Matthew Lynn: The French reluctance to accept common sense?

I must say that the Bloomberg columnists are above average at the moment. Especially the recent article from Matthew Lynch about the apparent French reluctance to accept common sense.

The article has a couple of points well made in my opinion. Particularly Lynch's three explanations as to why France will not accept what appears to be conventional wisdom.

[I have added numbers so that the explanations are clearly divided] 

"So why are the French so reluctant to accept a measure that would be seen in the rest of the world as basic common sense?

There are three possible explanations.

1. First, at least two generations of anti-capitalist propaganda from intellectuals have convinced the French that free markets are a problem, not a solution. It isn't just a cliche; the French really are anti-business.

French Skepticism

A recent poll by GlobeScan and the Program on International Policy Attitudes at the University of Maryland asked people in 20 countries whether free enterprise was the best system. Only 36 percent of the French said it was, while 50 percent said it wasn't. That was the lowest level of support for the free market. By contrast, 74 percent of Chinese were affirmative, 71 percent of Americans, and 65 percent of Germans.

2.  Next, the workforce in France is split between insiders and outsiders. ``The French labor 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 economist Eric Chaney said in a note to investors last week.

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

Economic Patriotism

Absolutely. There is no reason why the cost of liberalization should be borne only by the young, or by temporary workers, the self-employed, or workers for small companies. France needs a much simpler employment contract that covers all workers, including the bloated state sector. If you pick on one group, of course they will protest.

3. Lastly, 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'' that is as intellectually illiterate as any of the placards waved at him by the protestors. It doesn't make sense to prohibit companies from firing workers if they aren't needed anymore.

And it doesn't make sense to stop international competitors from acquiring French companies. The directors of Suez SA, which de Villepin has been protecting from a foreign takeover, should be subject to the market just as much as students.

You can't have it both ways. Either the French political and industrial 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?"

Well, Lynch's arguments are pretty bold so let us scrutinize them a bit further. 

1. French are anti-business? Well, we have certainly heard that before haven't we? Personally, I think this is very true and right now the dominant discourse in French society and politics is certainly anti free market and anti (anglo-saxon) capitalist. This is also shown by the recent protectionist voices among French policy makers in relation with European cross-border mergers which also as noted by Lynch makes Villepin rather shallow as a vessel of market reforms such as the CPE. On the other hand we need to be careful to make generalizations like this especially when the picture is bound to be more differentiated.

2. Here Lynch has the argument of the month in my opinion and I won't spend lines where I agree with him. However, I still believe (the very true insider/outsider argument notwithstanding) that the CPE contract would do a decent job in lowering youth unemployment in the short and medium term. In fact, contracts such as CPE and CNE are very pragmatic and effective solutions to, at least initially, lubricate a rigid French labour market.

3. I have already touched upon this in point number 1; i.e. whether Villepin represents damaged goods in his effort to puch forward the change of the French labour market. Quite simply, I believe this illustrates the need for change in France on many levels not least the attitude towards foreign capital. 

So where are we then? France desperately needs to change and the labourmarket is one of the main issues in this process. The student in the streets of Paris are conservative and regressive in their wish to keep things at status quo, but as Lynch also implies they should not be the only vessels of the new French labour market reforms