Look behind the headlines, et voila! A French economic miracle

'Paris has quietly demoted state intervention and dirigisme in favour of market pragmatism'

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The French are revolting again. British holidaymakers are being deeply inconvenienced by bolshy trawlermen blockading the Channel ports, forcing them to spend another day shopping for cheap wine in Calais or paddling on the beach at Boulogne. No fun, with tired children in tow or urgent business beckoning back at the office. And, as usual, it's all because the protesters believe that the French government is doing too little for them. The fishermen want the authorities to step in and bring down the price of fuel.

The French are revolting again. British holidaymakers are being deeply inconvenienced by bolshy trawlermen blockading the Channel ports, forcing them to spend another day shopping for cheap wine in Calais or paddling on the beach at Boulogne. No fun, with tired children in tow or urgent business beckoning back at the office. And, as usual, it's all because the protesters believe that the French government is doing too little for them. The fishermen want the authorities to step in and bring down the price of fuel.

By coincidence, the resignation on Tuesday of the Interior Minister, Jean-Pierre Chevÿnement, provides another example of French conformity to stereotype. His objection to the Jospin government's limited devolution proposals for Corsica stems from a passionate belief in a strong, centralised, interventionist state. It is a vision of France that, in some degree, is still widely shared among its citizens.

No wonder, then, that Alan Greenspan, the chairman of the US Federal Reserve Board, should have used a recent speech to muse on the fact that old-fashioned state control of the economy had prevented Europe from reaping the benefits of the technological revolution. Mr Greenspan is revered in the US as the man who made the record-breaking boom possible, but he attributes America's phenomenal economic performance to free markets and flexibility.

As he pointed out, businesses can gain from new technologies only if they are able to cut costs and pass savings on to customers. Cost-cutting means being able to fire workers. The large-scale remoulding of an economy's industrial structure involves lots of people stopping doing some kinds of work and starting doing others. The US now has very few traditional jobs in industries such as steel and very many workers in new areas such as Java programming. European investors have voted massively in favour of the American model by pouring funds into the US stock market at the expense of their own economies, a preference reflected in the embarrassing weakness of the euro and corresponding strength of the dollar.

Yet in most European countries the idea that companies should be able to lay off workers easily and cheaply remains complete anathema. This partly reflects an understandable lack of confidence in some cases that there will be new jobs for those being restructured to go to, given the high levels of unemployment in some EU countries. But it is also a signal of a different set of social and political values. Politicians in a country such as France, with its tradition of dirigisme from the centre and social cohesion as a widely shared public value, are unable to transplant a new ideology such as that embodied by the raw American version of capitalism just because it would be more efficient, economically speaking.

Even so, the old stereotypes are becoming steadily more misleading. Those revolting fishermen divert attention from quiet but significant changes now under way. Habitual British Euroscepticism makes it easy to dismiss signs of economic modernisation on the Continent. Here, we focus on the danger that the "social justice" agenda of France's EU presidency will prove a Trojan horse for reregulation of the jobs market. Meanwhile, we ignore the fact that Laurent Fabius, the Finance Minister, is to announce cuts worth about £12bn in income tax and corporation tax today, in the country's biggest tax reform for half a century.

Mr Fabius recently described the tax system as a "major structural handicap" for the French economy and has indicated his determination to dismantle this barrier. His target is a reduction in the tax burden from a hefty 45.6 per cent of GDP - one of the highest by international standards - to below 44 per cent. Tax reforms were also recently passed in Germany and are due to lop about £15bn a year off the tax burden by 2005. So in both the big Continental economies the deregulation and privatisation of swathes of industry continues.

What's more, these policies are now also popular. According to a new opinion poll, 64 per cent of French voters think taxes should fall, compared with 38 per cent in a similar poll a year ago. By comparison, just 40 per cent now think income redistribution should be the government's priority. There is an appetite for economic modernisation. It is one that may prove vulnerable to any signs that the technology-based boost to the US's growth rate is faltering, but as long as that astonishing success continues, it is hard for others to ignore.

However, we will fool ourselves in Britain if we imagine that the UK is a cadet version of the US, poised to enjoy the same "new economy" gains as our cousins across the Atlantic while our old foes across the Channel are held back by old-fashioned economic rigidities and a sentimental resistance to modernisation. The British economy is not as dynamic and efficient as we pretend, while in France the government - thanks to Mr Fabius and his predecessor, Dominique Strauss-Kahn - has demoted state intervention in favour of market pragmatism. In neither case is the reality aligned fully with the rhetoric.

Mr Fabius has, in fact, forged a strong reformist alliance with Gordon Brown, based on their mutual recognition that further modernisation is an imperative on both sides of the Channel. The reform programme agreed at the EU summits chaired by the Portuguese reflects this, as will the summits under the French presidency. To focus only on the French government's social justice agenda is to miss the plot.

Besides, economic success no longer depends mainly on government policy. One of the hallmarks of the technological revolution is the way that it has made centralised government intervention increasingly irrelevant. Businesses can and must do things for themselves.

French and German companies invest more than their UK counterparts, and their workers deliver higher levels of productivity. The two Continental giants also match or better the UK in the use of new technologies such as the internet. If the ability to restructure is one key to harvesting the technological gains, investing in the new equipment is another, and European business has raced eagerly into the new economy.

So while a blockade of the ports by bolshy French fishermen is a familiar image, comfortable as an old cardigan, it can no longer be regarded as emblematic. The old barricades still go up, but they are, like it or not, irrelevant.

d.coyle@independent.co.uk

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