Pierre-Cyrille Hautcoeur, Université
d'Orléans et DELTA. Publié dans D. Glasner (ed.) Business
Cycles and Depressions: an encyclopedia, Garland, 1997, pp.39-42
The great Depression in France was unique: it began more slowly than in the other industrial countries, was less severe but lasted longer. The main reasons for these special features are the evolution of the exchange rate (under and later overvalued), policy errors, exposure to foreign competition, and dependence on foreign markets.
The French economy grew rapidly in the 1920s. The volume of industrial
production, which had fallen to 55 in 1921 (indices are in constant prices,
1913=100), reached 140 in 1930. Exports had great role in this growth:
they reached 148 in 1928, representing 30 percent of manufacturing production.
The constant depreciation of the franc (falling 80 percent in terms of
gold from 1914 to its de facto stabilization in 1926) favored exports,
since it was always ahead of the price variations, keeping the franc below
the purchasing-power-parity level. After a small crisis in 1927, due to
the stabilization, a recovery occured in 1928-29, and even the Wall Street
crash did not seriously lessen the optimism: on November 8, 1929, Prime
Minister Tardieu said the time had come for a "prosperity policy." Noone
thought the country was entering a major depression.
Dating the downward turn precisely is difficult. It is usally given
as later than in the U.S. (the depression being considered as imported
from there) (Néré 1973). Manufacturing production and investment
reached their peak in the first half of 1930; there was almost no unemployment
at the end of 1929, and even a year later only 190,000 were receiving unemployment
assistance. The French economy was insulated from the deteriorating international
situation by an undervalued Franc until England left the gold standard
in September 1931 (Sicsic 1992), by the repatriation of capital (and the
consequent monetary expansion until 1931), and by the stimulation of the
economy by Tardieu's spending of the budget surpluses accumulated in the
Poincaré period (Kindleberger 1986). Others cite the rise in the
retail price index until the end of 1930 which indicates that domestic
demand was growing to replace a falling foreign one (Asselain 1984); finally,
the growth of private investment until 1930 was facilitated by the absence
of public borrowings on the financial market, consequence of three years
of public budget equilibrium (Eichengreen & Wyplosz 1988).
However, some analysts (primarily the Regulation School) contest the
thesis of the imported depression, arguing that the crisis started before
1930 (Marseille 1980, Boyer & Mistral 1978). They show that unemployment
was underestimated, at least at the beginning of the depression, and that
the official index of manufacturing production gave excessive weight to
protected industries whose entry into the depression was delayed. More
even, many indices (wholesale prices, stock prices and issues, production
in various fields) began falling in France before they did in the U.S..
According to these analysts the French depression was autonomous and resulted
from under consumption and over investment caused by an increasingly unequal
distribution of income, and from the subsequent growing gap between the
growth of investment- and consumption-goods industries (50 vs 10 percent
from 1913 to 1929). Only continuous devaluation of the franc would have
permitted enough export growth to have delayed the depression; and the
depression would have followed the stabilisation of 1926 and the resulting
end of the exchange-rate speculation of the 1920s.
The Regulation approach shows that the depression began before 1930
(the high level of investment in 1930 reflects only the completion of ongoing
infrastructure projects) and casts doubt on the efficiency, in the long
run, of an excessively export-led growth. But it does not explain the crisis
itself: after a little reconversion crisis in 1927, caused by the stabilisation
of the Franc, growth was undoubtly rapid in 1927-29, driven by a rise in
wages (Dubois in Levy-Leboyer & Casanova, 1991) as well as by investment
(according to Dubois, the coefficient of capital is at the same level in
1929 as in 1896 and 1913). So, if the internal economy was not in crisis,
the role of the international economy in starting the depression cannot
be contested. The depression began with a sharp fall in exports (from 52
billion francs in 1929 to 20 in 1932, in current prices), concentrated
in the industries most dependent on foreign trade (in traditional quality
goods like textiles it began in 1928) and spread from there to the whole
economy (Braudel & Labrousse, 1980).
The timing debate then raises substantial questions about the sources
of the depression: the regulation approach sees the depression as a structural
crisis that causes the regulation of capitalism to change from competitive
to monopolistic and Fordist (with state- or monopoly-managed prices and
high wages supporting domestic demand). Its opponents consider the downturn
in 1929 as the beginning of an ordinary cyclical crisis that simultaneously
affected many countries. This crisis would have turned into a great depression
only because of the devaluation of the British Pound, of policy errors
and the rise of protection.
The second characteristic of the Great Depression in France is its relative
mildness. Maximum unemployment was reached in winter 1934-35 and in summer
1936 (one million people according to the broadest estimation, less than
5 percent of the workforce in 1930) and was far below US or German levels.
The relatively limited unemployment is partly explained by the fall
in the workforce caused by a change in its age structure (a consequence
of a stagnant population and a result of the Great War), by the return
home of numerous women (500,000 between 1931 and 1936), and by the departure
of many immigrant workers (350,000). On the other hand, the return to the
countryside, which has offen been suggested as a cause of reduced unemployment,
is a myth: the importance of agricultural activity (more than 30% of the
workforce) limited the visibility and not the magnitude of unemployment.
Increases in employment in commerce and public administrations had more
effect. But the most important reason that visible unemployment was understated
is the great increase in part-time work, especially in traditional industries.
Part-time work is estimated, for mid-1935, as the equivalent of 1,300,000
unemployed.
