Not so Much Non

France acts as if it were the richest power in Europe--and constantly tries to use its economic leverage to win its own way in international affairs. Its industrial output jumped by more than 7% in the year that ended last June, and both this year and next year its gross national product is expected to increase 5.5%, highest real growth rate in the Common Market. Yet under the surface glitter, France has a backward, underdeveloped economy--a fact that the De Gaulle government has recently owned up to and started to do something about.

In 1965 France produced fewer than 1.4 million cars, only half as many as West Germany. In steel, France turned out 19.5 million metric tons, compared with Britain's 27 million and Germany's 36 million. Germany exports about twice as much as France. The French may well run a trade deficit for 1966, and the franc has been weakening on world markets. Business is plagued by low profits, old plants, inadequate research, a shortage of capital and a faltering stock market.

Atomized Industry. One problem is that, after they've seen Paris, too many Frenchmen want to stay down on the farms. France has so many farmers that it is the ofily big Western European country that can feed itself--but its industries are underpopulated. Only 16% of its people hold industrial jobs, compared with 22% in Britain and 23% in Germany. Because farmers are low taxpayers, industry has to carry too heavy a share of the tax load, and this year the rates on profits, after dividends, were boosted from 34% to 50%. As a result, French industrial companies earn scarcely 2.3% on sales, compared with 3.4% in Germany, 3.6% in Britain and Italy, 6.1% in the Benelux countries, 7.4% in the U.S.--and low profits discourage industrial expansion.

French industry is atomized into countless small, family-owned firms, whose self-satisfied owners are often reluctant to risk expansion or spend for modernization. Of the 30 biggest industrial companies outside the U.S., twelve are German, ten British, but only two are French (Renault and Rhone-Poulenc). Expansion capital is hard to come by. Frenchmen are wary of investing, often prefer to sock their savings into real estate and gold. They have seen too many investments demolished by wars and inflations, and their fears have hardly been allayed by the 40% plunge in the French stock market since 1962.

Merge & Modernize. At De Gaulle's behest, Economics Minister Michel Debre has begun to push a broad plan to energize industry, argues that "we have no choice but to become competitive." The government has granted $600 million in low-interest loans to steel firms on the condition that they merge and modernize. The government has also helped to bring about more than 50 corporate mergers this year, notably in the metals, textiles and electronics industries. Hoping to enlarge the capital supply and to make Paris a world financial center on the order of London or New York, the Cabinet earlier this month liberalized the long-shackled French money market. French companies will soon be allowed to borrow funds from abroad fairly freely, and foreign companies to float loans in France; at the same time, French investors will be allowed to hold foreign securities in their own names, and French banks will be able to start paying interest on deposits by foreigners.

To stimulate sales abroad, government agencies have stepped up export credits and insurance, have even begun to lend money to importers of French goods. France sees a great market in Russia. Last week Debre jetted to Moscow in hopes of putting some spunk into the two-year-old Franco-Soviet trade pact; the Russians had promised to buy $345 million worth of French goods this year, but as of October had ordered only $250 million worth.

Yankee, Come In. Most important for the U.S., the Gaullists continue to relax their old policy of discouraging foreign investments. Debre has learned that if France excludes them, U.S. companies will plant branches in other Common Market countries and then export freely to France (TIME, April 1). The Gaullists also have come to believe --after years of chauvinistic doubt--that U.S. capital and technology can benefit French industry. When Motorola offered to develop a semiconductor industry and invest generously in research, Debre gave the company permission to build a multi-million-dollar plant in Toulouse. Now General Electric, ITT and the Dutch Philips are vying to take over a French electric-equipment manufacturer, and the U.S. firms appear to have the edge. Says Debre's top aide, Antoine DuPont-Fauville: "We will try to preserve certain sectors that touch on our national interest, but in the future a French non will be the exception rather than the rule."

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