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Economics Nobel laureate tells France to 'downsize the state'

© Rémy Gabalda, AFP | Jean Tirole gives a press conference in Toulouse on Monday

Text by FRANCE 24

Latest update : 2014-10-13

Speaking on FRANCE 24, French economist Jean Tirole advocated Scandinavian-style labour market policies and government reform as a way of preserving France’s social model.

Hours after he won the economics Nobel Prize, Tirole said he felt “sad” the French economy was experiencing difficulties despite having “a lot of assets”.

“We haven’t succeeded in France to undertake the labour market reforms that are similar to those in Germany, Scandinavia and so on,” he said in telephone interview from the French city of Toulouse, where he teaches.

France is plagued by record unemployment and Tirole described the French job market as “catastrophic” earlier on Monday, arguing that the excessive protection for employees had frozen the country’s job market.

“We haven’t succeeded also in downsizing the state, which is an issue because we have a social model that I approve of – I’m very much in favour of this social model – but it won’t be sustainable if the state is too big,” he added.

Tirole remarked that northern European countries, as well as Canada and Australia, had proven you could keep a welfare social model with smaller government. In contrast, he said France’s “big state” threatened its social policies because there will not be “enough money to pay for it in the long run”.

Game theory

The Royal Swedish Academy of Sciences awarded Tirole the Nobel Prize for his research on market power and regulation.

“What a bunch of us have been doing – I’m not the only one – is thinking about the way to regulate industries which are not naturally competitive,” Tirole told FRANCE 24. “Because of large fixed costs or network externalities, there are some industries that tend to be monopolised or at least served by a few firms.”

Using game theory to predict the behaviour of the few companies that dominate industries like banking or telecommunications, the French economist designed rules to help governments regulate those sectors in a way that offsets their inherent lack of competition.

Asked about mobile phone networks, Tirole said: “You would not expect a huge amount of competition because of the huge fixed costs of establishing the networks. What I did was develop rules for access charges” to determine how much telecom companies should pay to access each other’s networks in a fair way.

Date created : 2014-10-13

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