The Crisis in French Prosperity:

...France has always had a foreign-trade deficit, but it was largely covered up to 1914, and with greater difficulty from 1914 to 1940, by income from foreign investments...

...The worldwide deficit of nearly $1.2 billion has steadily exhausted French foreign-exchange reserves, and at the end of 1957 France was no longer able to obtain foreign credits in order to meet the deficit...

...Limiting the pace of investment can be very dangerous in France...

...New housing climbed from 160,000 starts in 1956 to 250,000 in 1957, but this is still utterly inadequate and most workers continue to live in hovels...

...This is an incongruous state of affairs, for it is precisely meat which should be produced for export and on which future agricultural investment should be concentrated...

...French industrialists are not inordinately inclined to take risks, and investment in recent years has been largely the result of action by the Planning Commission...

...In another ten years, France will be the most youthful nation in Europe...

...In industry, the same applies to the engineering, electronics and chemical industries, for which foreign markets exist...

...and the young people, once they arrive at maturity, will be the decisive factor in economic and political life...

...Philip served as Finance Minister in the postwar cabinet of Leon Blum and later led France's delegation to the United Nations Economic Commission for Europe...

...During the Plan period, national production rose more than 30 per cent, instead of the 25 per cent envisaged...

...While prices remained stable from the beginning of 1955 to July 1957, wages rose 9.3 per cent in 1955, 6.8 per cent in 1956, and 4.3 per cent in the first half of 1957...

...The corresponding figures for other Western European countries are 3 to 6 per cent...

...The boom has involved a disproportionate rise in imports of raw materials and fuels...

...Over the past six years, total private consumption has increased 36 per cent, an annual increase of 5.5 per cent...

...Most businessmen remain primarily concerned with protecting themselves, with preserving what they have rather than moving forward...

...After World War II, this income disappeared, but its place was taken for some years by American aid...

...While the standard of living has increased by 10 per cent, the demand for food products has risen only 6 per cent...

...Budget expenditures rose from $10 billion in 1956 to $11 billion in 1957, while revenue went from $8.5 billion to $9.9 billion, permitting a reduction in the deficit from $1.4 billion to $1.2...

...The production of coal increased from 57 to 60 million tons, electricity from 49 to 57 billion kilowatt hours, and steel from 10.9 to 14 million tons...

...The irony of France's position is that her domestic prosperity has been Andre Philip (cut at left), Professor of Political Economy at Lyons University since 1928, was a member of the Executive Committee of the French Socialist party from 1944 till 1957, when his opposition to the Algerian war led to his exclusion from the leadership...

...It has been maintained by the efforts of a small elite of Government functionaries, supported by a few young managers of large business enterprises...

...Rather, she faces the need for a complete recasting of her economic institutions and thought patterns...

...It clung to the gold standard, surrounded itself with tariff barriers, followed a general deflationary policy, and halted all investments, private as well as public...

...Government spending will have to increase, financed by indirect taxes on goods whose consumption is to be discouraged...

...The result may well be a serious slackening of economic expansion...

...In the second half of 1957, wages climbed another 5 per cent, but prices went up 6 per cent...

...Her domestic economy is booming, but her foreign-trade position is critical...

...The targets of the Second Four-Year Plan for 1953-56 were exceeded...

...In order to avoid a new round of wage demands, price rises on essential commodities have also been tightly controlled while corporation taxes have been raised—two measures which, combined with the increase in the Bank of France's discount rates, risk seriously curtailing both private and public investment...

...Purchases in 1958 will be 10 per cent less than last year, while the devaluation of the franc means a 16-per-cent hike in the prices of raw materials and fuels...

...Chemicals jumped 80 per cent, cement 40 per cent, and fertilizers 33 per cent, while the number of tractors doubled...

...In the 19th century, the Industrial Revolution was not as rapid in France as in the rest of Europe, largely because a low birth-rate curtailed the market for industrial products...

