Industry and services

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would there be too many services in France and no longer enough industry? But, while very often products and services become one, what meaning can still have the cleavage between these two supposed enemy brothers? Don’t obsolete concepts and now unsuitable tools direct our judgment towards what is the most immediately quantifiable, even the most profitable? √Čric Huber highlights many contradictions and many shortcomings on these points, which are nevertheless decisive for our economic future.

Listening to a recent speech by Christian Estrosi, delivered when he was Minister of Industry in the previous government, one has the impression of being faced with a diagnosis that is both clear and shared, that of a French industry in crisis by dint of allowing itself to be locked into a service economy. To this, the Minister adds that economic power depends first and foremost on industry and that it is inconceivable to move towards an economy based exclusively on services and banks, which seems all the more relevant given that the model always quoted in reference is that of Germany. We therefore readily conclude that it is now necessary to benefit industry. In practice, this resulted in particular in the disappearance of the business tax,

3Is French industry actually disappearing? By undertaking research work on this point, I realized that the distinction between goods and services is very tenuous and that it does not seem to have any real meaning, even though everyone refers to it. So I tried to find out what this distinction was based on, and I discovered that it came mainly from the statistical apparatus, a tool built after the Second World War and which has reached its limits. To conclude, I wondered how today’s economy had evolved compared to that of the 1950s, what that implied and how to adapt to these new circumstances.

Very fragile statistics

When we consider long statistical series and observe the figures from afar, the share of industry seems to be decreasing. Between 1950 and 2007, the share of the workforce employed in agriculture decreased considerably while the share of market services increased. And the industry, which had stagnated until the 1980s, shrank by a good third between 1980 and 2007.

5Several economic theories attempt to explain this decline in the relative share of industry. Ronald Coase, in the 1930s, introduced the notion of transaction into economics. While Adam Smith imagines a stylized market where neither the cost of finding a supplier nor the cost of efforts to make himself known to potential customers appear, Ronald Coase introduces the cost of these transactions into his model. This theory has been improved and taken up in particular by Olivier Williamson, Nobel Prize in Economics in 2009.

6Douglass North and John Wallis in the 1970s then tried to calculate the share of transactions in the economy. For this, they summoned all legal, accounting, commercial, etc. activities. They then realized that in 1870, these transactions represented only 25% of the economy, whereas in 1970, we had gone to 40%. It appears from recent calculations that we are over 50%. The explanation for this phenomenon is that, while the division of labor and specialization have always been the basis of economic efficiency, the number of interfaces has thus increased between increasingly fragmented entities, forcing them to communicate more with each other. Faced with these fundamental movements, the possible disappearance of the industry is a matter of great concern.7No doubt one might think that seeing the share of industry decline, like that of agriculture in the past, is not in itself dramatic. But services have a number of limitations, especially with regard to foreign trade. Even if the liberalization of trade in services, which dates from 1995 and the Marrakech agreements, is much more recent than that of manufactured goods, which dates back to the beginnings of the GATT (General Agreement on Tariffs and Trade) in 1947, foreign trade is based still 80% on these. A strategy that neglects industry could therefore weaken a country by making it extremely in deficit in terms of foreign trade.

Declarations like those of President Sarkozy affirming, in 2004, that a strong French industry was needed, since France cannot be “an economy of banks, insurance or services” , or of Dominique Strauss Kahn, Minister of Economy in 1998, declaring that no one “can think of distributing without having produced” and that the effort of the Left “must first focus on production and, in particular, industrial production and on the creation of real industrial jobs which are directly productive employment” are extremely clear on this point.

What is deindustrialization?

9This leads us to ask ourselves what deindustrialization is. When we look at added value, the flagship statistic of INSEE (National Institute of Statistics and Economic Studies), the basis for GDP and growth calculations, we see that services represent around 80% of this added value. But INSEE also draws up national accounts of everything produced and the use of each good or service. He then divides this use into three categories. On the one hand, intermediate consumption, purchased from one company by another for its own production; next, what is immobilized in the form of various investments; and finally, what are called final uses, those consumed by households at the end of the chain. Gold, if we consider the distribution of these final uses, we find that the material goods produced by industry represent more than half of what is consumed, which is generally ignored. This means that a third of the services initially considered are ultimately integrated into industrial production. We then come to reflect on the links between services and industry.

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