The Hindu Business Line : Why France is burning

France is facing its worst civil unrest. Its economic edge has been blunted with successive governments systematically undermining the importance of enterprise. Labour laws not only choke the supply of self-worth and pride to millions of immigrants and their children but are indifferent to the merits of private enterprise. G. Ramachandran says France is now a society with a massive enterprise deficit and the current violence reflects its failure to integrate the immigrants into broader so ciety.

CHILDREN of immigrants have been on a fiery spree for almost a fortnight now in France. Most rioters are in their teens and twenties. They have torched hundreds of private cars and a few public utilities with little concern for their own future. It is as if these youths see little of themselves in France's future and little for themselves in its future.

The disaffected youths have gone about their torching with unprecedented ferocity. Rioters in Toulouse set fire to a bus after ordering passengers off. They also torched a nursery school. In Vitry-sur-Seine, a Paris suburb, they threw petrol bombs at a hospital. It is hard to believe that these events happened in France.

France is facing its worst civil unrest. It is the biggest challenge since the student riots in 1968. Then, the riots and strikes by workers were aimed at bringing down the Gaullist government. But the unrest and the destruction in recent weeks are very different.

The fiery burst of frustration and despair is the penalty that France is paying for being extraordinarily smug about the structure of its economy over the last four decades. Successive governments have systematically undermined the importance of enterprise. They have treated private initiative and risk-taking with indifference. At the same time, they have raised the importance of entitlements.

The French, as a result, have built a society with a massive enterprise deficit. This deficit in enterprise, private initiative and risk-taking has, in turn, made it difficult for the assimilation of the second generation of immigrants' children into the mainstream. They occupy the lowest rungs, if at all, of France's system of entitlements. On the other hand, their skills do not find enough takers in the osteoporotic labour market.

France's underprivileged citizens have been shut off from the lucrative market for entitlements and from the markets for effort and enterprise. They see little of themselves in France's present. There is little going their way now. The fires have been waiting to explode. They merely needed a tiny spark.

The good word

France has had a favourable disposition to entitlements and a mean outlook to enterprise. A gaffe attributed to the US President, Mr George W. Bush, floated in cyberspace in 2004. In a conversation with Mr Tony Blair, Britain's Prime Minister, Mr Bush is said to have complained that the French have no word for `entrepreneur'.

Mr Bush's critics informed him that entrepreneur is a French word. It means a building contractor, a transport and haulage contractor, a trucker, decorator, and a funeral director. An entrepreneur in French hardly conjures up the image of leadership and risk-taking that is associated with the word in English.

Admirers of enterprise marvelled at Mr Bush's moment of lucidity. He had uttered an insightful comment on the difference between the French on the one hand and Americans and Britons on the other. The French, despite being the source of entrepreneur in its original meaning, no longer have a single word to convey the powerful meaning this word has acquired in English.

The good life

French politicians and thought leaders often highlight the deficiencies of the Anglo-Saxon way of social and economic governance. Markets are an Anglo-Saxon addiction and affliction. The barrier-free markets for labour, property, products, capital and information do not impress the French. They raise attention to the fraudulent accounting practices that have brought down some big American companies.

They also mock at the hire-and-fire practices of the British and American employers.

By contrast, France offers the good life. The government controls the economy. Laws protect employees from quick lay-offs. They enjoy one of the world's shortest working weeks: 35 hours. They have holiday entitlements that Americans can only dream of. They have two-hour lunch breaks, every day.

The private sector has to offer the same good life. Michelin, a tyre manufacturer, unveiled a sharp increase in profits four years ago. At the same time, it announced a plan to cut its workforce by 10 per cent. French politicians pounced on Michelin and skinned it in public for putting profits ahead of people. Michelin tried hard to explain that reorganisation had become necessary amidst globalisation.

Big trouble

France is struggling to stave off the pressures of global competition. It is short in entrepreneurial skills that will lift it from the downward spiral of competitiveness. Its industrialists and businessmen are aware that France's economic formula has begun to unravel. This formula involves higher taxes and social spending compared with countries in which its firms such as Michelin have to compete.

The formula has neither delivered prosperity nor competitiveness simultaneously. France's economic edge has been blunted over the years. It was ranked eighth in the world in terms of economic output per person in 1990. It had slipped to 18th by 2000. That is a sharp fall. The `No' vote in May to the European Constitution is not surprising.

Enterprise integrates

The current incendiary violence shows that France has failed to integrate its immigrants into its broader society.

Successive governments have failed to put to use the power of private enterprise to integrate people. They have pursued integration through cultural and physical means. They have sought to raise awareness to the beauty and functionality of French. They have banned scarves in public schools.

Private enterprise is founded on the primacy of getting the most output from the least input. It is necessarily secular in its search for the most cost-effective inputs of the desired quality; and for markets that offer the highest price for its output.

Private enterprise integrates resource providers and consumers. It gives all providers an even chance to bid to become the least-cost sources and all consumers an even and transparent choice to become the most-preferred customers. It cannot afford to be otherwise. Private enterprise will fail if it pampers some resource providers and gouges some consumers; and if it skins resource providers. Resource providers will exit.

Private enterprise cannot afford to lose access to resources. Therefore, it expands markets and provides a price point for every conceivable quality of input. It extends the supply curve for human resources. It provides a wage point for every conceivable talent and tenor of employment.

The big chasm

France's labour laws are indifferent to the merits of private enterprise. They work against the extension of the supply curve for human resource. Entitlements, minimum wages and stipulated hours of work have discouraged the private sector from expanding employment.

Many children of immigrants have been kept out the job market. They can earn something even by working long hours. But that would be against the law. So, unemployment among the descendants of immigrants is more than 30 per cent, while it is 10 per cent nationally.

They have also been excluded from the juicy entitlements and live in the run-down suburbs. They are housed in grimy, government-subsidised apartments on the outskirts of industrial cities. And, without jobs and the resulting self-worth, they feel disenfranchised and alienated.

Self-worth is the principal prerequisite for the enthusiastic integration of immigrants and their children. But high minimum wages and narrow wage differentials between jobs requiring different skills have choked the supply of jobs. There are fewer wage points in France than in the UK, India and the US. It is disconcerting that these few wage points are also highly relative to wages in economies to the east of France.

French labour laws have choked the supply of self-worth and pride to millions of immigrants and their children. Powerful trade unions and high minimum wages have exacerbated their agony. This combination has become the biggest obstacle to the assimilation and integration of immigrants and their children into France's social and economic fabric.

(The author is a financial analyst. Feedback may be sent to indiagrow@yahoo.com and pari@thehindu.co.in)

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