France, a service economy
In 1973, with the first oil shock, France discovered the structural weaknesses of its economy, and entered a period of stagflation, i.e. high inflation without wealth creation. It was a rude awakening, as France had rested on its laurels for too long: its industrial base was obsolete, and services were underdeveloped. The then President of the Republic, Valery Giscard d’Estaing, finally took up the task of modernizing the French economy, having been Finance Minister under previous presidents, and thus partly responsible for the current situation. He restructured and tightened heavy industries, and launched or perpetuated innovative industrial projects: nuclear power, telecoms with the Minitel, and the TGV high-speed train. The ultimate aim was to make France less dependent on oil.
For 35 years, this led to the painful transfer of 2.8 million industrial jobs to services, administration and healthcare (2017 figures – source: INSEE), not to mention high unemployment.
The classic characteristics of a service economy are labour-intensive revenues and low productivity gains. On the other hand, this economy consumes a very moderate volume of capital and weighs less on interest rates. As it consolidates income, economic growth tends to be proportional to the working population, provided that all the services produced are consumed. The structure of the French economy is, of course, more complex than this, but it is a dominant one that enables us to identify the major forces at work.
A relationship-driven service economy
If Valérie Giscard d’Estaing’s ideal model was the United States, in this respect he failed. In fact, the French service economy has focused on the relationship, on know-how rather than know-how. This has led France to abandon one of the industry’s fundamental capabilities, quality management, whose objective is excellence. Excellence in quality is not performance, but the ability to define very precise quality standards and to comply with them at all times. I remember a company director I used to work for used to say all the time, “Don’t over-qualify, it hampers costs and competitiveness”. In truth, this sentence made no sense at all, because either you deliver the service as sold – that’s quality management – or you think that the customer will accept defects if you keep the price low – that’s the current trend. Isn’t it better to produce a service that meets the customer’s price requirements (design to cost) and deliver a quality service? This is the basis of the low-cost model, which, as you will note, was not originally developed in France. Abandoning excellence leads to this kind of deleterious thinking.
The consequences of abandoning excellence affect teaching, for which quality control is less of a requirement, with the result that this subject receives less attention in universities, and in business and engineering schools. As it is less applied in companies, it also suffers from a lack of professional experience. At the individual level, we indulge in a pseudo “lean” discourse, i.e. “just what’s needed, just in time”. In the end, nothing is produced, not even a record of decisions at the end of a meeting. This is a very general posture, with the false idea that it generates lower costs.
Digital technology reveals the error of the ways
In the United States, the service economy was built on industrial foundations. Quality is central to its operations. In this respect, the normative frameworks have all originated on the other side of the Atlantic. One of the first examples was the banking and finance sectors, which, drawing on digital technologies, “industrialized” very early on. The trend has been widely followed in other sectors: for example, consulting, an example of service if ever there was one, has also “industrialized” in the USA, and as a result, has been widely exported, unlike national consulting firms which have hardly gone beyond France’s borders. It’s no coincidence that the digital giants have developed in the USA, and that only Germany has been able to claim to exist in this field.
So what does “industrialized” mean for a service? It means using digital machines – today including artificial intelligence – to automate the production of this service and make it less dependent on people. It’s the ability to set standards, have them accepted and followed. This enables us to enter into an industrial economic model that generates productivity gains and economies of scale. And therefore, through the consolidation effect, stronger economic growth. Added to this is the fact that in the digital sector, returns are generally increasing, i.e., margins increase as you sell what you produce, which is what the industrialization of services is all about. This promise of growing margins is driving the valuation of American companies in the sector, which in turn is keeping investment high – a phenomenon not seen in France, and from which our start-ups are suffering.
The abandonment of excellence, of an industrial vision of service activities, will ultimately lead to the downgrading of the French economy, not only in relation to the United States, but also in relation to all countries that cultivate this vision, such as Germany, or several Asian countries, including China.
What can we do about it?
Our economies are essentially industrial, even if they are massively service-producing. We need to put quality back at the heart of our know-how and interpersonal skills. Jack Welch, in his day, succeeded in transforming General Electric into a world-class company by focusing on quality (the Six Sigma method).
This would have the advantage of :
- change the profile of the national economy, and pave the way for further growth. We need growth to finance ecological transformation
- facilitate the export of services and goods, since all goods are nowadays sold with services. Excellence will enable us to upgrade services to make them more exportable. Today, few sectors manage to do this. A good example is the banking and financial sector, which has managed to cope with this complexity.
- instill in company staff a culture of work well done, of continuous improvement, and of their importance in the service production and transformation chain.
- ultimately, create new champions.
Impelling this change cannot be done without the help of the State, especially when it comes to education. We joke about the quality of high-value service professions, such as doctors, lawyers and senior civil servants. But a closer look reveals that these professions have already been hard hit by the industrialization of services, and if France becomes a Gallic village for them, this will be a further cause of downgrading.
This culture of excellence needs to be mainstreamed across all educational sectors. We also need to make it a subject of research for researchers and experts in management, as well as in technical fields such as medicine and law. The State can also give a helping hand to companies that take a proactive approach.
But that’s not enough: civil society must get to grips with the subject. The MEDEF and CGPME business associations need to promote bosses who set about upgrading their companies, and in this respect, encourage and value feedback. Workers’ unions must also take this aspect into account and encourage their members to work within companies on the quality approach.
We need a national leap forward if France is to match its international ambitions and become a leader in ecological transformation and democracy.