The Hindu Business Line : France's burning economic issues

IN THE world of men's clothes, nothing is more beautiful than the tuxedo with black tie — one of the few garments that makes a man, any man, look his splendid best. Tailored well, a tux turn any man — short or gangly, fat or lanky — into an Adonis.

And, no one looks better in it than UK's `voice of business', Sir Digby Jones, Director General of the CBI (Confederation of British Industry), who is short and wispy.

Sir Digby was the principal speaker, at the Chemical Industries Association Annual Dinner, one of the largest events of its kind in the chemical industry, held in London last week. Some 1,500 diners including senior representatives of chemical companies and leading figures from European industry and commerce, government, academia, stakeholders and the news media attended the event.

Sir Digby said he was furious with the trade blockade by the United States and France and that it was a cause of deep anger and embarrassment for British businesses. He said Britain was not protectionist and understood "outsourcing" and "off-shoring". And that, by doing so, incomes are created for people in poorer countries who can buy high-value goods from the developed world.

The blockade by the US and EU, was a symptom of "protectionist Europe" and "a hypocritical US", he said, giving the Chinese and Indians the "moral high ground".

One of the big issues on the agenda for the CBI would be putting the trade round back on track, said Sir Digby. He added that India, along with other developing economies, had been reluctant to free its markets to imports without action by Europe and the US to cut agricultural support.

He said it was easy to forget that while India is turning out 125,000 computer graduates a year, it also has 700 million people who work on the land. He wanted to break this logjam on trade and termed it the "key issue." Sir Digby also called on WTO members not to let the stalled negotiations collapse.

It is true that UK governments of every colour have always been free traders and one of the reasons Britain has nothing to fear from globalisation is because it is good at investing and being invested in. Because of that, the UK is trusted the world over and has created full employment.

This contrasts sharply with what is going on in France, in particular the country's cultural inability to reform. The riots that have swept 300 French towns and cities in the past three weeks constitute a new and dramatic illustration of the kind of pre-Revolutionary situation that prevails in France.

In my view, the French have adopted a very selfish, inward-looking attitude that has led to the country's enormous unemployment problem. They are not going to create full employment unless they start opening up labour markets. Entrepreneurship is one way of achieving full employment.

A recent report by a committee of experts led by a former International Monetary Fund (IMF) official painted a depressing picture of the country. "France must learn to work harder and rein in its `excessive' public sector if it is not to sink into irreversible economic decline," the report said.

France's ailing economy is hampered by unemployment of nearly 10 per cent, declining productivity and investment and permanently low growth rates.

Public debt, which has tripled as a proportion of gross domestic product (GDP) in the past 20 years, as well as heavy public spending, were jeopardising the State's capacity to cope with future problems.

France had been repeatedly under fire for breaching a European Union budget rule that determines the ceiling for public deficit at 3 per cent of output.

These issues call for radical reforms. The hindrances can be overcome by adopting a series of measures to restore labour incentives, encourage technological innovation, reduce the debt overhang and safeguard the country's system of social benefits.

France's main problem is "work deficit," caused by low working hours and structurally high unemployment rates — especially among the young and the old. What is called for is an end to the "share-out logic" which has led to the compulsory 35-hour week in a bid to create jobs.

France's sluggish growth is because of the country's not managing sufficient mobilisation of its labour resources.

Over 20 years, the entire growth gap separating France from the US and the UK corresponds to the change in working hours.

What is also required is an opening up of the labour market and a flexible new work contract, a tax on companies that sack staff, and encouragement for those over 50 to work part-time. Further, on the 35-hour week, the new notion of personalised, voluntary overtime is needed.

The country's position can best be described as being in the grip of a surreptitious stalling process. The acute stage problems of the nation were veiled by a number of factors including historically low interest rates and the equally poor performance of many Euro zone partners.

A serious syndrome of denial is setting, which curbs all but superficial reforms. But the fact is that France is indeed stalling, and if nothing is done to overcome the pernicious phenomena, in about 10 years it will lead to an irretrievable situation.

France's state sector, which now consumes some 54.7 per cent of gross domestic product (GDP), is increasingly unable to respond as it should to the demands of society.

Like one of the great clippers of the end of the 19th century, the state is encumbered by a set of sails that are too heavy and complex and finds it ever harder to manoeuvre effectively to respond to most urgent problems.

In this latest bid to save the doggedly high unemployment rate, a fresh set of rules to alter the country's controversial 35-hour working week was tabled.

This debate on amending the current 35-hour working week in France has been on the backburner for quite some time following the government's decision to reform the system. Meanwhile, France is literally burning!

(The author is former Europe Director, CII, and lives in Cologne, Germany. Feedback may be sent to mohan.murti@t-online.de)

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