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Commentary: France: When The Going Gets Tough, The Top Caves In


International Business: COMMENTARY

COMMENTARY: FRANCE: WHEN THE GOING GETS TOUGH, THE TOP CAVES IN

Given his clumsy handling of France's worst social crisis in decades, it's no great surprise that Prime Minister Alain Juppe has begun caving in to strikers who have paralyzed France for three weeks over planned cuts in the welfare state. Despite his promise of "deep change" when he took office in May, Juppe is sticking to archaic French ways. In France, autocratic politicians cook up new laws. Citizens either acquiesce or rampage in the streets. Only then do pols try to build consensus, but by that time the trenches are dug.

Striking rail workers have already forced Juppe to dump a key measure in his plan to slash welfare deficits: Rail employees will continue to retire as early as age 50. This perk--from the days of coal dust in the lungs--has produced more railway retirees than active employees. Juppe is also killing a plan to close uneconomic train routes, despite a rising rail deficit that will hit $6 billion this year. These givebacks represent a modest part of his austerity plan, but the risk is that other groups will win concessions. Too many cave-ins, and France won't meet criteria for European monetary union in 1999.

OSTRICH ACT. Perhaps the most disturbing bone that Juppe is tossing strikers is his Dec. 10 promise of a constitutional amendment to perpetuate state control of public services--trains, telecom, and sectors not yet spelled out. This dooms French taxpayers to subsidize inefficiency forever. It will also help keep France's head in the sand as free markets transform the world economy. And it will encourage a rift in Europe, where competition is supposed to be the stimulant of a unified economy.

Nearly all Western Europe is privatizing telecom monopolies. That allows restructuring, so the companies can compete in a globalizing industry. France Telecom's managers have hoped for similar rights; now they'll remain hostage to politics. Potential foreign partners may balk at state control. France Telecom is building an alliance with soon-to-be-privatized Deutsche Telekom and Sprint Corp. Washington, skeptical of France's vow to open its telecom market, now could delay or kill the deal.

Maddeningly, the French are glad to exploit freewheeling capitalism abroad, while limiting it at home. France's state railway has joined a group bidding to buy the heavy-freight business of British Railways. It's unlikely any foreign line will get that chance in France, if Juppe's amendment goes through. Moreover, when Paris does privatize, it typically shields companies from foreign acquirers by setting up "hard cores" of docile institutional investors. That's not a recipe for competitiveness.

Free-marketers in and out of France had hoped Juppe would give capitalism a new chance. A brilliant technocrat, he's a conservative with an 80% majority in parliament. He and his boss, President Jacques Chirac, won office last May by vowing to undo the mistakes of 14 years of Socialist rule. Trying to reform France's deficit-plagued welfare state was a good start, but Juppe--cool and cerebral--didn't bother to tell his compatriots why that mattered.

European monetary union is one reason, but more pertinent to French workers is job creation. Unemployment is 11.5% and rising. Cushy social programs keep taxes high, and that prompts business to export jobs. French companies are already on an investment binge. They have invested more abroad than German industry in each of the past five years. While global reach is good, the job market at home suffers.

Juppe has further raised taxes to cover budget deficits--contrary to Chirac's tax-cutting electoral promise. And instead of letting markets operate, he has expanded such artificial stimuli as state rebates for car buyers. Car sales are slumping anyway, because earlier stimulants borrowed against future sales. Juppe is maintaining France's outmoded motto: tax, spend, protect.

Granted, France is tradition-bound and tough for any leader to budge. Most labor bosses refuse to see that France's sluggish economy and aging population can't support the social programs of yore. They'll bear heavy blame if monetary union dies and jobs go elsewhere.

SUMMIT. To his credit, Juppe says he'll convoke a "social summit" of union, business, and other leaders to tackle solutions to welfare deficits. On top of labor hostility, he'll face reluctant business leaders who fear the summit will arouse militance in the private sector. So far, strikers are strictly public workers.

Chirac says the government will tough it out. "We were not elected to organize the decline of France," he says. But as Le Monde commented, the strikes have so discredited Juppe that he may not be "the best person" to lead the exercise. Unless Juppe can settle the crisis without a further cave-in, Chirac might be smart to replace him and declare a fresh start for his seven-year reign.By Stewart Toy


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