The French Are On A Roll

By THOMAS SANCTON/PARIS

Few countries would seem less likely to succeed in the modern world of globalization, free trade and high-tech, speed-of-light capitalism than France. Widely caricatured as the home of the five-week vacation, the 35-hour workweek and the crippling public-sector strike, this overcentralized, overtaxed, state-heavy, tradition-bound, protectionist and perversely self-satisfied nation could not possibly survive in the competitive, market-driven international arena of today. Could it?

Think again. A new France is taking shape at the dawn of the 21st century. Like a newborn chick pecking out of its protective shell, the fledgling is only partly visible--a beak here, a claw there--but already it has begun to reveal a dynamic, high-tech nation in which the old state-controlled system will give way to a more decentralized, privatized and entrepreneurial society. Says former Socialist Finance Minister Dominique Strauss-Kahn: "We're becoming a country like any other."

Well, it's tough to go that far. France still has one of Europe's highest tax burdens (45.3% of gross domestic product) and one of its most bloated public sectors (accounting for 1 of every 4 French jobs). The leadership is nothing new either; it consists of Gaullist President Jacques Chirac, 67, who has been battling in the political arena for more than three decades, and Socialist Prime Minister Lionel Jospin, 62, an austere Protestant who still lapses into old-fashioned leftist rhetoric and heads a coalition that includes one of Europe's last and least-reformed communist parties.

Yet look what Jospin's government has accomplished since coming to power in June 1997. He has totally or partially privatized more state-owned companies than his conservative predecessors, including such behemoths as Thomson Multimedia, Air France and France Telecom. France's economic growth this year is projected by some to exceed 4%, the strongest performance of any major European country. Though France was slow to plug into the Internet, it is quickly closing the gap, and its burgeoning New Economy could account for as much as 20% of all French production this year.

Most important, unemployment has dropped from an alarming 12.6% when Jospin took office to 9.8%, still appalling by U.S. standards but a substantial improvement. The turnaround has also shifted the public mood from a decade-long depression into an exuberant optimism. Says sociologist Robert Rochefort, head of the CREDOC, a Paris-based think tank: "We have seen a spectacular return of confidence, a sort of alchemy in which everything seemed to turn from lead to gold."

This dramatic recovery comes against the backdrop of some very real international attainments. France is the world's fifth biggest economy; the No. 4 exporter; and a world leader in transportation (the TGV bullet train), aerospace (Airbus and the Ariane rocket, produced in France with European partners), telecommunications (mobile phones and wireless technology) and civil engineering (the dazzling new Normandy Bridge and the Franco-British Channel Tunnel). With assets like these, the country is well placed to benefit from the cyclical upturn lifting all European economies. Meanwhile, aggressive French firms are making their mark abroad. Vivendi last month announced a merger with Canada's Seagram that will give the new company control of Universal's film and music interests and make it a major player in the entertainment field.

The turnaround actually began just before Jospin's election, but the Prime Minister deserves credit for his efforts to keep it going. After dithering over adopting the euro, the new Socialist government signed the June 1997 Amsterdam Treaty, which ensured France's participation in the single European currency and tied its destiny to the 15-member European Union. Jospin then began a steady sell-off of state companies, a move that reassured the business community and international investors. Most important, and most controversial, were the 35-hour workweek and a program that offered state-subsidized jobs to 350,000 young people. These measures had a psychological function: to treat collective depression. They worked.

The twin goals of competitiveness and maintenance of a benevolent social policy lie at the heart of the challenge facing France. Competitiveness ultimately means trimming back the role of government, the overall tax burden and the size of the public sector. In short, it means that France must become more Anglo-Saxon--or more liberale, as the French put it.

Almost no French politician on the left or right will openly endorse such free-market policies. But in fact, the logic of liberalism is built into the euro, the European single market and the free-trade global economy that France has embraced. "France is indeed moving in a liberal direction, but you mustn't say it," observes Antoine Garapon, an expert on the French justice system. "What distinguishes France today is a republican hypocrisy."

Another word for that may be pragmatism. In fact, the politicians are no longer in control of the process. One reason is that political and business elites have been discredited in a decade of financial scandals. Since the early 1990s, at least 30 prominent figures of all political stripes, including former Cabinet ministers and corporate CEOs, have been investigated for offenses ranging from influence peddling and embezzlement to illegal party funding and bribery. The judicial independence evident in this sweeping cleanup is one of the most striking aspects of the new France; such investigations would have been quashed under the old system. Says Olivier Nora, head of France's prestigious Grasset publishing house: "There is a rise in the sense of ethics and a general impression of corruption."

