French Connected

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 340 cheeses, the eight-week vacation, the 35-hour workweek and the crippling public sector strike, this over-centralized, over-taxed, state-heavy, tradition-bound, sedentary, protectionist and perversely self-satisfied nation could not possibly survive in the competitive, market-driven international arena of today.

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 proud young bird is only partly visible a beak here, a claw there but already begins to reveal the shape of things to come. The trends are clear: privatization, decentralization, entrepreneurship, multiculturalism, a weaker state, lower taxes, a pared-down public sector, and a more collegial European identity in place of l'exception franaise and the universal sense of mission that have heretofore defined France's place in the world. Says former Socialist Finance Minister Dominique Strauss-Kahn: "We're becoming a country like any other."

Well, not quite. France still has one of Europe's highest tax burdens (45.3% of GDP) and one of its most bloated public sectors (accounting for one in four jobs) not to mention an archaic, out-of-touch political elite headed by Gaullist President Jacques Chirac, 67, who has been battling in the French political arena for more than three decades, and Socialist Prime Minister Lionel Jospin, 62, an austere Protestant who claims to be a modernizer but still lapses into old-fashioned leftist rhetoric and is leagued with one of Europe's last, and least-reconstructed, Communist parties.

Yet look what this leftist government has accomplished since coming to power in June 1997. Jospin has totally or partially privatized more companies than his four predecessors combined $24 billion worth in all, including such state-owned behemoths as Thomson Multimedia, Air France and France Telecom. Economic growth this year is projected by some estimates to pass 4%, the strongest performance of any major European country. The Paris Bourse grew by a record-shattering 50% in 1999 while the technology-driven Nouveau Marche leapt ahead by 135% (repercussions from Wall Street's April correction have recently, perhaps temporarily, cooled those red-hot markets). 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, France's unemployment has dropped from an alarming 12.6% when Jospin took office to the current 10%. As the vibrant economy continues to produce new jobs at the rate of more than 1,000 a day, the government is predicting single digits by the end of the year.

This dramatic recovery comes against the backdrop of some very real economic and industrial strengths. France is the world's No. 4 exporter, fifth-biggest economy, a world leader in transportation (the tgv high-speed 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 now lifting all European economies.

The fall in unemployment and the return of growth have suddenly shifted the public mood from a decade-long depression into an exuberant optimism. "We lived through a terrible decade in the '90s, when we hit the bottom of the pit," says sociologist Robert Rochefort, head of the CREDOC, a Paris-based think tank. "We had no confidence in anything, record unemployment, a sense of national decline. Since 1997, we have seen a spectacular return of confidence, a sort of alchemy, in which everything seemed to turn from lead to gold."

The turnaround actually began just before Jospin's election, but the Prime Minister deserves credit for boosting public confidence with a series of measures he launched shortly after taking office. After dithering over joining the euro, the new Socialist government signed the June 1997 Amsterdam Treaty which ensured France's participation in the single currency and tied its destiny to the European Union. Initial hesitations over privatization soon gave way to a steady sell-off of state companies that reassured the business community and international investors (who hold more than 40% of shares in publicly-traded French companies). Most important, and most controversial, were the 35-hour workweek and the program that offered state-subsidized jobs to 350,000 young people.

The government promised that the twin schemes would boost employment. But even Socialist Party insiders now admit that the real aim was to restore confidence to a shaken public opinion. "If you judge the youth job program economically, you can criticize it," says Henri Weber, a Socialist senator and respected party theorist. "But in fact it is a matter of collective psychology. Same with the 35 hours. These measures had a psychological function: to treat collective depression. It worked. The country started to consume, to invest, to be exuberant and happy." Employers, meanwhile, used the 35-hour negotiations to inject a much-needed measure of labor flexibility into the workplace.

Sociologist Alain Touraine argues that the 35-hour and youth-jobs programs were "economically unreasonable, but psychologically fantastic. It means we can be competitive and still develop social policy." The twin goals of competitiveness and social policy go to the heart of the challenge facing France. For social policy, as characterized by the providential welfare state, means continued government control and high taxes. But being competitive in an open global economy 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 they put it.

