategic errors by company managers and sometimes even by the State. Three examples bear witness to this and have had serious consequences. The first concerns the refining industry. In the name of the environment, new tax advantages were granted to vehicles running on diesel that emitted a little less CO2. However, you cannot convert a refinery that produces gasoline to make diesel. France has reduced refining capacity from 1.6 to 1.1 million b/d and has imported diesel.
Within the automotive industry, Renault has been an example of what not to do. Originally, the acquisition of Dacia was only intended to supply the local market. Then Renault began importing the brand's vehicles into France and entering European markets, competing with its own entry-level vehicles. To remedy this, the company then relocated the production of several models to Turkey, to the detriment of employment and the trade balance. The costly acquisition of Nissan opened up the French market to the Japanese brand while closing the world's three largest markets, China, the United States and Japan, to Renault. Meanwhile, the leading car producer in France has become Toyota thanks to its factories and has proved that the cost of labour does not prevent a manufacturer from being competitive.
The disappearance of Alcatel, like Renault's poor performance, is the result of poor strategic choices and imprudent acquisitions decided by its managers. You don't appoint a president from the world of oil who imagined that it was possible to develop an industry without factories at the head of a telephone giant. The acquisition of Lucent, at the cost of heavy debt, weakened Alcatel, brought it under the control of Nokia, hence its disappearance and the loss of thousands of jobs and skills that would have allowed at least to maintain its market share.
The causes of France's industrial decline are multiple and are therefore not limited to the labor costs. Numerous risky operations carried out by managers, whose remuneration depended on it, have put strategic companies in difficulty and weakened the industrial fabric. Obviously, for certain goods requiring a large workforce, competition from Asia benefits from very low costs. But this is true for all countries. There are those who have found the right solutions and who have overcome the problem, such as Germany and Italy, between finding the balance between relocations, when it was essential, and national production. France has not been able to embark on this path.
The sums allocated to the financing of measures to reduce labour costs are therefore disproportionate in relation to the results obtained. But it will be very difficult to question them. A useful development could be to increase the level of wages below which the reduction applies while reducing the rate of reduction. In this way, more skilled jobs would benefit from it, which would be an effective support for the competitiveness of companies exposed to international competition.