Contract with France
April 10, 2006
by Marie-Josée Kravis
Twenty years ago, the late French President Francois Mitterand hailed modern architecture as a symbol of France's cutting edge future. Oblivious of critics, he fearlessly commissioned I.M. Pei to build a glass pyramid in the courtyard of the Louvre and approved the Arche de la Defense as the vanguard version of the Arc de Triomphe. France was clamoring to be modern and bold.
So much for architecture as a symbol of a country's self-confidence and openness to the world. For in the past two decades France has been governed by the politics of fear: of an enlarged European Union, of globalization, of American dominance, of change. Despite the resounding international success of many French companies, political leaders openly doubt their country's ability to adjust to the challenges of world competition, to grow and to prosper.
In 1974 the rate of unemployment in France was 2.8% and 5.5% in the U.S; now U.S. joblessness is 4.7% while in France it is 9.6%, and youth unemployment exceeds 20%. The U.S. over the last 20 years created more net new jobs than the total employment of France. The French riposte has been the 35-hour work week (without proportional reductions in wages), strict layoff rules, more vacations and longer maternity leaves: If jobs cannot be created they must be shared and employers must bear the burden of higher benefit costs.
In recent weeks, virulent protests against a rather benign reform has confirmed not only the French preference for entitlements and leisure, but more importantly the widespread belief that economic growth is a zero-sum game manipulated by arbitrary employers. Prime Minister Dominique de Villepin's "first contract law" was effectively annulled by President Jacques Chirac, who agreed to sign it only if it was amended to allow employers of more than 20 people to hire and fire, with cause, young mostly unskilled workers under the age of 26 during their first year of employment.
The original proposal called for a two year trial period and allowed for dismissal without cause. These measures were intended to supplant the practice of short-term, poorly paid internships and black-market hiring, and to provide young people with a job experience and an incentive to perform. Even with the concessions, opponents argue that youth will be forced into dead-end jobs. Their true concern is that it will lead to deeper labor market reforms and the reduction of state protection. Though no Sorbonne graduates will be affected by a law focused on unskilled job seekers, students and unions continue to fight on the streets. Then again in 2003 it was French youth who led the battle against pension reform, an issue of little immediacy for them.
American observers blame the protests on Europe's social democratic ideals; French commentators blame the prime minister's failure to consult unions and students. Neither explanation is satisfactory. Socially democratic Denmark has tightened unemployment benefits and halved its unemployment rate, to the great satisfaction of its new and older workers. And no one honestly believes that French students and unions could have been convinced to accept labor market reform with more consultation. So why is France so resistant to reform? Why is the French government so willing to concede?
French leaders have supported enlarging the EU to include poorer countries, strengthening the single market and creating the euro. But instead of building a consensus around economic restructuring, training and investment to anticipate the onslaught of change, they hoped external pressures would force reform. In other words, change would trigger reform rather than reform paving the way for change. And when external pressures become politically problematic, they attacked the "culprit" and tried to block the change they had unleashed.
Last year's attacks on E.U. proposals to liberalize trade in services are symptomatic. Services are highly regulated by member countries that impose restrictions on almost everything from banking to store hours and prices. The proposal to allow services to be traded freely throughout the E.U. (as long as they met the standards of their country of origin) was anathema to President Chirac and then Chancellor Schroeder, and they killed it. The image of the Polish plumber stealing French jobs was prominent a few weeks later when the French rejected the European constitution. How could they support the transfer of power to a European Commission intent on challenging France's social model?
A recent study published by French history professor Barbara Lefebvre and journalist Eve Bonnivard concludes that French college textbooks are generally biased against globalization, deeply anti-American and somewhat complacent towards terrorism. French students are taught to approach the future with foreboding and skepticism of market forces. Not surprisingly 76% of French between the ages of 15 and 30 hope to become government employees.
President Chirac seems to relish every opportunity to repudiate the so-called "Anglo-Saxon" caricature of crass, uncaring capitalism and competition. What is this Anglo-Saxon paradigm? Britain has a nationalized health-care system and strong labor unions. Meanwhile, non-Anglo-Saxon, social democratic Sweden has dramatically cut its public debt and Finland achieved low unemployment and a high rate of R&D spending while undertaking economic reforms.
Nevertheless, Mr. Chirac overlooks these successes and draws attention to the external threats to France's quality of life and l'exception francaise. Consequently, he and other French leaders are reaping the agitation they have sowed. Their citizens distrust the E.U., resent the U.S., are unsure of the euro and its effects on monetary and fiscal discipline, shun freer trade, and are fuming with anti-capitalist rage.
Their leaders have misled them. The truth is that adjustment to international competition will be more painful in Europe than in the U.S. for the very reason that cultural, linguistic and social boundaries hinder the mobility of labor. If labor is less mobile, wages and job security bear the brunt of adjustment. Under the pressures of an enlarged E.U., a common currency and the realities of technology and international competition, there is simply no way to offset the push to more competitive wages and labor conditions unless France is willing to endure decades of anemic growth. This would bode ill for social and political stability.
The timid and clumsy steps taken by Dominique de Villepin were necessary. The meek support he received from his government is deplorable. It is in everyone's interest that France succeed. If not, an Anglo-Saxon, Lord Clarendon, may have the last word: "A country that seeks great change and lacks the willingness to run great risks dooms itself to futility."
This article appeared in the Wall Street Journal on April 10, 2006.
Marie-Josée Kravis is is Vice Chair of the Board of Trustees and Senior Fellow at Hudson Institute.