Why Jean Fourastié’s theory of economic development is still relevant today

0

In 1949, the innovative French economist and policymaker Jean Fourastié presented a theory of growth and technological development that economists could still use today, along with predictions about the future of economic development that turned out to be quite prescient. .


This article is part of ProMarket’s historical series. You can read all the parts of the series here.

The French economist and policymaker Jean Fourastié (1907-1990) introduced a theory in 1949 predicting the economic growth of the “Trente Glorieuses” (the Glorious Thirties of growth after World War II), the subsequent fall of industry and the rise in services, and a secular stagnation at the turn of the millennium.

Data-driven economy

At the end of the Second World War, Fourastié joined Charles de Gaulle’s Commissariat Général au Plan to oversee the measurement of the productivity of the French economy. Over the following decades, Fourastié remained involved in the various planning bodies that flourished in the French administration at the time. He always kept faith in market forces, but within a framework controlled by the state.

Despite his post as professor of economics at Political science and the National Conservatory of Arts and Crafts, Fourastié stayed away from debates on economic theory, arguing that the needs of the time were applied economics. His scientific approach is that of an empiricist: data leads to theory. Over the course of books, chronicles and television shows, Fourastié became a public figure who explained the profound changes that the French economy was undergoing. He coined the term “Thirty glorious” (The Thirty Glorious), arguing that life in France was shaken more by an “invisible” economic revolution due to the rapid increase in productivity, rather than by France’s various political revolutions.

Jean Fourastie. Photo by Jfourastie [CC BY-SA 4.0]via Wikimedia Commons

A theory of growth based on technical progress

For the purpose of measuring productivity, Fourastié’ has compiled numerous series of prices expressed as a number of unskilled hourly wages, a work still in progress. His observations inspired his theory of economic development, set out in a book he published in 1949, The Great Hope of the 20th Century (“The Great Hope of the Twentieth Century”). the great hope was not translated into English but the main concepts were presented in a book published in 1960 as The causes of wealth and are the subject of an article in history of political economy.

Technological progress is the key determinant of Fourastié’s theory of growth: “technological progress allows an increase in production per hour of work, but its effect is not homogeneous on industrial sectors and over time”. (Fourastié, 1949). Fourastié used this characteristic as a criterion for distinguishing sectors: the primary sector is made up of activities characterized by average technological progress (mainly agriculture); the secondary sector, activities with strong technological progress (industry, for the most part); and the tertiary sector, activities with low technical progress (mainly services).

Fourastié offers a striking example: in 1700, the cost of producing four square meters of mirrors (as in the Hall of Mirrors at Versailles) represented 40,000 hours of unskilled labour; this cost then drops to 6,500 hours in 1850, 550 hours in 1900 and only 100 hours in 1950. The manufacture of mirrors presents high productivity gains and is therefore classified in the secondary sector. However, the cost of cleaning a mirror was one hour of unskilled labor under Louis XIV and has remained around that level ever since. Thus, the cleaning activity, which presents almost zero productivity gains, is classified in the tertiary sector.

Moreover, the study of consumer behavior leads Fourastié to assume “saturations” in consumer demand for goods produced by the primary and secondary sectors. This idea of ​​a ceiling on the demand for agricultural goods echoes Engel’s law, which states that when consumer income increases, the share spent on food decreases. In addition to a cap on food consumption, Fourastié predicted that the demand for manufactured goods would also quickly reach a level of saturation that could correspond to “two cars, three bathrooms and two telephones per inhabitant, including children”.

Conversely, the demand for tertiary services can be seen as endless because “services help multiply time” for human beings. For Baumol, people tend to demand more services rather than additional manufactured goods precisely because human contact is somehow essential to well-being, and services are activities that often involve in-person contact. As a result, they are also much less sensitive to technological progress.

“Fourastié’s analysis allows us to reconcile the continued presence of technological progress with the weak productivity gains that we are currently observing.

