The bleeding edge of globalization: France’s controversial economic reforms

As troops marched along the Champs Elysées this week to celebrate Bastille Day in a traditional display of French power and grandeur, French leaders likely reflected on France’s standing in the world. As befits any French topic, it is something of a paradox. On the one hand, France has remained an economic and political power in an increasingly competitive world. France’s economy thrives under international competition and it punches well above its weight in geopolitics. But on the other, it faces major economic and political challenges and its leaders appear uncertain about France’s political capacity to continue to adapt.  

France is the European Union’s second largest country and the world’s 6th largest economy. It is home to an impressive number of multinational companies in sectors ranging from energy and transport to luxury brands. Productivity per hour worked is among the highest in the world, the health system is one of the globe’s best, and the country’s demographic prospects are better than most European countries. Meanwhile, it is a permanent member of the U.N. Security Council and Europe’s main military power. And as the recent outcome of the Greek eurocrisis demonstrated, France is still a heavyweight in the EU, probably the only one to really stand up to Germany.

But the French republic faces major economic challenges. As the Prime Minister’s office wrote in a recent report: “The competitiveness of businesses has gradually worsened since the early 2000s, leading to a slump in the margins of companies and a fall in our expert market share.” France needs better control of public expenditures, it adds, since “they represent a very considerable portion of national wealth.” Another major problem has to do with subsidized jobs, which have contributed to a large deficit in the unemployment insurance fund. While Germany reformed its labor market 10 years ago, France did not.

The pro-business agenda

In a recent meeting at Brookings, the man charged with making France more competitive—Emmanuel Macron, minister for the economy, industry and digital affairs—emphasized the need to “streamline government organization, increase investment promotion, reduce red tape, and modernize our economy.”

Macron is not your usual French minister. Only 37 years old, he entered politics just a few years ago after working as an investment banker on Wall Street and elsewhere. His background likely explains his ongoing efforts to “transform French capitalism” in order to “unlock the economy.” 

His flagship policy proposal—the pro-business, 400-article Economic Growth and Activity Billaims to reduce the public deficit, increase competitiveness, and spur an overall modernization of the French economy. It will open public transportation to more competition, with some routes benefiting from privately-run bus services alongside state-operated train lines. In some designated “special international tourism zones,” commerce will be open seven days a week. Meanwhile, small entrepreneurs will be able to sell their business more easily—in some cases without employee representatives’ approval.

It’s no surprise that such a plan has split the governing Socialist party, with a number of members of parliament opposing the reforms. One left-wing senator said the draft law “calls into question all the historic battles of the left,” referring to working on Sundays (a decision aimed at encouraging tourism, a major sector of the French economy). The bill was debated for 437 hours, underwent 1,000 amendments, and traveled back and forth between the two houses of parliament for four months before finally being passed on July 10. The government is now awaiting the Constitutional Council’s final word, expected within the next month. The “Macron law” is no small achievement in a country where—like in Greece, for example—powerful unions traditionally oppose these kinds of economic reforms. Whether this could serve as a model to other European economies facing economic difficulties is an open question.

Is reform good politics?

French politicians will soon re-enter campaign season, with regional polls scheduled for December and a presidential election in 2017. In a country where citizens are accustomed to generous benefits and a wide safety net, politicians are wary of taking risks with economic policy. The economic environment is already shaky, and it remains to be seen whether the Macron measures will really strengthen the French economy—and in particular, reduce the country’s record-high unemployment of 10.5 percent.

There are already some signs that the country’s new pro-business stance is helping: More start-up companies are emerging, for instance, and a spirit of entrepreneurship is spreading among young graduates. Meanwhile, the government has launched a new entrepreneur visa called the French Tech Ticket for foreign investors in technology and digital innovation. It is also offering more in grants for those sectors, aimed at attracting back French entrepreneurs who had moved abroad.

Like its neighbors, but even more so because of its strong sense of social justice and a tradition of protecting existing benefits, France is facing huge economic challenges. It needs to shake up the malaise that has riveted its domestic economy for some time. Left-wing socialist party members in France have consistently tried to slow down the reform agenda—but it’s actually pro-business measures that will help France to better cope with globalization, no matter who wins the next presidential election in 2017.