Otherwise you couldn’t achieve standardised capital requirements; and greater transparency is of limited value unless comparisons can be made. So the work being undertaken by the International Accounting Standards Board on a disclosure standard for insurance will be absolutely crucial in this respect. Conclusion My observations about the value of convergence in what I have called the ‘infrastructure environment’, come down to these areas of focus: First, convergence will enable better understanding of the reality, or absence, of systemic risk. In particular I’m talking about the potential for transmission of shocks between the insurance industry and the banking system. Second, it will discourage arbitrage that is based on technical accounting and regulatory factors. Instead, convergence will enable the market to focus on arbitrage which reflects the substantive evaluation of risks where real economic value may reside. And third, the added transparency of interfaces between the two industries will enhance confidence in the risk transfer arena. That will help dissipate the sort of unease which I sense around the place at the moment. The data deficiencies we confront today where the actual location of risk is so opaque is to my mind a major challenge. Better transparency will surely help to avoid adverse consequences of shocks which are inevitable from time to time. The infrastructure environment has to be robust enough to withstand these shocks. Of course there are challenges. For example: in avoiding over-engineering and over-prescription in regulation and accounting standards, and sticking more to a principles-based approach.
But in a country such as France, which already enjoys a high productivity level, there is still plenty of room for progress in the diffusion of ICTs, both in terms of the speed and quantity [slide]. The share of ICT capital stock in GDP is markedly lower in France than in the United States and the United Kingdom. Getting rid of this lag would deliver substantial gains in growth for France. 1. Third hypothesis, a dearth of investment? Catching up to the technological frontier will require investment in ICTs as well as in research and development. This investment is vital in order to incorporate innovation into production processes. Yet it is also a lot riskier than other types of investment, for example in construction. Indeed, it notably combines a low or non-existent resale value with uncertain future revenue flows. Like the rest of the innovation economy, therefore, it needs an appropriate form of financing – one that relies more on equity as opposed to debt. However, the cost of capital remains high despite the sharp drop in interest rates over the past 20 years. According to Banque de France calculations, the nominal cost of capital for France’s major listed companies is still between 8% and 9%, whereas the risk-free rate is currently around 0%. This particularly high cost places a drag on investment, and hence on innovation and productivity growth. 1. Are there any factors that are specific to France?