The Hindu Business Line : Why doing business on French soil is difficult

LAST weekend I was in the City of Lights, Paris. It was here, over 150 years ago, that Victor Hugo addressed the International Peace Congress with these prophetic words: "A day will come when there will be... markets opening to commerce and minds opening to ideas. A day will come when we shall see that immense group, the United States of Europe, stretching out their hands across the sea, exchanging their products, their arts, their works of genius... and reap the well-being of all."

What a visionary Victor Hugo was!

But all it takes is a look around France to realise that Hugo's vision remains a figment of his imagination.

The French government is bolstering the country's image as a good place to do business, but I am not convinced. Let us take a closer look.

It was a rough start to the year for Ms Clara Gaymard, President of Invest in France, the governmental agency promoting France as an investment destination and a place to do business.

In January, the Paris-based OECD (Organisation for Economic Co-operation and Development) called for radical reforms in France in a first-ever report looking at how policies were affecting growth. It showed that France had the highest minimum labour costs among the major economies and substantially lower employment rates for younger and older workers.

It urged, among other things, further pension reform and deregulation of the labour market, making it particularly hard to take companies to court in protracted disputes.

In February, Clara's husband Hervé Gaymard, then France's Finance Minister, was put through the media grinder after it was revealed that they along with their eight children were being housed in an expensive state-funded apartment in Paris, while owning five properties around France. Having been the leading voice urging his countrymen to be "weaned" from reliance on the state, he was forced to resign after only three months in the job.

Then, in early March, precisely when the world's media was looking to France as it hosted the judges for Paris' bid to stage the 2012 Olympics, a general strike was called by major trade unions to protest against the proposed social reforms. None of this helped the euro 10-million campaign of Ms Gaymard to promote "The new France ... where smart money goes".

At the core of her strategy were efforts to dispel the "myths" about France's anti-business climate. Chief among them is the country's reputation for an expensive, strike-ridden and militant workforce. Ms Gaymard argued that "the image of France is often not the reality," and the advertising campaign features newspaper ads with CEOs' Q&As, in which they praise France's workers and its lifestyle.

On policy, too, Ms Gaymard has been part of the effort to identify and rectify impediments to businesses in France. A group of prominent French and foreign CEOs, which forms the Strategic Council for Attractiveness, has come up with measures and suggested structural reforms, notably two in the past 12 months to loosen the infamous 35-hour-week law, as well as introduce changes to redundant rules.

But, ultimately, big investors in the US, Asia and the rest of Europe need to be convinced. And, that is definitely not happening. France is deep in debt, something like 17,000 euro per head. There are too many people in the French public sector. The cost of doing business is too high because of the social taxes. And, it is very difficult to change anything — everyone goes on strike at the drop of a hat!

In March, a poll of 60 CEOs of France-based MNCs, revealed that a clear majority felt that the French workers were either "among the best in the developed world," or at least "above average, but could have a more entrepreneurial attitude." There was a mixed attitude to the general business environment, and a negative leaning on the issue of the tax regime for business. In the written responses, the CEOs made it clear that the burden and complexity of the French labour code vied with the social charges as the No 1 gripe, with local business-taxes coming in a close second.

Reforms in France are half-hearted and implemented at snail's pace. A law passed in December 2004 states that individual workers can clock in an additional 220 hours annually over and above the 35-hour week. But the bigger structural impediment to businesses has been the extremely cumbersome rules governing how businesses can reduce employee numbers when times are slack. The new law provides a little more flexibility, but it is still complicated. For example, you are very restricted on what qualifies for valid redundancy. The new law has not changed anything on the rationale, though it does make the consultation process a bit easier.

The purpose of the labour code is obviously to preserve jobs, but it can have the opposite effect. One heard of a situation where a US company was considering retrenching part of the workforce of its French subsidiary because the latter was posing problems for the US company.

Though reforms are moving in the right direction, the CEOs would like to see them move more quickly. For instance, a local business tax, imposed on capital employed and the number of employees discourages businesses from expanding. But even after six years of lobbying by business interest groups, little has been done about it.

The government is trying to reform the broader social infrastructure as well. For instance, on the state-directed pension system, there are proposals to extend the working life required to draw full pension to 42 years from the current 40. But with the size of France's public sector and the security now demanded of its education, health and pension systems, no one expects a big change to be politically possible anytime soon.

These paltry reforms are a hard-sell to international business. The Federation of European Employers, a European Union-funded lobbying group, calculates that France's social taxes are the highest of the "big four" European countries.

Nestlé Waters France, the Swiss food giant, has been trying to get an agreement at its Perrier mineral water plant in Vergèze to retire about 1,000 employees early on 80 per cent pay.

Though a majority of workers have agreed, the deal has been held up by the CGT union since late 2003. The fact that the agreement can be blocked for nearly two years for political reasons, underlines the labour market problem, in France. If you want to adapt manpower to improve the productivity, there is very little flexibility in France compared to elsewhere in Europe.

How could a country as attractive and as well-endowed as France become one of the worst investment destinations, in Europe? How could a summer heat wave, two years ago, kill 15,000 people?

How could unemployment leave entire families in desperation, literally destroying French society for 20 years?

Yet there is hope: For a small country of only 60 million people, France still has remarkable assets. And it is still capable of great things, whether alone or with its European partners.

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

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Not persuasive enough

Two emerging giants: The global debate

Why doing business on French soil is difficult

A Salvo on Chapra

Small hydro-power projects — The SPV model can be electrifying

There may be no virtue in portfolio diversification

Movement in WTO negotiations

Power failures

Energy security