بهره وری، رقابت، و توسعه بیمه های زندگی در فرانسه (1870-1939): یا: ما باید به صندوق های بازنشستگی اعتماد کنیم؟

French life insurance remained underdeveloped in comparison with other countries of similar financial development during the period between 1870 and 1939. We show that technical peculiarities of the contracts used and their interaction with macroeconomic fluctuations explain the wide fluctuations we observe in insurance operations. Nevertheless, these fluctuations are not sufficient to explain the industry’s long-term stagnation. Low returns paid to clients, resulting from very conservative investment strategies, were the main reason for that stagnation, since only those interested by the life-cycle related aspects of insurance contracts continued to put money in these institutions, while most savers invested directly in the market or through State-owned financial institutions. The main reason for such an investment (and then low-growth) strategy is the existence of a set of conservative regulations and a stable oligopoly in the industry from the 1880s onwards. We suggest that established insurance companies were able to impose regulations and barriers to entry blocking the access of competitors to their market, so maintaining a hold on a small but very profitable market.

The rapid development of research on financial systems in recent years centered on banks or financial markets, both considered as organizations with differing abilities in savings’ collection, investment financing, information gathering, and solving problems of corporate monitoring and control.1 The role of institutional investors such as mutual funds, trust funds and life-insurance companies, which hold a substantial part of the financial market’s capitalization in many countries, has been much less studied. These were part of the quantitative study of financial systems by R. Goldsmith and others in the 1960s, but have not figured much in the recent, more theory-based, revival. Nevertheless, these institutions do have an important role not only in providing a service to savers, but also in channeling funds towards firms and as participants in the market for corporate control. Indeed, a frequent complaint among continental European businessmen is that the underdeveloped size of these institutional investors makes their countries’ economies vulnerable to a transfer of their centers of decision to foreign countries through the voting rights of foreign institutional investors in national firms, independently from control resulting from FDI. It is frequently argued that this underdevelopment results from State intervention in the economy, especially the development of generous pensions systems organized on a pure pay as you go basis, since this limits financial savings. The underdevelopment of institutional investors has also been seen as a result of the predominance of fixed-income securities in their portfolios, something imposed by governments in order to sell their own debt and facilitate a potential inflation tax. One purpose of this paper is to test these ideas by examining the role of institutional investors in France before World War II, in a period of free-market economies, with little social security, state-owned industrial firms or exchange control. A second and more historical motivation is to shed some more light on the question of the efficiency of the French financial market. In comparison with London, the Paris Bourse had less firms listed and was even more focused on fixed income securities: French and foreign government bonds in particular, and bonds with government guarantee, such as those of most railways. This has been related to certain characteristics of the French economy such as the small number of joint stock companies and the small size of firms in general (of which it might be a cause as well as a consequence). Eviction by French government issues has been frequently emphasized (but they almost disappeared after 1885), as has been a preference for issuing foreign government securities on the part of the banks (but this requires high monopoly power in corporate banking). The risk-aversion of French savers has also been invoked. One motivation of this paper is to question the idea of risk-aversion by partly endogenizing risk, more precisely by looking at the institutional determinants of risk. The risk of security holding results from a liquidity risk, a risk specific to a particular firm (specific risk in the financial theory sense, which can be eliminated through diversification) and the risks resulting from asymmetric information regarding the situation of the issuers (agency costs). The process of financial development is typically accompanied by an increase in the liquidity of the market, a decrease in transaction costs, and improvements in the ability of outside investors to monitor firms’ behavior through regulation or the availability of public information on them. All these transformations can be stimulated by the presence of institutional investors, which pool savings in order to facilitate diversification, operate at lower costs in the markets, boosting liquidity, and pressure government and private issuers in order to obtain better regulation of securities and more information on risk and likely return. We can then consider the birth and growth of institutional investors as one of the key elements of financial development. From the middle of the XIXth century, financial savings took three main forms in France: (1) direct investment in listed securities or in private debt; (2) deposits at savings and loans institutions (caisses d’épargne) or at the Caisse nationale des retraites (CNR); and (3) life-insurance contracts (including contracts with so-called sociétés de capitalisation). Deposits in savings and loans and the CNR were by law invested almost entirely in government debt through the State-controlled Caisse des dépôts et consignations (CDC). 2 The government controlled the interest rate that was paid on these deposits. Thence the insurance companies were the only important private institutional investors which were allowed to own private assets and then to influence private investment. This paper then focuses on life-insurance companies as providing a financial investment service, although we will see that one should not neglect their other—defining—characteristic of selling contracts linking payments to life-cycle events. The main findings are the following. First, one of the special characteristics of the life-insurance contract, the fact it guarantees a minimal return in the long run, explains the medium-term fluctuations in the industry fairly well, especially in the relative development of life-insurance versus savings and loans companies. It also helps to explain the cyclical component of competition by new entrants within the life-insurance industry. Nevertheless, it does not explain the underdevelopment of French life-insurance in the long run. Second, State regulations on companies’ portfolios had little impact on the development of life insurance, since the constraints they imposed were not binding. The predominance of low-risk and low-return investments in insurance companies’ portfolios was their own choice. Third, life insurance companies preferred focusing their activity on life-cycle related products, for which they had a legal monopoly, rather than competing with other financial institutions on purely financial products. The reason for this is that they were able to organize a stable oligopoly in these products, as we argue from data on profits and market shares of the industry’s leaders as well as from the analysis of the techniques of corporate control and the industry regulations that locked the cartel. Fourth, many savers would likely have preferred more diversified portfolios than those provided by insurance companies, but they were unable to stimulate enough competition among insurance companies to obtain satisfaction. So only those savers sufficiently rich and informed not to need the service of a mutual fund were able to own shares, through direct purchases on the market. The others invested in public debt or similar instruments: deposits with the Caisses d’épargne or the CNR, bonds of the Crédit foncier or big railway companies. Insurance companies were not in fact important providers of investment services. The paper is organized as follows. Section 2 describes briefly the slow development of life insurance in France compared to other countries. Section 3 examines the explanations for the short-term fluctuations in life insurance operations and shows that they cannot explain the long-term underdevelopment of this industry. We then turn to arguments explaining this long-term stagnation. Section 4 examines the investments of the companies and wonders whether they corresponded to the needs of their clients. Section 5 presents the arguments in favor of the existence of a profitable and stable cartel in the industry.