The fall in production was also relatively moderate. In commerce and
manufactures, it never reached 20 percent of the 1929 peak output; real
GNP, less well known, could not have fallen by more than 10 percent. Household
consumption didn't decline much, despite a 14 percent reduction in activity,
because nominal wages were maintained while prices fell sharply.
Conditions varied sharply among industries. Modern industries protected
from international competition (paper, rubber, electricity, oil refining)
soon restored production and even profits. Cartels supported by the government
limited the recession in others (sugar refining, shipyards, coal mining).
But non-protected industries, like metallurgy or textiles, faced falling
prices and sales in their export markets, and stable prices from their
(protected) suppliers; many of them could not even allow for depreciation
of equipment, especially the most modern and capital-intensive ones that
had invested heavily in the preceding years.
Finally, the relative mildness of the depression can be attributed
to the mildness of the banking crisis of 1931-33 in France, which was the
consequence both of limited foreign financial commitments in 1931 and the
traditional caution of most major banks in their relationships with manufacturers.
Only one major bank (the BNC) failed, and a rescue operation organized
by the Treasury, the Bank of France and the other banks succeeded in avoiding
a panic.
If the French depression was relatively mild, it was also unusually
long. In many industries, production did not reach its lowest point until
1935 or even later. The overall industrial production level of 1930 was
not equalled before the war, and unemployment was still near its maximum
in spring 1939.
In the regulation school's neo-marxist approach, this long duration
corresponds to important structural changes, particularly in the regulation
of the labor force (Salais & al. 1986). But these changes weren't more
important in France than elsewhere. The persistance of the depression might
then be explained by a succession of external events (devaluation of the
Pound and the Dollar) and policy errors that blocked several incipient
recoveries (early in 1931, from mid-1932 to mid-1933, 1936).
Several explanations are probably necessary. The most important seems
to be the overvaluation of the franc after the pound was devalued in 1931
(Sauvy 1984; Eichengreen & Sachs 1985), which blocked the recovery
of exports until 1936. The difference between French and English prices
fluctuated around 20 percent, a gap that no deflationary policy could overcome.
It was psychologically impossible to devalue before 1934, since the French
were proud of their stabilized currency and of the international speculationin
its favor. But in 1934, after speculation changed direction when the dollar
was devalued, hostility to a devaluation remained unanimous (with the exception
of Paul Reynaud). The reasons invoked were national honor, honesty, and
mainly fear of inflation since inflation had resulted from the depreciation
of the franc in the 1920s. Inflation had then ruined small investors, the
great manufacturers thought it had depressed investment, while the socialists
considered it had lowered real wages, so nobody could defend a devaluation
(Mouré 1991). The franc was devalued in September 1936 only under
the pressure of speculation and renewed inflation (a consequence of monetizing
the budget deficit). It was too late: world prices were already rising,
and the devaluation contributed mainly to accelerating inflation.
The great fall in investment (more than 30 percent from the 1930 level
to its minimum) also prolonged the depression. It was the macroeconomic
corollary of the stability in consumption. In a microeconomic view, it
was due to the drop in confidence and to the fall in profits; new issues
became impossible in a declining stock market, and rising real interest
rates and public-sector borrowings displaced private bond issues (the public
budget returned to a growing deficit from 1931, and the corresponding issues
represented more than 50 percent of total issues in 1932-1935) (Saint-Etienne
1984).
Inconsistent government policies also deepened the depression. Several
governments sustained depressed industries by setting prices or organizing
cartels, while forcing prices reductions in other markets; in 1935, the
deflationary policy of Pierre Laval (who cut by 10 percent all public expenses
and many prices) was inconsistent with the obligatory discounting of Treasury
bills by the Bank of France (in order to finance the budget deficit without
raising tax). Under the pressure of a growing trade deficit and of domestic
manufacturers, protectionnist quotas and clearing agreements covered 57
percent of French imports by 1935. Protection could have been seen as the
condition for an internal demand-driven recovery, but even the socialists
refused to improve the exchange control as would have been necessary, because
it would have meant joining the dictatorships. As a consequence, protection
mainly caused more inequalities among industries.
The rigid and sudden reduction of the work week to 40 hours in 1936
also seems to have caused bottlenecks in many industries, which blocked
the beginning of recovery (Sauvy 1984; Baverez and Villa in Boyer 1991).
The great fall in investment in the early 1930s was responsible too: the
manufacturing industries had old equipment and insufficient capacity to
meet a surge in demand (Braudel & Labrousse 1980). Nor did they have
funds available to buy intermediate goods and rebuild stocks, because of
the banking system's excessive caution and the Bank of France's rising
discount rate (Levy-Leboyer in Levy-Leboyer & Casanova 1991).
The great rise in the labor cost under the Popular Front (around 45 percent)
and the need for a reconstitution of profits in order to finance investment
jointly helped produce inflation after 1936.
Further, social cohesion vanished with the Laval government's wage
cuts in 1935 and with the Popular Front in 1936 (Kindleberger 1986). Unstable
governments discouraged investment and led to capital exports that reduced
the money supply.
France provides an example of a Great Depression with no violent crisis.
The length of the depression resulted from the conjunction of a great international
crisis, rapid structural change in an economy that had preserved its traditional
characters too long, and governments with limited courage and no clear
understanding of the appropriate policies. Thus in 1939, the country was
divided and poorly prepared for war. But the depression also helped achieve
transformations in minds, social relations, and production methods that
prepared the postwar growth.
Pierre-Cyrille HAUTCOEUR
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