What Is France's Economic System?

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France stands as one of the world’s leading economic powers, possessing large agricultural, industrial and service sectors. France operates a mixed economy that combines capitalist and socialist characteristics. Capitalism involves private ownership of capital and other means of production. Under socialism, the government directs economic activity and owns all or part of most industries. Despite extensive reforms over the years that have reduced government intervention in the economy, the French government still exercises great control over the economy, owning shares in many of the country’s largest companies.

France has a mixed economy.
France has a mixed economy.

Size

The U.S. Department of State reported that in 2009 France had an annual gross domestic product of nearly $2.7 trillion, making it the world’s fifth-largest economy. The gross domestic product, or GDP, is the total value of a nation’s economic output. The State Department also noted that France has an active presence in international trade and is the second-largest trading nation in Europe, after Germany.

France holds an active presence in international trade.
France holds an active presence in international trade.

Identification

Like many nations, the French economic system is mixed, containing capitalist and socialist elements. France has a diversified private sector that includes agricultural, industrial and service activities; however, the government intervenes actively in the French economy. The U.S. Department of State reported that government spending in France is among the highest of the G-7 industrialized nations, which include the United Kingdom, Japan and the United States.

The private sector includes agriculture.
The private sector includes agriculture.

Expert Insight

The CIA, in its World Factbook, described France’s leadership as committed to a form of capitalism in which social programs, tax policy and laws maintain social equity among the country’s social classes. The CIA also noted the importance of tourism to France, reporting that it is the most visited country in the world.

Tourists visit France more than any other country.
Tourists visit France more than any other country.

Features

The French government’s economic policy seeks to promote stable growth and investment, as well as reduce the nation’s unemployment rate, which stood at more than 9 percent in 2009, according to the U.S. Department of State. Although the French government has given up holdings in such companies as Air France and auto maker Renault, it continues to hold shares in other corporations across various sectors, including banks, energy, telecommunications, utilities and transportation. In 2007, under pressure from President Nicolas Sarkozy, the parliament exempted overtime wages beyond the nation’s 35-hour work week from personal income taxes in a move designed to encourage people to work more hours.

The French government no longer has holdings in Renault.
The French government no longer has holdings in Renault.

Effects

The CIA World Factbook reported that France managed to weather the global financial crisis of 2008 better than most of the European Union because of consumer and government spending, as well as less exposure to the mortgage-based securities that played a key role in the global economic decline. However, the CIA also noted that France’s unemployment rate increased while its GDP declined. In addition, the CIA said France has one of the highest personal and business tax burdens in Europe.

Consumer spending helped France weather the financial crisis.
Consumer spending helped France weather the financial crisis.

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