Le Grand Paris. How would this project generate an economic growth?

C -b Classical theory

An Inquiry into the Nature and Causes of the Wealth of Nations (more commonly called `The wealth of Nations), published in 1776 has played in the construction of our modern economic system. Indeed, Adam Smith is considered as the father of the modern economy, as his ideas have been followed by the most powerful countries in the world.

Andrew Wyatt Walter associates Adam Smith to the notion of a natural «harmony of interests»⁸³. Indeed, in the wealth of Nations, Adam Smith explained the principle of the invisible hand by showing that every individual is acting in the way to maximize his personal benefits:

«As every individual, therefore, endeavours as much as he can, both to employ his capital in the support of domestic industry, and so to direct that industry that its produce maybe of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention»⁸⁴.

As explained by Andrew Wyatt Walter, Smith recognized a «natural order» drives by a self-interested behavior⁸⁵. The benefits from this behavior will be more important if it is applied in a system of «natural liberty». Indeed, due to the important regulations applied by the governments, the liberalism theory assumes that it is important to banish them in order to have an economic liberalization, which would create an economic growth. According to Smith, this economic liberalization would be characterized by the promotion of free choice of occupation (according to the personal interests), free trade in land, free internal trade and free trade in foreign commerce⁸⁶.

⁸³ Andrew Wyatt Walter, Ian Clark, Iver B. Neuman, Classical theories of international relations, St Antony's series, 1996, P.P.143-172

⁸⁴ Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776, Book IV, Chap.II, P.P. 363-364.

⁸⁵ Andrew Wyatt Walter, Ian Clark, Iver B. Neuman, Classical theories of international relations, St Antony's series, 1996, P.P.145

⁸⁶ Ibid, 1996, P.P. 145-146.

Indeed, these principles according to Smith would help to expand the market, which is really desirable as it would bring a greater advantage of the division of labor and of man's natural propensity to exchange⁸⁷. In the Wealth of Nations, Smith reduced the state to sovereign functions:

«According to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed, but plain and intelligible to common understandings: first, the duty of protecting the society from the violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works, and certain public institutions, which it can never be for the interest of any individual, or small number of individuals to erect and maintain; because the profit could never repay the expense to any individual, or small number of individuals, though it may frequently do much more than repay it to a great society»⁸⁸

According to many authors, Liberalism and free trade do not only generate an economic growth. Indeed according to Immanuel Kant, the liberalism system would lead to the peaceful relations between the countries. Indeed he believed that self-interests behavior (Smith theory) would permit the end of tensions between the different nations⁸⁹.

Liberal internationalism of Kant, takes into consideration that wars can be overcome, thanks to domestic changes and the establishment of international structures of governance. Kant has established three points directly connected to the Liberal theory, which should permit the end of wars. Indeed, the «Kantian constraints» are⁹⁰:

- Democracy: Kant suggested that democracies can lead to a worldwide stability. Indeed democracies rarely fight each other.

- International trade: This point has a solid place in the liberal thought. As international trades reinforce the GDP of the countries involved, it creates an interdependency which means that the nations maintain good relations between each other.

⁸⁷ Ibid 1996, P.P. 147

⁸⁸ Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776, Book IV, Chap.II, P.P. 560-561.

⁸⁹ Bruce Russett, Tim Dunne, Milja Kurki, Steve Smith, International relations theories discipline and diversity, Oxford, 2010, P.P. 96

⁹⁰ Ibid, 2010, P.P. 102-104

- International organizations: IGOs have each to focus on specific topics, in specific regions of

the world. They ensure the good functioning of the liberal system (for example World Ttrade

Organization), or good political relations between the countries (United Nations).

These liberal points developed by Kant have good interactions, to provide peace and economic prosperity to the countries. The following graph shows how work these interactions (The Kantian triangle).

⁹¹Figure 7: The Kantian triangle

Bruce Russett used the European Union as a case study to explain better the classical liberalism system. Indeed according to the author, the founding fathers of the EU (Konrad Adenauer, Alcide de Gaspari, Jean Monnet, and Robert Schuman) had set up an economic system based on the classical liberalism⁹².

