Free enterprise turns off the French

Dominique de Villepin

LONDON - Mass demonstrations in the streets. The riot police out in Paris. A "day of action" by the unions. Things could hardly be worse for embattled French Prime Minister Dominique de Villepin.

His efforts to breathe some flexibility into France's moribund labour laws have provoked a wave of opposition that may yet end his premiership - and look certain to damage his chances of winning the presidency next year.

In reality, he is the wrong man, introducing the right measures. He has no power base, no support from his party and a President who vanishes whenever there is economic trouble. Worse, De Villepin has fanned the flames of economic nationalism and protectionism. He can hardly complain if he gets burned in the process.

There is nothing wrong with the proposed changes, except perhaps their timidity and complexity.

The CPE, as the proposed law is known in France, wouldn't strike most people in other nations as incendiary. It allows companies to fire people younger than 26 within the first two years of hiring them, with little notice or severance pay.

It's badly needed. Unemployment in France is 9.6 per cent nationwide and 22.2 per cent among the young.

If French companies put the same effort and investment into creating new products that they put into avoiding new workers, the economy would be transformed.

The protests started with a few hundred university students in Paris, then spread to a demonstration of about 350,000 people in Paris the weekend before last, followed by more protests last week and weekend, some becoming increasingly violent. A national strike, involving hundreds of thousands, was set to start last night.

Polls have showed that more than two-thirds of French voters are opposed to the proposed law. So why are the French so reluctant to accept a measure that would be seen in the rest of the world as basic commonsense?

There are three explanations:

* At least two generations of anti-capitalist propaganda from intellectuals have convinced the French that free markets are a problem, not a solution. A recent international poll asked people in 20 countries whether free enterprise was the best system. Only 36 per cent of the French said it was, while 50 per cent said it wasn't.

That was the lowest level of support for the free market. By contrast, 74 per cent of Chinese were affirmative, 71 per cent of Americans and 65 per cent of Germans.

* "The French labour market is a two-tiered market with, on the one hand, highly protected workers (civil servants and holders of permanent contracts, mostly in large companies) and, on the other, highly flexible jobs (internships, short-term contracts, temporary jobs) for new entrants, immigrants and, more generally, unskilled workers," Morgan Stanley said in a research note.

"The reason why college and high-school students are demonstrating is obvious: They strongly resent this situation as unfair - why would they accept reforms while nobody is questioning the privileges of the insiders?"

* Neither De Villepin nor his Government has pushed a consistent argument for change. In the past few weeks, he has been following a policy of "economic patriotism".

It doesn't make sense to prohibit companies from firing workers if they aren't needed any more. And it doesn't make sense to stop international competitors from acquiring French companies. Those entities, which De Villepin has been protecting from a foreign takeover, should be subject to the market just as much as students.

Either the French elites believe in change, or they don't. De Villepin has shown no willingness to accept the verdict of the market, so why should France's citizens?

- BLOOMBERG