Economic and Trade Development the Thesis
- Length: 8 pages
- Sources: 8
- Subject: Economics
- Type: Thesis
- Paper: #3379747
Excerpt from Thesis :
The economic policy tools that were employed just after the war subsequently underwent some changes. From 1947 to 1950 direct controls on wages and distribution were eliminated followed by removal of trade controls in 1958. However, the government continued to maintain its hold over prices and credit distribution which made it different from many of its neighboring states in the postwar period. The French Ministry of Finance exerted greater control over the economy than the Bank of France. This led to a greater predilection to resort to devaluation when external equilibrium resulted due to the state failure to control incomes. In France, the period between 1945 and 1975 was known as the "thirty glorious years" because of the phenomenal economic performance. During this period, the average growth rate of GDP was around 6.8% which was quite remarkable considering that Britain's average GDP growth rate was 2.4% and Germany's was 4.8%. (Graham; Seldon, 295)
The National Champions Policy initiated by Charles de Gaulle in the late 1950s continued through the early 1980s and attempted to form conglomerates by concentrating the French industry. The main motive behind this policy was to enhance the industrial competitiveness of France and to elevate the nation to an autonomous industrial power without depending on other economies. The franc was devalued in order to attract foreign investment and to retain the money of French citizens in the country. Between 1957 and 1962, Foreign Direct Investment by U.S. alone grew by 17.3% every year. However, FDI slowed down after France laid off a large number of workers General Motors France and Remington Rand France as a part of economic restructuring. Tight governmental controls over FDI with the requirement of producing large amounts of information by companies willing to invest in France slowed down the growth of FDI in France. French investment in other countries was quite low until the mid eighties. Outward investment in France required permission from the Ministry of Finance and the condition that 75% of the outward investment had to be taken from foreign exchange. (Post-World War II French Industrial Policy: The Problems with Government Intervention, the Implications for World Politics)
The government's lack of enthusiasm in outward investment and the tariff-free goods imported from the Common market led to the decay of the protectionist policies and the nationalized industry of France. The French economy achieved a small degree of international success due to the economic policies followed by Giscard between 1974 and 1980 when subsidies for a small number of selective French companies in specific industries were increased threefold. Promoting the mergers of small manufacturing enterprises -- SMEs led to a large-scale deskilling of workers and of large firms that manufactured standardized but low-cost products. (Post-World War II French Industrial Policy: The Problems with Government Intervention, the Implications for World Politics)
When the socialists came to power in 1981, they started a massive drive for nationalization of industries supported by huge amounts of government aid. The economic policies followed by the Socialist governments led to massive losses in the public sector, a large budget deficit and increased inflation levels. After the Socialist regime ended, France started concentrating on privatization of its industries and promoting outward as well as inward investments by relaxing the laws that controlled it. As a result, its average FDI outflow increased from $3.25 billion from 1984-86 to $19.53 billion from 1987-90. France lifted all trade restrictions and investment restrictions and completed its liberalization process by 1996. (Post-World War II French Industrial Policy: The Problems with Government Intervention, the Implications for World Politics)
From 1999 onwards, the French economy has witnessed strong growth. It has been in the forefront of the integration of the European nations into a European union and had pioneered the drive towards a common European currency. A nuclear power and a permanent member of the Security Council, France has risen from a ravaged nation to a position of strength. The monetary union has created favorable conditions for France and has helped it in maintaining economic competitiveness and a lucrative business destination. (The economic situation in France and the euro area); (France's political and economic situation) The recent worldwide financial crisis has taken its toll on France as well with economic growth likely to fall below 1%. This negative growth is expected to continue in 2009. However, according to experts, economic activity is expected to pick up by mid-2010. (France: A widening budget deficit)
The economic and trade developments in Germany and France provide excellent case studies on how countries can not just rebound back into the forefront of international trade even after being ravaged by war and economic depression, but also demonstrate the flexibility, commitment and resilience needed to overcome every weakness with a matching strength. France and Germany, traditional foes till the end of WWII, have come together to integrate Europe into a union based on mutual cooperation that will foster increased growth in the region. The monetary union resulting in a common currency had France and Germany as the main driving forces behind it and the move has paid rich dividends for both the nations. The worldwide recession has blunted the economic growth of both the countries but there is no doubt that their economic policies will show enough flexibility to overcome that hurdle as well.
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Figure 7: Current and projected economic situation of Germany
Figure 8: Current and projected economic situation of France