⁹¹ Reproduction from : Bruce Russett, Tim Dunne, Milja Kurki, Steve Smith, International relations theories discipline and diversity, Oxford, 2010, P.P. 107

⁹² Bruce Russett, Tim Dunne, Milja Kurki, Steve Smith, International relations theories discipline and diversity, Oxford, 2010, P.P. 109

Indeed as Bruce Russett analyzed, the EU is one of the most liberalized institution in the world. First, it is important to highlight the free trade within the EU area. This point perfectly answers to the theory of Adam Smith about the free trade. The EU even adopted a common currency to facilitate the exchange. As we have previously seen, there is also a specialization of the territories (clusters in Paris and in every regions of Europe) in order to maximize the profits and efficiency, and be in an international trade. As Kant has shown, these exchanges created an economic interdependence, which set good relations between the European member states

This European Union is also composed by supranational institutions in order to control the exchanges and take common decisions in order to keep a homogenous strategy (European court of Justice, European council, or the European parliament).

The European Union is the perfect example to characterize the liberal system. Indeed it is composed by all the Liberalism insights such as free trade, and proves perfectly the efficiency of the Kantian triangle.

Bruce Russett has shown that the European Union was driven by the classical liberalism insights. Paris being the most important city of Europe, we can formulate our first hypothesis regarding the economic development.

Hypo thesis 1: The greater Paris is not part of the European economic model

As we have seen, the European Union is functioning under the liberal theory. Nevertheless, the French government has, as we have previously seen, been an important interventionist state. According to Vivien Schmidt, the French government realized during the 80's that their traditional economic system of interventionism based on the Keynesian model was not efficient anymore, because of the global economy change⁹³. Indeed the Keynesian tools lost their efficiency with the free trade development in Europe, as the economic recovery of 1981 has shown the limits of the fiscal policy. Indeed at this time the economic recovery helped more the German economy than the French one.

But is this project of Grand Paris from a Keynesian model? We could argue that yes, the government is using the multiplier effect in order to generate some economic growth. By the willing of the state to invest in new transports infrastructures, we can directly see the correlation with the Keynesian policy.

⁹³ V. Schmidt, «From stake to market, the transformation of French Business and government», University of Cambridge, 1996, P.P. 175

Indeed, according to the Prime Minister report, the economic objectives of the project are in these words «to obtain a Keynesian effect on the economy»⁹⁴. The government will inject some money in the economy through important construction projects, in order to obtain the multiplier effects of the General theory of Keynes.

This is why we can seriously think about the economic impact of the Greater Paris on the economy, because of the discordance of the French and European economic models.

We can see where would be a major problem for the Greater Paris in its goal to create an economic growth. Article 14 of the loi relative au Grand Paris precise that «la societé du Grand Paris» has to select the actors which will be in charge of the construction of the new automatic transport infrastructure according to competitive criterion⁹⁵.

Because of this law we can see a threat for the Parisians and French companies. Indeed, the construction of this automatic line will cost approximately 20 billion of Euros. The region and the government will have to issue a call for tender, and will maybe have to entrust the project to a foreign company.

As previously seen, the François Mitterand's policy of 1981 had used a Keynesian model to recover the French economy at this time. But because of the free trade area of Europe, the French consumption has generated more imports from Germany, as the German products were more competitive regarding to their price.

This is why we can link this historical problem to the Greater Paris model. As the «Societé du Grand Paris», the project should create approximately one million jobs. Nevertheless, this forecast should be strongly reduced if for example a company from Eastern Europe would win the tender.

Indeed, this eventual foreign company could «import» its labor force to France, without hiring French labor force. This would impact the economic recovery expected by this investment, because of the low hiring rate for the transport system construction.

So no, the Greater Paris cannot be considered as part of the European economic model as it is an application of the Keynesian model. This is why, because of the European economic infrastructure; we can analyze some threats which could reduce the expectations from this project regarding the economic recovery objective.

⁹⁴ Premier Ministre François Fillon, « Projet de loi relatif au Grand Paris étude d'impact, 2009, P.P.31

⁹⁵ Assemblée Nationale, « Projet de Loi relatif au Grand Paris », Décembre 2009, P.P 16

Nevertheless, this analyze has to be moderated, because the injection of the money will still be effective. Indeed, this project will still increase the consumption in France (even if the construction of the new public transport system, will just be ensured by foreign labor force, the moving of this population to France would still increase the French market consumption). We also have to notice the human benefits of this project (people closer to their work place, so maybe more efficient at work), which can also be taken into consideration, with no matter concerning the economic model used.