...Indeed, it is only in the last decade that the country has emerged from a period of economic stagnation lasting almost a century...

...In agriculture, the production of meat and milk, rather than wine and wheat, must be encouraged...

...Yet, this has not yet enabled France to make up for her earlier lag...

...700 million in new taxes have been voted, as well as sizable budgetary economies, some of them debatable...

...France's entire economic life must be reorganized, no longer on the basis of domestic consumption but with a definite, permanent priority on exports...

...Last year, too, he wrote a book attacking that leadership, called Le Socialisms Trahi ("Socialism Betrayed...

...By 1957, the average wheat yield per acre exceeded 35 bushels...

...In other words, the labor movement can no longer avoid assuming political responsibility...

...In fact, during 1953-56 French industrial productivity rose three times as rapidly as in the United States or Britain and 50 per cent more rapidly than in Germany...

...Despite fiscal instability, moreover, the country's productive machinery was revamped...

...Exports have expanded much less rapidly than imports, the monthly average mounting from $218 million in 1956 to $241 million in 1957...

...In the coming years, consumption must be reduced and stabilized, and production must be boosted by an increase in profitable short-term investment...

...At that point, all economic progress ceased...

...The lag in export expansion has not resulted from non-competitive prices of French goods or difficulty in finding markets, but rather from the fact that national production has been largely absorbed by domestic consumption...

...and—even more serious—the forces in Algeria have absorbed the entire increased output of the engineering, electrical and electronics inon exports and, in particular, on the creation of a European common market with long-term purchasing agreements and guaranteed minimum prices...

...However, military expenditures, largely for Algeria, amount to $2.4 billion...

...Today, France has to face reality at last...

...The first essential is to export, hence to invest in types of production which can either replace certain excessive imports or else capture foreign markets...

...Since these two measures will be taken aL the expense of the consumer, however, the private investment resulting from tax relief and price rises should appear in these corporations' assets as stock held as social property by the state, labor unions or consumer cooperatives...

...In an age when armies consist increasingly of small mobile units armed with tactical atomic weapons, France cannot go on spending large sums to maintain big, slow-moving divisions which consume huge quantities of sorely-needed fuels...

...One reason may be that postwar prosperity has reduced the farm population's share in national income...

...economically, France paid a higher price for Poincare's "sound financial policy" than for World War I. Since World War II, France has moved forward in every sector...

...In any case, farmers are realizing more and more that their future depends in Government spending...

...The French economy also remains weighed down by a crushing burden of taxes, particularly indirect taxes, which are necessitated by the increase dustries, which would normally be France's chief exports...

...Farm prices have therefore tended to climb more slowly than the general average, or even to decline in periods of price stability...

...In 1955, the productivity of the average French worker was equal to that in Germany and only slightly below that in Britain...

...Following Premier Raymond Poincare's stabilization of the currency, France took the most classic of measures to meet the economic depression...

...With the population rising, production has also increased in recent years...

...In the years 1953-56, France began to recoup much of her long economic lag...

...accompanied by a growing deficit in her balance of foreign trade...

...Above all, the necessary funds must be spent on education, housing and scientific research...

...West Germany had successfully absorbed the regular influx of refugees from the East, while French industrial manpower was kept down by the wars in Indo-China and Algeria and by an inadequate immigration policy...

...Yet, this substantial boost in the standard of living—twice as rapid as in even the best periods of the 19th century—has done little to reduce popular discontent...

...As France prepares to enter the European Common Market at the end of this year, she has more than a temporary crisis to contend with...

...Since the end of the 19th century, France has lived in a closed national economy, surrounded by customs barriers which, variously designed to protect agriculture or industry, have turned the country into a high-price zone...

...Following World War I, the fixed-income class was ruined by inflation and there was less of an obsession with security...

...Only a vigorous will to change, based on a creative ideal, will enable her to continue in this direction and to enter the emerging European economic community with any serious hope of success...

