French productivity has been slowing down considerably in the past 20 years due to a significant drop in education levels and a misguided tax incentive system, a group of experts advising the prime minister have found.
Read the original French article here.
In a new report published on Thursday (29 September), the Conseil d’Analyse Economique (CAE) looked at how the drop in productivity in France had impacted the economy over time.
From 2004 to 2019, the sector-wide slowdown in productivity represents a shortfall of €140 billion in GDP for France.
Between 2006 and 2019, France lost 5.8 percentage points of GDP per capita compared to Germany, or about €65 billion in fiscal revenues.
To solve the problem, the report’s authors are calling for reform.
In addition to better teaching of mathematical and soft skills in schools, they are also suggesting reforming France’s flagship research tax credit scheme.
“The slowdown in productivity is a central issue for French economic policy, and one that must be addressed,” said one of the report’s co-authors, Xavier Jaravel, a professor at the London School of Economics.
A drop in knowledge
French students are not doing well in maths, with France ranking 20th among 38 OECD countries, according to the Programme for International Student Assessment (PISA) figures.
Even at the primary and secondary school levels, France dropped from the seventh to 17th spot in the TIMSS ranking, out of 21 countries.
Among top-performing students, France is not performing too well either. In 2019, French children aged 13-14 with the best scores in maths only ranked 29th compared to children performing as well in other 38 OECD countries.
On socio-behavioural knowledge, France ranks very low compared to other OECD countries, with only Germany and Japan faring worse. The US, the UK, and Denmark are far ahead.
The reason, at least in part, is the particularly strict teaching style that is mostly given in the form of lecture, explained Maria Guadalupe, one of the co-authors.
Guadalupe said she would like to see the development of “teaching practices more focused on teamwork and the personalisation of knowledge sharing.”
Experts advising the prime minister are therefore calling for a “national strategy for innovation by all,” whose objective would be “to increase vocations for science and innovation careers,” while geographical, social and gender disparities are still too great.
According to the experts, “increasing math skills by 10 [percentage] points would lead to an increase in annual growth per capita of around 0.2 points of GDP.”
After Germany went through its own PISA issues in the mid-2000s, it managed to raise the country’s maths knowledge by 10%.
Improving fund distribution for research
In their report, the researchers also found that fiscal mechanisms to support private research, while necessary, are not distributed well.
They focused on France’s key innovation tax credit scheme (CIR) – a fiscal mechanism all companies can benefit from if they invest in Research & Development, irrespective of size and sector. According to their calculations, the scheme “disproportionately benefits large companies”, particularly in the overall number of patents filed.
For the same amount of tax credit, small and medium-sized enterprises (SMEs) file 2.6 times more patents than large firms.
The ratio is even worse with so-called “triadic” patents, which protect innovation in Europe, the United States and Japan: SMEs file four times more patents than their bigger counterparts.
These findings were echoed in research conducted in 2021 by France Stratégie, another research body attached to the prime minister, which highlighted the tax write-off had its biggest impacts on smaller companies.
“The tax expenditure of the CIR represents the total budgets of the CNRS, INSERM and CNES,” explained one of the report’s authors, Nicolas Chanut, referring to national research institutes and groups.
“Private research is necessary but a reorientation of spending towards smaller companies seems more than relevant,” he added.
By comparison, other European countries do not seem to have such issues.
In the UK, for example, companies can benefit from a “differentiated subsidy depending on the size of the company,” with a higher rate for SMEs.
On the German side, the credit for private research helps smaller companies as it has a 25% refund policy with a ceiling of €4 million.
Based on how other states operate, Chanut is thus proposing that France should lower the ceiling from €100 million to €20 million, with an increase in the subsidy rates from 30% to 42%.
“The biggest companies would lose out, but they are the same ones that have benefited in recent years from the reduction in corporate tax, or the reduction in production taxes,” he added.
With such reform, SMEs could come out as the big winners.
[Edited by Zoran Radosavljevic/Nathalie Weatherald]
