Quotes of the Day

Leila Fathi, 20, a law student at the University of Nanterre, outside Paris, has been spending every day of her spring break in the library. After four weeks of demonstrations during which her university was blocked and idle, she and her co-students have a lot of catching up to do before exams. Fathi was in the thick of the protests. "We always knew we would win," she says. "Of course the government had to back away from their law after such a show of force, but who would have thought it would take four weeks of protests to bring them to their senses? So it wasn't a real victory, but at best a partial one, which has brought us back to the normal state of affairs."

Judging by recent French history, the students' victory is likely to be partial for other reasons, too. The same combustible sequence of events that killed Prime Minister Dominique de Villepin's contested youth job bill has played out in identical fashion twice before in the past decade. Huge protests confronted the government's attempt to overhaul pensions in the mid-1990s, and they broke out again when it tried to shake up the Finance Ministry in 2000.

In both cases, the government also backed off, with serious consequences. The 1996 climbdown by then Prime Minister Alain Juppé helped bring a socialist government to power the following year; in the 2000 debacle it was Finance Minister Christian Sautter who lost his job. But here's the twist: years later, both sets of reforms have happened anyway. The national pension system was revamped three years ago. The Finance Ministry, long a bastion of public-sector inefficiency, is today one of the few government departments that is successfully reducing its head count, cutting costs and improving productivity. So, if the truly "normal state of affairs" prevails in France, some watered-down version of Villepin's employment measures may well creep through at some point in the future.

France is spectacularly good at saying non. Naysayers are often fêted in heroic, Joan-of-Arc terms; when the student demonstrations exploded in March, Paris Match ran a thrilling cover photo of two young people locked in a dance-floor embrace in front of a cordon of riot police. But behind the scenes, more quietly and with no discernible romance, France can and does also say oui. For every rock-throwing protester posing for TV cameras outside the Sorbonne, there is a polished technocrat in an anonymous office patiently pushing the modernization envelope. The changes those technocrats can institute are limited, less sweeping in scope and slower to take effect than grandiose political programs, but they're often more effective. They underline the truth that France is a prosperous nation whose public services are often superb and whose private companies are frequently world-beaters. And they undermine the international cliché — a cliché the French themselves like to propagate — that France is impossible to change.

Bruno Parent is one of the change agents. He's a top civil servant at the Finance Ministry and played a key role in bringing about the transformations there. The failed Sautter plan would have cut costs by merging two huge tax administrations within the ministry. Both are still in place; Parent and his colleagues left the structures largely alone, but looked at ways to eliminate the overlap. "I prefer progressive reforms that succeed even if they take five years," Parent says, "to more ambitious and more rapid ones that run the risk of being a complete failure."

That's typically French. In Germany and Scandinavia, change happens after considered debate and lengthy analysis. In France, by contrast, it tends to be convulsive and born of conflict: one violent leap backward followed by two surreptitious steps forward. It's Houdini, not Thatcher. "If you only think of reform in terms of the Big Night, you'll never get anywhere," says Jean-François Copé, the government minister officially charged with reform of the state.

In its own way, the incremental approach can bear fruit. Over the past decade, governments of both left and right have privatized or partially privatized most of the major French companies that were state-owned. Each privatization was bitterly contested, and the whole program only took off after strikes at automaker Renault — and following catastrophic losses at state-owned bank Crédit Lyonnais. But change happened, and the firms and France have both thrived as a result. Similarly, France is less at risk than some of its neighbors from the costs of an aging population, partly because of the 2003 pensions reform.

These days, it's the health-care system that needs work, as the government seeks to curb spiraling costs without sacrificing a high standard of care. Doctors, nurses, paramedics and many others around the country are up in arms; some are on strike. Inefficient French hospitals aren't closing, in contrast to Germany, where several hundred have shut down. But the government is introducing a rigorous new accounting system that for the first time details the cost of every service. Perhaps most significantly, the workings of the national budget have just been revamped; a new law requires government ministries to justify every item of their spending. The French are some five years behind Britain and Sweden with such measures, but they hope to learn from others' mistakes. If they can, the new system could put an end to reckless French government spending that has led to a fivefold increase in the national debt to €1.1 trillion over the past 25 years. "It signals a big shakeup," says Jean-Raphael Alventosa, a budget expert at the Cour des Comptes, the national accounting office, which will get more clout. Even France's love affair with hugely expensive — but glorious — infrastructure projects is changing: the Millau viaduct, the world's highest road bridge that opened last year, was entirely financed by the private company that built it. In the past, the French state would have automatically footed the bill.

Leaving reform in the hands of a bureaucracy that can be a part of the problem is at best unsatisfying. Absent from the list of changes that have happened in France are the two that economists say matter most: a long-overdue revamp of convoluted labor-market regulations and a streamlining of the nation's gargantuan public sector, which now employs 22% of the workforce and consumes more than half the nation's gross domestic product every year. The conditions are ripe for substantial cuts; over the next 10 years, 850,000 civil servants will retire. But so far, no politician has had the nerve to announce a detailed approach to the issue.

Labor reform is even more fraught, as Villepin discovered. But it's not impossible: France created 1.5 million new jobs between 1997 and 2001, the biggest surge since the beginning of the 20th century, in part thanks to a policy change that slashed the social-security bill employers had to pay for low-wage workers. Cutting the workweek to 35 hours also added some jobs, although it raised companies' costs. Tinkering such as this, however, has failed to make a lasting impact on high unemployment; indeed, the various cures have made the disease worse.

