The return of the state? France’s response to the financial and economic crisis

Abstract:

The 2008 financial meltdown prompted an apparent revival of the dirigiste or statist economic model in France, a country with a long tradition of state-led development. French President Nicolas Sarkozy denounced laissez-faire capitalism, which he blamed for the crisis, and launched a series of industrial policy initiatives. Yet the reality of French actions fell well short of the statist rhetoric, with the government committing few financial resources to its signature industrial policy programs and displaying little capacity to steer business strategies.

This article argues that France’s neostatist turn was largely checked by the legacies of shifts in French economic policy a quarter-century earlier. Specifically, the break with the dirigiste model in 1983 deprived French authorities of many of the institutions and instruments associated with state-led development, while the massive expansion of social and labor market programs that eased the movement away from dirigisme left the government without the fiscal capacity to launch expensive new promotional policies.

The broader lesson is that a country’s response to crisis is shaped by long-term structural factors, not just short-term political calculations, and that there are important institutional and fiscal prerequisites for statist revival, even when neoliberalism is widely believed to have failed.