NCPA - National Center for Policy Analysis

French Economy Grows Despite Socialists

November 24, 1999

How is it that France's private sector has been able to record an average growth rate of 2.4 percent this year, even though its government is socialist led? The answer is that while the socialists can't fully resist the urge to meddle, in some important areas they have managed to look the other way and let markets function in some semblance of a rational manner.

Also, the competitive pressures of the European Union have led them to relax some restrictions.

  • Observers report that new regulations have brought surprising flexibility to France's labor market, despite the government's controversial directive that will drop the legal workweek to 35 hours from 39 hours starting in January.
  • The privatization wave begun under prior center-right administrations has been allowed to continue.
  • Mergers and acquisitions totaling $158 billion -- compared to just $90 billion in Germany -- have not been stifled.
  • Despite loud protests from labor unions and leftist politicians, companies have been allowed to restructure -- closing factories and laying off workers.

Meanwhile, the strict labor laws that are an important reason French unemployment has remained so high have been loosened. Social security taxes paid by employers on low-paying jobs have been cut by 20 percentage points -- encouraging companies to hire unskilled workers.

Firms have greater leeway to employ people on a temporary basis. The companies will be free to let some of these workers go if the economy turns sour. Half of all jobs held by workers under 25 are classified as temporary.

Such changes have allowed the service sector to add half a million jobs in the past three years. That has cut unemployment by more than a percentage point, to 11 percent.

Source: David Woodruff, "French Firms Embrace Capitalism in Spite of Government's Meddling," Wall Street Journal, November 24, 1999.

 

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