The French employment system is now hideously complex, with more than 20 different types of labor contract and a plethora of overlapping agencies set up to deal with the jobless. Villepin didn't set out to tackle the core problem. Instead, he simply added to the complexity by inventing a new type of contract that was designed to give employers greater incentive to hire young people by allowing them to be fired without cause. His forced retreat was widely viewed as another indication of Gallic intransigence.

But not by Laurence Parisot, who heads the national employers' organization Medef, which understands the dynamics of change in France better than most. Parisot was never more than lukewarm toward the government's proposal. But the national debate it led to has given her reason to hope, because it touched on issues that had previously been taboo. "Finally we can say that there's a link between the extreme rigidity of the labor code and high unemployment," says Parisot. She's pressing for a much more comprehensive cleanup of the messy labor laws.

French companies would benefit hugely from less expensive and cumbersome labor regulations. Many French firms are world leaders in their industries and have managed brilliantly to grow and adapt to changing global conditions. They include companies from glamorous businesses such as the luxury-goods giant LVMH to makers of basic electrical appliances (Legrand), right through to those who trade highly complex financial derivatives (Société Générale). The French public may be terrified of the idea of jobs leaving its shores, but CapGemini, a computer-services company, is a leader in global outsourcing. Indeed, in terms of private-sector profitability, 2005 was a banner year. But leading companies all complain about the huge costs and legal difficulties of hiring in France, and increasingly prefer to do so elsewhere instead.

Rose-Marie van Lerberghe knows the private sector well; she worked for a time as a senior manager for the food company Danone. But these days she's trying to inject greater efficiency into the French health-care system. In 2002 Lerberghe took over as director of the Paris hospital network, the biggest in Europe with 38 hospitals. It treats more than 1 million patients per year and employs 90,000 people. When she arrived, the place was a financial wreck. She closed some of the 208 separate laboratories analyzing blood, urine and tissue samples, and squeezed the cost of peripheral items such as the hospital restaurant budget. Instead of 29 different suppliers of chicken, Paris hospitals now have just two. Overall, the finances of Paris hospitals are back in order. Now Lerberghe is pushing for greater efficiencies in the delivery of care itself. Beaujon hospital, a 1930s red-brick structure in the suburb of Clichy, has been the first test. Its emergency services were stretched to breaking point, but with the help of consultants McKinsey, the hospital's staff has figured out how to slash average treatment times by up to 40%.

The Paris hospital network is a microcosm of France. Lerberghe says change is possible, but first, people must be won over to the idea that it will make things better, not worse. The doctors are now on her side — and saving her skin. In an echo of the national battles over reform, Lerberghe has to contend with ferocious opposition to her plans from the chairman of the hospital network's own board of directors. He's a communist politician named Alain Lhostis, a member of the Paris city council. What does he have against her? "What is someone who makes yogurt doing at a hospital?" he retorts. "Nobody in any developed country is reducing medical costs."

But in a sign of the times, Lhostis has been outvoted on key decisions with the help of doctors' representatives on the board. Jean-Yves Fagon, a specialist at the Georges Pompidou Hospital, says the Paris hospital network is "a big house that needs to be modernized. It's been a complaint for years that it doesn't operate very well." Lerberghe herself shrugs off the opposition. "Too often in France, the idea of good management seems contradictory to public service," she says. "That's a French curiosity."

Reform and modernization are not yet embedded in French culture. Granted, the economy has picked up; Credit Suisse First Boston now expects it to grow by 2.5% this year. But at a time of seismic changes in the world economy, when low-cost competitors such as China and India are challenging Europe, hanging with the pack isn't good enough. "France needs to find something that makes it stand out. It's not enough for it to do almost as well as its neighbors," says Bernard Liautaud, the chairman and founder of French software company Business Objects, which he built from scratch into a billion-dollar firm.

That's an argument many French don't like to hear. Change, reform and globalization still don't win popular approval. In December 2005, researchers for the German Marshall Fund of the United States asked people in the U.S., Britain, Germany, Poland, Italy and France who would benefit from freer international trade. France was the single biggest recipient of foreign direct investment into the European Union during the 1990s, and 6 million jobs (or about 1 in 4) depend on trade, yet the French were easily the most negative in the poll; just one-third of those asked thought trade liberalization would benefit them.

Back at the Finance Ministry, Parent admits that his house "has the capacity to explode." He has nonetheless managed to negotiate a continual reduction in the workforce. Nobody's being fired — that hasn't happened in the French civil service since the 1930s. The issue is how many of the people who are retiring should be replaced. "I think it is better to have a regular and reasonable effort than to proceed by a coup," Parent says. Sautter, the Finance Minister who lost his job in 2000 after proposing such a coup, acknowledges that much of what he advocated back then has now taken place. To be sure, as he says, change is happening "at a glacial rhythm — very, very slowly." But those who think that France never changes, never reforms, never modernizes, are simply parroting the prejudices the French themselves love to glorify. And they are wrong.

• PETER GUMBEL / Paris
• Its citizens habitually try to block reform, but behind the protests France is changing, slowly but surely