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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