Trouble is, liberalisme is almost a dirty word in France. It's the antithesis of everything the French Revolution and five ensuing republics have stood for: centralism, dirigisme, strong government, equality, solidarity. French citizens are accustomed to look to the state for everything from welfare, pensions and education to public transportation and compensation for natural disasters. Liberalism, in the French sense, is the laissez-faire, deregulated, individualistic, profit-driven, devil-take-the-hindmost ethic embodied by the U.S. and post-Thatcherite Britain. Almost no French politician on the left or right will openly endorse such unbridled 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. And liberal policies are being pursued by the Jospin government even more vigorously than by his conservative predecessors. "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."

"Of all comparable countries," says Rochefort, "France is the most resistant to liberal ideology. For historical reasons, we remain a profoundly anti-liberal culture. But what happened in the last 20 years is that the world passed over to the liberal ideology and we have ended up adopting a liberal pragmatism without adopting the ideology. Our leftist liberals are pragmatic liberals."

One such pragmatist is former Finance Minister Strauss-Kahn, who argued for lower taxes, more venture capital and freer use of stock options during his two-year tenure. "No one now contests the free market," he explains, "but we still need rules and institutions. We say the free market is okay, but it's not okay for society to be organized only by the market." In short, the leftist government is not willing to dismantle the social safety net or take on the entrenched civil service in the name of competitiveness. As Weber puts it: "We are the ones who refused to take the boat and go to America. We will never accept American solutions. Our people don't tolerate the same degree of risk and violence. Our solution must be of a social democratic type."

That would seem to put limits on how far change can go in France. But in fact, the politicians are no longer in control of the process. "The changes are now coming from outside the political debate and independently of the political class," says Gaullist deputy Pierre Lellouche. "What the political class is doing is foreign to the real world and basically irrelevant." MORE>>

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One reason for that is the discredit that has fallen over the country's political and business elites as a result of a decade of financial scandals. Since the early 1990s, in a French version of Italy's "Clean Hands" crackdown, at least 30 former ministers, party officials and company heads have been put under investigation for offenses ranging from influence peddling and embezzlement to illegal party funding and bribery. The judicial independence that has permitted this sweeping cleanup is one of the most striking aspects of the new France such affairs would have been quashed from on high under the old system and it has led to a broad questioning of the honesty and competence of the whole French ruling class. "The judges have played a strong role in discrediting the elites," says Olivier Nora, head of the Grasset publishing house. "Now France is trapped by its own affairs, there is a rise in the sense of ethics and a general impression of corruption."

Another reason for the powerlessness of the politicians is their apparent inability to recognize the profound changes that are taking place in France and the need to develop new models to accommodate them. Bernard Cathelat is a sociologist who studies public opinion for the Havas advertising and media group. Based on his detailed polling, he observes "a real rebound, a renewal of energy and passion, a desire to do something. For the first time in 30 years, the French are ready to change their way of life. What makes me pessimistic is that there are no leaders for this movement. Our political leadership is not credible."

This disconnect between government and the myriad forces pushing for change is one of the biggest problems facing France today. "France is a new country, rapidly changing, imaginative, but led by a bunch of old-fashioned people who constantly refer to the past, to tradition," says Touraine. "The problem cannot be solved without a way of redefining a mix of new economic realities and new social policies. That supposes ideas and debates, but there is very little of that. We have a void between practices and government policies."

While politicians expend their energies on the musical-chair jostling of Paris mayoral candidates (the contest is still 10 months off) and party strategies for the 2002 legislative and presidential elections, major evolutions are taking place almost under their noses. Most significant, perhaps, is the morphing of the old Jacobin, Paris-centered nation into a more complex, decentralized model in which other cities and their surrounding regions are emerging as poles of economic development and cultural expression.

To be sure, government did play a role in launching the process with the administrative decentralization enacted under Socialist President Franois Mitterrand in 1982. It created 22 elected regional governments with authority over public works, infrastructure and local economic initiatives, but left the country's 96 administrative departements in the hands of government-appointed prefects, while municipal affairs in France's 36,000 communes remained the responsability of their mayors. The result was a mishmash of overlapping jurisdictions and a surge of corruption as financial responsibility devolved to local officials and money often disappeared into their pockets.

"The 1982 decentralization established no hierarchy between the various entities," says Marc Cabane, who heads a government task force on decentralization and reform. "They were expected to work together but there was no clear-cut leadership." With nearly everyone agreed on the need to return to the drawing board, Jospin has appointed former Prime Minister Pierre Mauroy to propose a new reform, which is expected to reduce the number of regions and streamline the administrative machinery.

