France is booming, but strikes are spoiling the party

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The Independent Online

France is booming. It was announced yesterday that risk investment, mostly in hi-tech start-ups, tripled in France last year, the biggest increase of any large country in the world.

France is booming. It was announced yesterday that risk investment, mostly in hi-tech start-ups, tripled in France last year, the biggest increase of any large country in the world.

But France is grumbling. Tens of thousands of teachers and tax inspectors will take to the streets in Paris and other cities today, complaining about modest efforts by the government to streamline the sprawling state apparatus.

What kind of animal lives next door to us? Is France an economic tiger or an immobile, strike-happy dinosaur? The figures this week showing the size of the British economy overtaking the French for the first time since 1962 are mostly a misleading book-keeping exercise, based on the low value of the euro. We are doing well, but France, written off as a basket case three years ago, is doing even better.

After outperforming all large European economies for the last two years, France will grow at something like 3.5 per cent this year, probably overtaking the United States as the most successful large economy in the developed world. Unlike the US, or Britain, France has a huge trade surplus. Despite the weakness of the euro and the high price of oil, French inflation is close to zero.

Against all expectations, France is creating hundreds of "new economy" businesses and rapidly making up for its slow start in the internet and telecommunications. However, the French boom is not dependent on the "new economy" alone. The two French car-makers, Renault and Citroen-Peugeot, are roaring into the fast lane; Airbus Industries, a Europe-wide consortium, but based in Toulouse, overtook Boeing as the world's favourite plane-maker last year. The Queen Mary II, successor to the ship that once symbolised British industrial and technological might, is to be built by a French shipyard.

Lombard Street Research, the British economic study group, predicted last month that France was replacing Germany as the "locomotive" of the European economy and might even become the "principal economy" in the EU in the next few years.

Is this the France we know and love to mock? The state-dominated country, with rigid working practices, crippling taxes and an appalling strike record? Little of that has gone away. The Gallic dinosaur co-exists, mysteriously, with the Gallic tiger.

Lionel Jospin's Socialist-Communist-Green government, which had promised to shrink the French state, had to admit last week that it had accidentally done the opposite. The share of the economy claimed by taxes and social charges reached an all-time record of 45.8 per cent in 1999.

The Jospin government suggested last month that, in the computer age, it might be possible to reduce the numbers of tax inspectors a little, by gradual erosion, and with no forced job losses. Thousands of tax officers went out on strike and will take to the streets today. They will be joined by teachers, complaining about the government's attempts to reform the hidebound education system; and medical staff protesting (more reasonably) about shortages in the state health system.

The French economy is growing so fast that it is generating billions more pounds in tax revenues than the government had anticipated (at least £8bn over two years). This would be a nice problem for most governments but it is a nightmare for Mr Jospin. Should he spend the cash on buying social peace in the short term or cementing the economic boom in the long term? Should he abandon his modest efforts to slim and reform the French state and bask in the economic sunshine? Despite a cacophony of demands, he is expected to follow his first, rather Blairite, instincts and announce a series of tax cuts.

How to explain this great French paradox? An over-taxed country, with an overweening bureaucracy, is a roaring success. According to the dogma laid down in Wall Street Journal editorials, such things cannot happen.

Partly, France is playing catch-up with itself. Its economy is growing rapidly now because there is a vast backlog of investment and consumer spending from the depressed early and mid-1990s. As France struggled to meet the conditions for membership of EMU, it deflated its own economy with high interest rates, a high exchange rate and high taxes. Depending on your viewpoint, France is now recovering, or benefiting from, that (rather Thatcher-like) period of austerity. Inflation has been squeezed; membership of the euro has brought low interest rates and low exchange rates with the world outside euroland.

Partly, France is benefiting from its more sensible state investments, in roads, railways, telecommunications and the preservation of core industries.

Finally, France is no longer the place that we (or the French) think it is. An entrepreneurial France has grown up alongside the statist France. The country has absorbed some of the Anglo-Saxon attitudes it pretends to despise. The new spirit of entrepreneurialism has been fuelled by scores of young French people who went abroad, to the US or Britain, in the early 1990s and are now coming home.

The "rigidities" in the continental labour market which Mr Jospin defends from Blairist attack have, in truth, been gradually eroded in France.Temporary contracts and part-time working now abound. The social charges on employers have been reduced (those on workers remain absurdly high).

Is France a new "model" for the rest of the world? France may seem more of an economic muddle than a "model". And yet a number of factors, some planned, some accidental, some admitted, some denied, appear to have come together to release the genius and animal spirits of what is a naturally inventive and prosperous country. We may have to get used to having a tiger on our doorstep.

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