Accurate predictions

Once saturation in demand for primary goods is achieved, the continued increase in productivity would lead to a decline in labor in the agricultural sector, as there is a limit to what people can eat. Indeed, technical progress makes it possible to maintain the required production while using less manpower. Thus, a growing share of the working population would be available to work in other sectors, notably manufacturing.

A similar process of saturation will then quickly be observed in the secondary sector: strong productivity gains in the manufacturing sector would enable companies to meet the needs of consumers with fewer workers. Of course, this prediction was only a barely perceptible future for a Frenchman in 1949 suffering from strict rationing of both food and manufactured goods. Nevertheless, according to Fourastié, this future would most likely be marked by the fact that more and more workers would be available to work in the tertiary sector, the demand for which is never saturated.

Fourastié predicted that around 80% of the population would end up working in the tertiary sector. According to him, the advent of this “civilization of services” would occur around the year 2000, opening a new era of stability during which the workforce would work mainly in services and would enjoy a standard of living raised. It was, in Fourastié’s own words, the “great hope of the 20th century”. At a time when industry was triumphing, this prediction was very original.

Fourastié summarizes the result of his theory as follows:

“The machine forces Man to specialize in the human (…) tertiary values ​​invade economic life; therefore, it can be said that the civilization of technological progress will be a tertiary civilization – nothing will be less industrial than the civilization triggered by the industrial revolution.

Fourastié’s theory explains that before the economic take-off (i.e. during the “primary civilization”), growth had been low because the active population worked mainly in agriculture. The high growth regime observed between 1800 and 2000 could be considered a historical exception, which Fourastié attributes to the movement of workers from low-productivity activities to high-productivity activities triggered by technical progress. The growth peak corresponds to the period (“Expansion” on the Fourastié graph) during which a large part of the active population worked in the secondary sector, the sector experiencing the highest productivity gains. From the end of the 20and century, most of the working population again worked in activities characterized by low sensitivity to technical progress, this time mainly in services, and economic growth thus gradually weakened.

The predictions of Fourastié (1949) on structural changes in the active population.

While for Robert J. Gordon, as for many economists, the succession of disparate phases of growth can no doubt be explained by the diversity of the successive innovations which followed one another; Fourastié assumes that technological progress will potentially continue at a steady pace. Nevertheless, he argues that its effect on overall productivity will diminish due to the reallocation of labor towards tertiary activities. In fact, Fourastié’s analysis makes it possible to reconcile the persistent presence of technological progress with the low productivity gains currently observed.

The predictions of Fourastié (1949) on production and consumption per capita.

Fourastié offers several predictions about our present. Continuous technical progress has lowered the relative price of machines, allowing Fourastié to anticipate a concomitant fall in interest rates: “Obviously, we will need less and less financial capital; there will most likely be a downward trend in the cost of money because the demand for money will be weaker. In fact, the secular stagnation currently observed by some observers in advanced economies is characterized by such low interest rates.

Fourastié also accurately predicted that:

“(…) agricultural land will have lost almost all of its value and industrial equipment will no longer be a hotly contested terrain for social struggles (…). On the other hand, tertiary goods (works of art, collections) or generators of tertiary services (tourist and commercial places, land that is pleasant to live in) will keep all their prices.

Influences and extensions

When personal services exhibit cost increases due to stagnant productivity, it is referred to as “cost sickness”. In a unified labor market, wages in the service sector are pushed up in response to rising wages in activities that have benefited from productivity gains. As a result, the cost of personal services, such as medical care or education, would tend to increase relatively more than manufactured goods because only the production of the latter presents productivity gains. William Baumol formalized this phenomenon but repeatedly credited Fourastié as the source of his analysis. In our 2018 article, co-authored with André Grimaud, we formalize Fourastié’s complete theory.

Jean Fourastié, civil servant and public figure, accompanied the French towards the rise in the standard of living which they enjoyed during the second half of the 20th century. His reflections on the changes and continuities of economic development allow contemporary economists to shed new light on the process of development since the first industrial revolution, as well as on the possible path that the world economy seems to be taking.

Learn more about our disclosure policy here.

Share.

Comments are closed.