Meanwhile, regional development has proceeded at a rapid rate for reasons that have little to do with government-decreed administrative reforms. One keen observer of this process is U.S. Ambassador Felix Rohatyn, who has set up American diplomatic posts in various provincial cities in response to it. "I saw that the combination of the euro and the single 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 provincial cities 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 French 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. That's not the case today." Paris continues to tower over its provincial rivals as an international city, the country's political nexus, an architecturally dazzling showplace and the world's No. 1 tourist destination. But it does not embody or define France as it once did. "France no longer passes through Paris, but through Alsace, Provence, Brittany," says journalist Yannick Le Bourdonnec, author of Le Printemps des Regions. "It is no longer Paris that imposes itself on the image of France."

The old Jacobin republic is also fracturing along ethnic and communitarian lines. Since the French Revolution, the country has espoused the ideology of the unitary republic, in which all citizens are equal and indistinguishable in their relationship to the state. Successive waves of immigrants have been expected to leave their languages and cultures at the border and become uniformly "French" through the process of integration. The system worked fairly well in absorbing Spanish, Italian, Portuguese and Polish workers earlier in this century. But it has broken down as the postwar influx of Arabs and Africans from the former French colonies clogged the French melting pot with a non-European, largely Islamic population.

The result is that France, in stark contrast to the official theory, is becoming a multicultural society. Some analysts feel that the old model of republican integration will ultimately absorb the newer immigrant groups. But most observers see the spread of multiculturalism as a fundamental challenge to the traditional French nation. "The French don't accept the idea," says political commentator Alain Duhamel, "but the reality is the existence of communities and the formation of specialized ethnic neighborhoods. France is becoming a country of exclusions, with more ghettoization than Germany, Britain or Holland. This will be a big political battle in the future."

A more positive aspect of the French renaissance is the rapid development of the new economy. France was slower off the mark than the U.S. and some of its European neighbors, but has been steadily closing the gap in the past couple of years. The number of Internet connections has increased fivefold since 1997, while the financing of high-tech start-ups has tripled in the past year.

"The new economy is very promising," says Jacques Attali, a former economic adviser to President Mitterrand. "We are experiencing strong growth and developing new technologies. We are good in everything that is the future: aerospace, transportation, entertainment, tourism, genetics, agrobusiness, telecoms. Today anyone who wants to create a company can find the money. Two years ago, there was less than $100 million available for start-ups. Now it's nearly $2 billion." Two French psychological impediments to embracing the new economy 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 one out of 200 graduates of France's elite universities said he wanted to be an entrepreneur. Today, it's more than half. That's a major generational shift." 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 domain.

All these changes are forcing the political establishment to face up to the needs and realities of the new France of the future. But two major obstacles remain. One is the size and conservatism of the bloated public sector work force, which sees any change as a threat to its status and privileges. The other, related problem 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 reform is urgent: unless the public sector is trimmed and the national pension system modified, the country will face an untenable financial crunch in coming decades.

There are optimists and pessimists on the question of reform. Socialists like Weber 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 progressive change is possible. Skeptics say that Jospin has merely done the easy stuff, while shunning the fundamental state reforms. And in the back of every mind is the French revolutionary tradition which has proved time and again that leaders who try to ride roughshod over an angry populace do so at their peril.

To former Finance Minister Strauss-Kahn, though, France's history of sudden, paradigm-shattering upheavals is the best proof that change is possible. "We are a country of revolution, not reform," he says. "Things don't change for 20 or 30 years, then suddenly they change. In two centuries things have changed abruptly. That can happen also in the reform of the state. Things may seem blocked, but ideas are gaining force and one fine day, the move occurs."

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 convinced 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, thus reducing the chances of cohabitation. But it could also transform the monarchical-style presidency envisioned by De Gaulle into 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 it.

Even as the country grapples with these profound internal transformations, its changing international role also reflects a growing awareness that the new France must be very different from the proud and glorious world power of old. If a sense of universal mission continues to stir the hearts of French politicians and diplomats, only a handful of die-hard nationalists now doubt that France's international aims and aspirations can only be achieved through Europe. Hence the leading role that the country has taken in promoting European military cooperation and in the aggressive defense of European economic interests. The French strategy of using Europe to enhance its own clout and counterbalance America's overwhelming power is proof of both the resilience of the new France and a tenacious belief in its own special destiny. Plus a change, in other words, plus c'est la mme chose.