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    France Marches Against Capitalism While Pocketing Its Profits

    April 7 (Bloomberg)
    Marcel Bertrand, 71, took to the streets of Paris this week armed with a sign that read ``With the Young Against Capitalism.'' He says he wants his three grandchildren to have the same rights that he's enjoyed.

    The nationwide protests haven't just been about a law making it easier to fire young people. They've been a forum for concerns that the free market is chipping away at job security. ``The excuse they always give is globalization and competition,'' says Bertrand, a retired schoolteacher. A majority of the French see globalization as a source of fear, not hope, according to a BVA poll in December.

    By some measures, France has done quite well by capitalism, globalization and competition. It has more foreign investment as a percentage of the economy than its European neighbors. One in seven people is employed by a non-French corporation. The Paris stock market's capitalization of $2.15 trillion is the largest in Europe behind London.

    Reconciling these opposing realities is the task France's leaders face as they struggle to reduce unemployment that's stagnated near 10 percent since the mid-1980s. In the run-up to elections next year, President Jacques Chirac's Union for a Popular Movement and the Socialist Party will be under pressure to explain how they plan to create jobs without appearing to sell out to pure market forces.

    ``The challenge is to find a way that people accept globalization yet see the benefits,'' says Nicolas Sobczak, an economist in Paris at Goldman Sachs Group Inc. ``At the moment, they just see costs.''

    `Very Competitive'

    French stocks have risen since the first day of the student protests on Feb. 7. The benchmark CAC40 Index has risen 6 percent to 5222.36, outpacing London's FTSE 100 and the Standard & Poor's 500 Index. It includes insurer Axa SA, power utility Electricite de France SA, water company Veolia Environnement SA and retailer Carrefour SA, among the biggest in their fields.

    Paris-based Alcatel SA, the world's biggest maker of broadband Internet equipment, agreed on April 2 to buy Murray Hill, New Jersey-based Lucent Technologies Inc. in a $13.4 billion share swap. Lucent Chief Executive Officer Patricia Russo, who will run the new company, told journalists the labor unrest didn't bother her because Alcatel is a global group.

    ``French companies are very competitive and very, very able to hold their own,'' says Felix Rohatyn, a former partner at Lazard Freres & Co. and ambassador to France under President Bill Clinton from 1997 to 2000. He now has his own advisory firm in New York.

    Purchasing Power

    Last year, per-share earnings at the 40 companies that make up the CAC40 Index rose on average 25 percent, according to FactSet Research Systems Inc.'s London office.

    Meanwhile, the purchasing power of the average salary in France is little changed this decade, according to Insee, the state statistical body. It's grown just 14 percent since 1980, after rising 52 percent in the 1960s and 30 percent in the 1970s.

    France's jobless rate was 9.6 percent in February, the highest among the 12 countries using the euro. It hasn't gone below 8.5 percent since the early 1980s.

    Sarah Laffon, a 15-year-old high-school student from central Paris who joined the protests on April 4, says it's unfair that companies can simultaneously post record earnings and fire workers. ``The CPE takes us back a century in terms of worker's rights,'' she says, using the French acronym for the contract. ``The money for jobs is there,'' she says.

    Conflicted Relationship

    France's conflicted relationship with capitalism was highlighted in a poll by the University of Maryland's Program on International Policy Attitudes and GlobeScan. Only 36 percent of the French answered ``yes'' to the question: Is the free enterprise system and free market economy the best system on which to base the future of the world? France was the only one of 22 countries where a plurality or majority didn't say yes.

    Still, the poll shows the French don't reject the free market outright, they just want it tamed, says Clay Ramsay, research director at the Washington-based program.

    Asked if the free market economy works in society's interests ``when accompanied by strong government regulations,'' 57 percent of the French agreed, compared with 59 percent in the U.S., 69 percent in Britain, and 68 percent in Germany. The poll was conducted from June to August last year, with about 1,000 people questioned in each of the countries.

    Republican Image

    Prime Minister Dominique de Villepin has said cutting unemployment, which reaches 22.2 percent for the young, was the rationale behind the new job contract. It would allow companies to fire workers under 26 during their first two years with minimal warning. Chirac said on March 31 he would sign the law, although he banned the new contract from being used until it's been negotiated with the labor unions.

    ``We have to reform our social model if we want to save it,'' de Villepin, 52, told parliament on April 5.

    While the protests may be viewed from outside France as a case of the French wanting their cake and eating it too, the debate actually strikes at the heart of French identity, says Eric Coquerel, a spokesman for a political group called the Movement for a Republican and Social Alternative.

    ``The idea that we should be ruled by the law of the market is an affront to the Republican image the French have had since 1789 and that was reaffirmed at the liberation after World War II,'' Coquerel, 47, says.

    Vacation

    Many of the unchallengeable rights French workers refer to are relatively new.

    In 1936, France was the first country to institute mandatory two-week paid vacations and to cut the workweek to 40 hours. A third week of vacation was added in 1956 and a fourth in 1969. From 1973, companies had to provide a reason and compensation for firing workers, according to France's official labor code.

    President Francois Mitterrand, elected in 1981, added a fifth week of paid vacation, cut the retirement age to 60 from 65 years and gave unions more power to set up representation within companies. In 1998, in a push to create jobs, another Socialist government instituted the 35-hour workweek, resulting in some workers getting even more vacation.

    There has been some loosening of labor laws, too.

    Short-term contracts were created in 1985, and a 1986 law ended the government's right to vet job cuts. In 1993, companies won the right to vary working hours throughout the year. And in 2003, the 35-hour workweek was diluted by increasing the maximum hours of overtime allowed.

    `Crisis of Confidence'

    One of France's weaknesses is its lack of political leadership to drive through changes, says Jean-Marie Lech, co- president of Paris-based polling company Ipsos. A plan to reduce pension benefits that sparked paralyzing strikes in November 1995 finally made it through parliament in June 2003.

    De Villepin replaced Jean-Pierre Raffarin as prime minister last year after Raffarin's government failed to convince French people to back the proposed European Union constitution in the face of claims its ``Anglo-Saxon'' slant would weaken workers' rights. Voters rejected the treaty, effectively killing it.

    ``France is in a mood right now where we say `No' to everything,'' Ipsos's Lech says. ``France has been living for the past 20 years with a crisis of confidence in its political leaders. They are against them all because they have been let down by them all.''

    French politicians could use European countries such as Denmark, which has loosened rules on firing while maintaining generous welfare benefits, as a model for implementing changes, says Brad Setser, a former U.S. Treasury official and head of economic research at Roubini Global Economics in New York.

    Danish Model

    Denmark's unemployment rate was 13 percent in 1994. Through a series of agreements between employers and unions, companies gained the right to fire workers with just several months' notice. At the same time, unemployed workers can receive benefits equal to as much as 80 percent of their last salary and personal coaching from work agencies that guide them toward new jobs or training programs. The jobless rate in February was 5 percent.

    ``France needs a change, but I don't think it's realistic for the French to adopt a series of economic reforms that transform it into a mini-U.S.,'' Setser says.

    In France, part of the reaction to the new job contract stemmed from de Villepin's failure to consult the unions first, says Dominique Barbet, the chief French economist at BNP Paribas SA in Paris. ``It's clear if we want to push through more reforms there need to be more discussions with the government, unions and employers,'' he says.

    He says he expects much discussion to take place before the presidential election in May 2007. Changes will follow, ``but not till after the elections are over,'' he says.

    Source
    bloomberg




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