Gross Domestic Happiness?

Why the French want to redefine economic growth.

BRIAN DOMITROVIC

French President Nicolas Sarkozy recently said he wanted the nations of the world to stop using GDP, or gross domestic product, as the main measure of their economic performance. He wants them instead to work up another metric that takes into account not only economic production but such things as environmental quality and even time not spent in traffic—a sort of gross national satisfaction index.

France has excellent reason to suppress GDP statistics. Since 1982, among developed nations, France has been a clear laggard in GDP growth. In the quarter century following 1982, France's GDP growth rate was a mere 2.1% per year in comparison to the U.S.'s 3.3%. Thus the U.S. grew at more than a 50% premium to France per year during that span. When the quarter century elapsed, Americans were one-third richer than the French.

France also lagged Britain, which over the 25-year period grew at 2.8% per year. Germany matched the French rate of 2.1%, but it had a good reason. A few years in, it had to absorb the post-communist economic basket case that was East Germany. About the only thing France can say about its GDP performance since 1982 is that it beat Italy's, which came in at a measly 1.8% per year.

France's poor GDP showing over this period was in stark contrast to the 1950s and 1960s, when it had long stretches of GDP growth at 6% per year. By the early 1980s, its GDP per capita was nearly that of the U.S. In other words, France achieved prosperity equal to what was enjoyed in America and then lost it.

There is a clear reason the inflection point was 1982. At that time, France chose not to participate in an international wave and transform its economy with a free-market revolution. In the early 1980s, Margaret Thatcher in Britain and Ronald Reagan in the U.S. shed governmental regulations on the economy, cut taxes, committed to not manipulating their currencies, and encouraged global trade. Their economies boomed, as did the economies of countries that followed their lead, such as South Korea and Taiwan.

In contrast, countries of "old Europe" such as France and Italy that were content to stand pat with an overregulated private sector and tax rates well above 50% were left in the dust. In 2003, as the Iraq war got going, France complained that the U.S. was the world's "hyperpower." Yet France itself was partly responsible for this fate. Had France committed to achieving high GDP growth via free-market incentives as the U.S. had in the 1980s and 1990s, it would have been appreciably richer in the 21st century, and thus a greater force in international power politics.

If Mr. Sarkozy's statisticians ever come up with their new economic index, they should be sure it includes leisure time—because that is one thing the French economy excels at producing. In 2004, the year he won the Nobel Prize, economist Edward Prescott asked, in the title of a journal article, "Why Do Americans Work So Much More Than Europeans?" The answer, he found, was tax rates.

Tax rates had fallen so much in the U.S. by that year that the American workforce couldn't wait to get on the job—or start a business—because you got to keep so much of what you earned. In contrast, high and progressive French taxes left over from the 1970s lured people away from work, especially as they started doing well. So people came to take seven-hour days and six-week vacations, as well as not show any particular interest in striking out on their own in a work-intensive small business.

The oldest and most pathetic trick in the book when you lose a contest is to try to move the goal posts. GDP statistics of the past quarter century have shamed France but flattered the U.S., Britain and East Asia. Mr. Sarkozy's gambit to paper over this real difference will be lucky to find any takers.

Mr. Domitrovic teaches at Sam Houston State University. He is author of "Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity," just out from ISI Books.