By Frederic de Harven (LSF)

In just a few days, the French will elect their new president – the first not from the De Gaulle era. A major change is expected to restore the confidence between the population and the executive and to put France back on track.

But what is the French paradox? Its workers are among the most productive in the world, yet the country’s economy is barely growing. Some of the world’s most successful companies are French, but globalization and economic liberalism are seen as a big threat. The healthcare system is famous throughout the world. French universities; however, rank low compared to major American or British universities, although its famous grandes écoles are still part of the world’s elite education system. You can maybe understand why I use the term paradox. When it comes to change, the French always want the benefits without the inconveniences. Still, France is an important country on the diplomatic front. It is a permanent member of the Security Council and a declared nuclear power. Even though it rejected the European constitution in a referendum in May 2005, it is one of Europe’s founding states, a big defender of European integration, and a founding member of the Euro currency. Moreover, the current president of the Central European Bank is French. France is also the world’s sixth biggest economy. For all theses reasons, the election this spring is crucial, especially for the future of Europe.

The main challenge for the next president will be to reform the labor market without hurting the country’s social model, public monopolies, and public services. Directors of companies are demanding changes, but unions are slowing down any initiative for reform. France has a strong manufacturing sector and has less to fear than its neighbors, but it will always be hard to get reforms through, due to the heavy influence of street protesters. Even though France has a steady and unified government, it is interesting to point out that France has had twelve Prime Ministers since 1978, whereas its neighbors Britain and Germany had only four. All new papers, books, and articles refer to the crisis France is undergoing, although some hope that that part of the solution lies in the significantly increasing birth rate. If France’s next President (and government) can push through the needed reforms, its growing economy could become competitive again soon.

The root of the problems occurring in the suburbs is unemployment. According to JL Schweitzer, former CEO of Renault, “unemployment destroys all social models.” The labor reform of last spring was designed to make it easier for companies to hire and fire employees under 26 years old. This reform caused enormous street protests and even the closure of many universities throughout the country. Similar strikes were organized when reforms were proposed for teachers, train drivers, electricity workers and supermarkets. Seeing theses protests and the government moving back, one may ask himself … who is actually governing the country: the street or the Parliament?

Another source of conflicts and a major problem to be solved is the funding of retirement plans. The reform that was voted sparked high protests, and some majors parts were withdrawn, leaving the problem unsolved. The problem here was very simple: why do people in the public service have to work three years less then those in the private sector? This is another French paradox that needs to be addressed quickly.

But today French people are pessimistic and believe in their own decline. Globalization is pointed to as the black sheep. French believe that their voice in the world is fading away and they fear immigration. We have to keep in mind that the extreme right, that was present at the second round of the presidential election in 2002 and actually represented 13% of the electorate, calls for protectionism and to the return to the Franc (old French currency). This sign was first seen when the Front National party stood up against immigration and for the return to controlled national borders. During the last presidential elections, 35% of the votes went to the political extremes (right and left).

But one reason for optimism is to be found in the birth rate: an average of 2.1 children per woman, one of the highest in Europe. Most of the leading French companies are doing very well on the global market. Also, a more competitive market of goods and services combined with a labor market reform could raise the GNP by 10%.  France needs to find the balance between economic efficiency and social justice. It is possible: Scandinavian countries as well as the Netherlands and Ireland have shown the way. 

A word on France’s labor laws: it is important to know that the labor code itself fills up 2735 pages. Quite a reading adventure!  French companies are divided in two parts: the ones that appear on the stock market “cac 40” and the small-middle-sized companies that do not. According to MEDEF sources (employers organization) France’s big companies saw their profit grow by nearly 218% in the last ten years whereas the smaller ones grew by only 42%. This represents, a two-speed economy, with major companies worldwide bringing in a lot of money but not creating that many jobs, and small companies struggling to survive in an era of globalization. The French paradox can be further illustrated by another example: the 35-hour work week. When there were not enough people at work, and those at work were not working enough, the socialist government of Lionel Jospin said “work less, and earn more!” The job market is full of people living on welfare or working illegally and making more money than if they were declared workers. The job market is also full of unqualified workers. For example, the boat construction industries in Le Havre cannot find enough welders and other industries where cannot find enough plumbers. The French don’t seem to like working very much! It is their life choice and they don’t seem unhappy about it. So what happens is that employers lower salaries to accommodate these attitudes and as a result, the workers feel squeezed like lemons at the end of every month. Between 2000 and 2004, the average salary increased by only 1%. Let me come back to the 35-hour work week – a world-wide record! This law was passed by the socialist government, forcing companies to pay their employees as if they were working 39 hours, while they are actually working 35! The concept was based on the principle that there is only a limited number of jobs. Companies lost huge amounts of money and instead of creating jobs, many of them got into deep financial trouble. Most problems were in the public sector, mainly concerning people who work in hospitals or in emergency services and who have unusual working hours. The law adds an extra three days of holidays to the already common five weeks of paid holidays per year. But where does the money come from to finance all this? Taxes are average, but fees paid by companies are outrageous! If you are paid twice the minimum wage, 2400€ per month, your employer has to pay nearly half of that in social security contributions. As an employee, 22% of your paycheck goes to social security contributions on top of income tax. When you receive your pay forms you have over 40 lines of deductions: 6.6% to the pension fund, 5.1% to social security, 2.4% to the unemployment fund, etc.

One word on the French administration: probably the biggest in size and yet the most inefficient. The country has a post office for every 3500 inhabitants, twice as many as in Germany, but the mail doesn’t go any faster. The government tried to close some in small villages and keep small offices in bakeries, but all the postal workers went on strike for weeks! The Bank of France employs 14,000 people while the Bank of England employs 1836 and yet France doesn’t even have a monetary policy since it is part of the Euro zone. The state decides everything, such as the number of taxies in Paris, the dates of permitted sales, the opening of stores on Sundays, etc. Well, where is freedom and liberty of initiative in all of that?

But why is the system in the “grandes écoles” such a success? This is again an example of the French paradox. 

I hope this article helped you understand the situation in France better. I strongly recommend that you to follow the presidential election on April 22 and May 6 that will determine the orientation of French politics for the years to come.