...During 1958, therefore, it will probably prove impossible to maintain certain dangerous economies...

...France must stop defending the status quo and protecting the country's multitude of small, uneconomic retail establishments...

...A new period of decline began in 1929...

...At the same time, certain private investments will have to be encouraged—that is, tax relief must be granted to investments which conform to the Plan, or price rises must be permitted on certain products...

...The real interests of the workers are served by union participation at those levels of Government where the national income is apportioned between investment and consumption, between domestic consumption and export...

...The French nation has been slow to recognize this imperative need, and not all the measures recently taken by the Government, courageous though they may be, seem to be pointing in the right direction...

...Nevertheless, German industrial production climbed 39 per cent in 1953-56, while French output rose only 30 per cent...

...The trade-union movement, too, is much more interested in maintaining wages and restricting immigration than in general economic expansion, which is in the true long-range interest of the working class...

...Premier Felix Gaillard has openly stated that he anticipated continued expansion at the rate of only 1 or 2 per cent this year, instead of 7 or 8 per cent as in past years...

...Finally, private consumption must be stabilized and, in particular, the domestic demand for exportable goods must be reduced...

...His reports on a tour of Soviet Russia appeared in The New Leader of October 1 and October 8, 19S6...

...It means reorganizing the retail distribution system, which weighs heavily on the economy and accounts for the excessive price spread between producer and consumer...

...Lasting economic recovery is impossible so long as military spending absorbs more than 11 per cent of French national income...

...France had then and still has the highest proportion of old people in the world—a fact which tended to foster a timid rentier spirit in economic and political life...

...In the meantime, however, the productive section of the population has the double burden of the old people born in the 19th century and the young ones born in the 20th...

...Furthermore, it calls for a hard-to-achieve change in the thinking of the labor movement...

...In 1955, private consumption reached $27.4 billion, Government consumption $5.7 billion, and business consumption $7.1 billion...

...As for the rest of the population, overall consumption has increased, but a basic need—decent housing— remains unsatisfied for most French families...

...industrial production was up 45 per cent and agricultural 20 per cent...

...The policy of family allotments has brought a rise in the birth-rate and an annual population increase...

...French agriculture, which is undergoing a process of sweeping technological change, is currently unable to dispose of any of its products but meat on the domestic market alone...

...What must be done in this situation...

...Large savings accumulated, but their owners were reluctant to risk investing them in metropolitan France or the colonies, preferring foreign countries which seemed to offer greater security...

...Instead, all those who favor a policy of economic expansion and creative change must rally around a common program...

...Thanks to devaluation of the franc and restoration of strict import quotas, it was brought down to $295 million in December...

...The reason was that the German labor force had grown by 21 per cent during this period and the French only 3 per cent...

...This requires curtailed consumption of meat and wine, as well as of certain durable goods...

...Between 1920 and 1929, French industrial production doubled, while that of the rest of Europe increased by only 50 per cent, and in 1929 French production was equal to that of Germany...

...The monthly average of imports climbed from $300 million in 1956 to nearly $370 million in 1957...

...After 100 years of economic lag, she finds herself, like Great Britain, dependent for her very existence on imports of raw materials and fuels which must be covered by substantial exports...

...Finally, the Government's import program aims at maximum savings in foreign exchange...

...French production is today expanding at an unprecedented rate...

...Such compensating factors as better food and clothing and the opportunity to own a bicycle, motorcycle and often even a small car are not enough to overcome the general feeling of privation...

...Above all, the Algerian conflict must be settled by negotiation and there must be a reorganization of the military budget...

...Some unproductive or "prestige" items in the budget can readily be dispensed with, but it is disturbing to see spending on scientific research and on education only scantily increased and new housing starts reduced by 15 per cent...

...The workers must realize that indiscriminate wildcat strikes lead only to temporary wage increases which are quickly wiped out by price rises...