Another major reason for the powerlessness of the politicians is the morphing of the old Paris-centered France into a more complex, decentralized nation. A keen observer of this process is U.S. Ambassador to France Felix Rohatyn, who has set up five new American diplomatic posts in various cities in response to it. "I saw that the combination of the euro and the single European market, and the elimination of frontiers, was inevitably going to lead to a decentralization and increase the importance of regional centers and cities as they created their own alliances," says Rohatyn. "More and more businesses are migrating out of Paris, and this decentralization will only accelerate with the development of the Internet."

According to the 1999 census, Paris is losing population, while up-and-coming centers like Toulouse, Lyons and Lille are gaining. The southwest is currently France's fastest-growing region. Analysts attribute the shift to quality-of-life issues, a discovery of the cultural richness of the provinces and a resurgence of regional identity--all aided by technological advances that offer workers and companies an unprecedented degree of mobility. "If you are a successful start-up in Bordeaux or Toulouse in the technology field," says economist and author Alain Minc, "the question for the boss is whether to stay in Toulouse or move to London, not Paris. Formerly, they had to go to Paris to be close to the banks and have a decent work force." "France no longer passes through Paris but through Alsace, Provence, Brittany," says journalist Yannick Le Bourdonnec, author of a book on the regional trend. "Paris no longer imposes itself on the image of France."

Another striking aspect of the French renaissance is the rapid development of the New Economy. France was slower off the mark to embrace the digital revolution than the U.S. and some of its European neighbors, but the number of Internet connections has increased fivefold since 1997, and the financing of high-tech start-ups has tripled in the past year. Says Jacques Attali, a former economic adviser to President Mitterrand: "Two years ago, there was less than $100 million available for start-ups. Now it's nearly $2 billion." Among the new companies that are becoming household names in France: Fi System, a consulting firm that constructs websites and develops Internet strategies for traditional firms as well as start-ups; Tocamak, a so-called start-up accelerator that invests in and advises fledgling Internet companies; and the Web portal MultiMania.

Attitudes are also changing in a fashion that embraces the New Economy. Two famed French characteristics--an innate suspicion of wealth and a fear of risk--are fast breaking down as a younger generation taps into the Internet revolution. "Ten years ago," says Minc, "only 1 out of 200 graduates of France's elite universities said he wanted to be an entrepreneur. Today it's more than half." Indeed, the rise of the young, well-educated, global-minded generation is one of the most important forces driving the French renaissance in almost every area.

That said, there is still plenty of the old France to go around, and then some. One of the most important hurdles to further French development is the size and conservatism of the bloated public-sector work force, which sees any change as a threat to its status and privileges. Among the perks enjoyed by civil servants: guaranteed job security, early retirement and proportionally higher pensions than those of private-sector employees. Another, related challenge is the near impossibility of reforming state institutions. Recent attempts to rejigger the antiquated tax-collection and school systems were blocked by striking civil servants and their powerful unions, costing two ministers their jobs and probably ending all serious reform attempts until the 2002 presidential election, in which Jospin is expected to square off against Chirac. But the need for reform is urgent. Unless the public sector is trimmed and the national pension system modified, for example, the country will face a nasty financial crunch in coming decades.

In at least one area, reform of the state seems imminent: reduction of the presidential term from seven to five years. The idea has been gestating for decades, but France's three recent experiences with "cohabitation"--the awkward sharing of power between a President of one party and a Prime Minister of another--have persuaded Jospin and Chirac to push for a revision of the Fifth Republic's constitution. The proposed reform, which could be approved by referendum later this year, would make the presidential term coincide with that of the parliament. This would presumably reduce the likelihood of cohabitation, since the elections would probably be held on or near the same date, and it would be unlikely, but not impossible, for French voters to choose a President and a parliamentary majority from different political families simultaneously. But it could also transform the monarchical-style presidency envisioned by De Gaulle into that with a chief executive more like a U.S. President. Thus, politically, as well as socially and economically, France seems to be moving in a more American direction--without ever admitting to it.

So is France truly on a new course? Socialists like Henri Weber, a senator and a respected party theorist, point to the reforms that the Jospin government has already carried out--including a law recognizing unmarried couples and a requirement that parties field equal numbers of male and female political candidates--to argue that evolutionary change is possible. Skeptics say Jospin has merely done the easy stuff while skipping the tough state reforms. And in the back of every mind is the French revolutionary tradition that has proved time and again that leaders who try to ride roughshod over an angry populace do so at their peril.

If one thing has truly changed for France, it is the new Europe around it. Only a few die-hard nationalists doubt that France's international aims and aspirations can be achieved only through participation in the European Union. Hence the leading role that the country has taken in promoting European military cooperation and in defending European economic interests. France's strategy of using Europe to enhance its own clout--and counterbalance America's overwhelming power--demands the kind of changes that Jospin's government is trying to make, even as it offers the proud French a new forum in which to practice their tenacious belief in France's own special destiny. Plus ca change, one might say, plus c'est la meme chose.