Is France doomed to relative economic decline and worsening social strife? A bloated public sector, high state spending, high corporate and payroll taxes and a rigid labour market are major drags on the French economy. Growth has trailed that of the UK for most of the past decade and a half. Youth unemployment is staggeringly high. France exports a growing number of its brightest young people. Unemployment afflicts, above all, young ethnic minorities. It is a major cause of the high levels of criminality in the suburban sink estates surrounding most French cities and the widespread rioting of November 2005.
Many British and American observers have long insisted that France is in desperate need of Thatcherite reform. Doomsayers see France as unreformable. They point to the repeated and widespread strike action and demonstrations that have blocked or forced governments to dilute social security, labour market and public sector reform. International surveys of public opinion demonstrate strong opposition to liberalisation and globalization in France. Observers also point to the apparent weakness of short-lived French governments and the survival instinct of the political class that discourages support for major reform.
Clearly France has problems. The number of people hired by public sector and the amount spent by the government in relation to the total economy is the highest in Europe. Combined with a comparatively generous welfare state, the result is high corporate and payroll taxes which act as a brake on job creation and economic growth more broadly. The difficulties in hiring and firing and restrictions on working time further hinder the competitiveness of companies and discourage employment.
With one of the lowest levels of trade union membership of any European country, France also has the highest number of days lost to strike action in Europe. The two facts are directly connected as weak unions resort to strike action to influence government policy.
The election of Nicolas Sarkozy to the presidency in May 2007 and the re-election of the conservative UMP government—the first re-election of an incumbent government since 1978—were interpreted by many observers as clear signs that the French were ready for major change.
Mr. Sarkozy had promised a "rupture" with the France of the past. One of his central campaign themes was the need for the French to work harder and longer. If elected, Mr Sarkozy promised sweeping labour market reforms and an overhaul to the 35-hour week policy adopted by the left in the 1990s. The French left frequently compared Mr Sarkozy to Mrs Thatcher.
Since his election, President Sarkozy has pushed an impressive reform agenda. Yet many have been disappointed with very limited policy output to date. The reform of the 35 hour work-week policy has met political as well as legal obstacles. President Sarkozy has also presented a decidedly illiberal face to the world. Like his predecessors, he defended the Common Agricultural Policy in the context of international trade negotiations, challenged the principle of free competition in the European single market and defended national protectionism. Last autumn, the elimination of an exceedingly generous pension regime for Metro and train conductors was achieved but only after widespread strikes and generous concessions by the government that will prove costly for French taxpayers in the immediate future.
Last summer, Mr. Sarkozy appointed Jacques Attali, the top advisor to the former Socialist President Mitterrand, to lead a commission of French and foreign experts to draw up a report on "liberating" French economic growth. The President initially committed himself to respecting the Commission’s full reform package. This consisted of more than 300 policy proposals including some very controversial measures such as the elimination of a level of local government and the reform of special regulatory regimes for certain occupations that limit the number of new entrants and job creation.
Following the publication of the Commission’s proposals, antagonism from within Mr Sarkozy’s own party has forced him to backtrack on his commitment to implement all the proposals. Upcoming local elections in March will delay the introduction of reform measures. In the meantime, Mr Sarkozy’s popularity has plummeted since the autumn, a development which has encouraged him to shift his rhetoric away from radical reform.
But does the almost inevitable dilution of Mr Sarkozy’s reform agenda spell disaster for France?
The English speaking world tends to overlook the strengths of the French economy, the sixth largest in the world. Several of its largest companies are amongst Europe’s most competitive and profitable. French workers are, on average, amongst the most productive in the world, far more so than their British counterparts. To this we can add the record trade and commercial surpluses throughout the 1990s and during the first few years of this decade. Despite a reputation for economic protectionism and patriotism, the French economy is one of the most open of the large national economies (measured in terms of trade as a percentage of wealth and inward investment). French engineering and transport infrastructure is widely considered the best in the world.
Outside observers also frequently overlook the far-reaching reforms to the French economy that have taken place over the past twenty years. There has been a massive decline in state interference thanks to financial market liberalisation and the privatisation of the bulk of previously publicly owned companies. French companies have been adept at finding out the loop-holes in labour market legislation. They are hiring a growing number of employees on fixed short-term contracts and are using the controversial 35 hour week policy to increase the productivity of their work force, linking hours worked per week with the production cycle of the firm.
And what of all those strikes organised in opposition to reform? Actually, their impact is of less direct impact on the French economy than one would think. Most strikes involve public sector employees. Strike action in the private sector is low in comparison to most European countries. Thus, as a hindrance to company performance, the impact of strike action is not immediate.
Despite Mr Sarkozy’s rhetoric of reform, change in France is set to be slow and piecemeal. The biggest losers will be in the suburban sink estates where unemployment will remain persistently high. Governments will continue to adopt a range of targeted measures that do not effectively tackle the underlying problems of supply and demand in the French labour market. The periodic flare-ups of violent revolt will almost certainly continue. Yet the French economy is changing and cautious liberalisation, however faltering, is set to continue.