francois villeroy de galhau : productivity - a collective enigma? speech by mr francois villeroy de galhau, governor of the bank of france, at the bank of france - france strategie conference, paris, 1 february 2017. * * * welcome to all of you. it gives me great pleasure to be able to open this conference on french productivity, organised in conjunction with france strategie. the subject is one that is both topical and of great importance to central banks : productivity is one of the principal drivers of growth, and its dynamics are a strong determinant of potential growth, that which is compatible with price stability. as you can see [ slide ], after the major wave of expansion witnessed during les trente glorieuses, which was particularly marked in the case of france, productivity growth in advanced countries has slowed in successive stages since the 1970s. today, it has fallen back to a pace that is historically weak. what are the common factors behind this slowdown in productivity? and is there anything specific to france? i don ’ t believe so : if there is one thing that is specific to france, it is the high level of hourly productivity – one of the highest in the world, alongside that of the united states and germany. so, rather than being a french enigma, the enigma we are looking at this morning seems to me to be more of a collective phenomenon. by way of introduction, i would just like to go back over the three collective hypotheses at the heart of today ’ s debate, before nonetheless going on to examine a few factors that are indeed specific to france. * * * 1. does the problem lie in the measurement of growth? the first theory is that there is in fact no slowdown, as we are not measuring growth properly due to the rise of the digital economy. on 16 january this year, the banque de france held a conference1 that notably discussed this issue in relation to the us economy. the main sources of measurement errors were : first, the estimation of quality - adjusted prices for new technology, as falls in prices tend to be underestimated in us national accounts ; and second, product entry and exit, which makes it difficult to estimate changes in prices over time. this could lead to a significant upward revision to us productivity since 1983 : by 1. 1 percentage points per year at the top end of estimates, according to philippe aghion and his co - authors. nevertheless,

into production processes. yet it is also a lot riskier than other types of investment, for example in construction. indeed, it notably combines a low or non - existent resale value with uncertain future revenue flows. like the rest of the innovation economy, therefore, it needs an appropriate form of financing – one that relies more on equity as opposed to debt. however, the cost of capital remains high despite the sharp drop in interest rates over the past 20 years. according to banque de france calculations, the nominal cost of capital for france ’ s major listed companies is still between 8 % and 9 %, whereas the risk - free rate is currently around 0 %. this particularly high cost places a drag on investment, and hence on innovation and productivity growth. 1. are there any factors that are specific to france? there are nonetheless a number of french specificities that could be playing a part in slowing productivity. let me just cite three : first, failings in our system of initial and lifelong training, as highlighted by the oecd ’ s pisa and piaac surveys [ slide ]. france stands out as scoring only average overall among oecd countries, and, most importantly, as having high levels of inequality linked to parents ’ social background. second, corporate investment tends to be weighted more towards construction at the expense of equipment machinery and intangible assets. and while we ’ re on that subject, it is essential that french banks finance intangible assets better than they do today. lastly, the specific features of the french labour market and the associated policies. a number of studies have highlighted factors such as the shortening of the duration of temporary contracts. questions have also been raised as to the impact of labour policies. how can we strike the right balance between supporting productivity and supporting jobs? policies aimed at reducing the cost of low - skilled labour – be they targeted cuts in employers ’ social charges or the cice – all have a positive effect on gdp per capita via an increase in the employment rate ; but they can also have a detrimental effect on productivity, especially when targeted at sectors with low productivity. put another way, these policies make it all the more necessary that we improve our system of initial and lifelong learning – failing this, we risk fuelling a downwards spiral in labour skills and productivity. * * * these questions aside, one thing is clear in the case of france – and 2016 ’ s too - feeble growth of 1. 1 %, as published yesterday,