French life insurance remained underdeveloped in comparison with other countries during a long period from 1870 to 1939. We showed that the technical peculiarities of the contracts used and their interaction with macroeconomic fluctuations explain the wide fluctuations we observe in insurance operations. In an industry where the accumulation both of long living contracts and reputation is central, it is likely that these fluctuations slowed the enlargement of the client population and the increase in managed assets. Nevertheless, we do not consider they are sufficient to explain such a long-term stagnation. Low returns paid to clients, resulting from very conservative investment strategies, were the main reason for that stagnation, since only those interested by the life-cycle related aspects of insurance contracts kept putting money into these institutions, and most savers invested directly in the market or through State-owned financial institutions. Government regulations and direct interventions in the economy had some responsibility for portfolio choice. But the main reason for such an investment (and then low-growth) strategy was the existence of a stable oligopoly in the industry from the 1880s on. Established insurance companies were able to impose regulations and barriers to entry blocking the access of competitors to their market, so maintaining a hold on a small but very profitable market. By capturing the regulator, they reinforced their position when new, foreign, competitors, began entering the market in the 1900s. A broader conclusion of this paper is that even if inefficient government regulations or policies negatively affect the development of financial institutions, the most decisive element is entrepreneurial dynamism and the competitive search for the best products. In the insurance industry, bad policies affected long-run development mostly through their effect on competition, but the biggest obstacle was a financial oligarchy which was able to restrain entry in a profitable industry thanks to interactions between their powers in the boards of the companies, on those of important banks or firms and their ability to foster regulation. This blocked durably the development of institutional investors in France, and that of the financial market as a whole when individual investors became more dubious vis-à-vis direct shareholding.