French inch toward social reform

Slumped on a bench outside the unemployment office, folding and unfolding a slip of official paper that testifies to another fruitless visit, Fremo is bitter.

He won't give his full name; a young out-of-work man of Arab origin, he prefers his anonymity. But he is blunt. "They do nothing to help," he complains, jerking a thumb toward the job center. "They ring me every six months to check that I'm looking for work, and that's it.

"I'd love them to find me a job," he adds. "But there are three million people like me in France who'd love them to find them a job. We've been sacrificed."

After more than two decades of jobless rates hovering stubbornly around 10 percent, France's chronic unemployment crisis "is the one big problem with the French social model," says John Martin, a senior official with the Organization for Economic Cooperation and Development. "If a social model should deliver a satisfactory labor market," says Mr. Martin, as European leaders gather outside London for talks about how to adjust their economies and social benefits, "this one has failed dismally for the best part of three decades."

Indeed, 68 percent of the French public said last month that their social safety net was broken. But they are divided over what to do about it.

Many are angry at what they see as hectoring from European Union leaders who have been urging big European nations such as France and Germany to apply free-market remedies (also known as the Anglo-Saxon model) to their flagging economies. And the French rejection last May of a putative European constitution - seen as paving the way for a more competitive, less comfortable Europe - was due in part to a reluctance to relax protective regulations and trim the welfare state.

But in executive suites and even on factory floors around the country, others recognize that global competition is already forcing change upon France. And they're not waiting for the government to refurbish the social model.

Christian Dumas, for example, sees a new competitive attitude that's boosting productivity in his own business. It may be the only thing keeping his small firm, and thousands of French firms like it, alive.

Mr. Dumas runs the family-owned firm making quilts and pillows that his grandfather founded outside Tonnerre, in northern Burgundy, more than 50 years ago. The business has grown, allowing Dumas and his 45 employees to prosper, but in recent months they have been feeling the heat of international competition.

First, eight low-wage eastern European countries entered the European Union last year; then the EU ended quotas on imports of Chinese textiles used in making quilts and pillows.

"We are up against terrible competition," says Dumas. "I told my people that either we give up, and the company goes under in two or three years, or we face the challenge, which means every single employee increases his productivity, and we all improve the quality of our goods. They were absolutely with me."

Dumas says he has "seen a change in mentality." "People realize that jobs are leaving France, and they are ready now to question themselves and the way that they work." Dumas says his workers are willing to find new, more efficient ways to do their jobs, allowing the business to prosper - without benefit or wage cuts.

But observers here question whether the country's leaders - or the public as a whole - are similarly willing to adjust.

President Jacques Chirac, adept at feeling the national pulse, lashed out earlier this year at US-style unregulated capitalism as "the communism of our new century."

"The French won't change just because they are told that change is inevitable," says Marjorie Jouen, an analyst with the Paris based pro-European think tank Notre Europe. "Recognizing that there is a crisis does not put people in the mood for reform unless someone offers a project to motivate us."

"We are in a crisis today because the practical consensus between the left and the right, linking economic efficiency with social protection, has broken down," says French philosopher and writer André Glucksmann.

"A significant part of the left argues that liberalism and social policy are antagonistic, that we have to choose one or the other."

That attitude, which dominates the current debate over France's future path, dismays EU leaders who are anxious to encourage the sort of economic growth that will help fund welfare programs for aging populations.

"In a number of member states, particularly some older ones, there is a fear that economic reform will undermine social protection," Irish European Commissioner Charlie McCreevy said in a recent speech. "Such fear is not only misplaced but counterproductive."

Often caricatured as the economic "sick man of Europe," France has already made some adjustments to make it more competitive: Worker productivity per hour is the third highest in the industrial world; financial markets are more open; the number of French shareholders has quadrupled in the last 20 years; and top French companies in sectors such as energy and pharmaceuticals are global leaders.

The government has extended the length of time one must work to receive a pension, it has rolled back the previous Socialist government's 35-hour limit on the work week, and it has introduced a new labor contract making it easier for the smallest firms to hire and fire.

But most economists consider these to be relatively minor reforms. And they've been introduced in the teeth of opposition from powerful public sector trade unions, whom some blame for hindering deeper reforms that would make the job market more flexible.

"France has chosen unemployment," charges Michel Debarnady, head of the national unemployment agency for the Seine-et-Marne region south of Paris.

"We have chosen to give precedence to those who have work, to keep their jobs alive as long as possible, with all the social advantages they have acquired, at the cost of those who don't have jobs, who are outside the system and who find it harder and harder to get in," such as women, immigrants, young people, and less skilled workers, he argues.

Some critics blame rigid French labor laws for discouraging employers from taking on new hands, since it is complicated and expensive to sack workers employed on indefinite contracts.

In fact, says Dumas, "we have all the flexibility we need when there is a lot of work - we hire temporary workers. It's when there is not enough work, and you need to let people go in order to restructure, that you have problems."

It takes at least six months to fire an employee for economic reasons, following strictly defined procedures that are "expensive, risky, and administratively long," complains Dumas, who went through the lengthy process with two of his employees last year.

International experts also say the French authorities should do more to encourage the unemployed to take a job, both helping them more actively, and getting tougher on those who stay on generous benefits for a long time without trying to find work.

Fremo, out of work for 18 months, says he is fed up with either being ignored by his unemployment office, or being sent on IT training courses that he says are much too complicated for a young man who left school at 16 and has done nothing but unskilled construction work since.

"It would be more useful if they really gave me some follow-up, and sent me on courses that I could use," he says.

Where other European countries such as Britain and Denmark have introduced strict "welfare-to-work" programs that cut the benefits of claimants who don't take advantage of highly personalized job-seeking advice, the French prefer a gentler approach.

In the new town of Sénart, which has sprung up 30 miles south of Paris, for example, the authorities are setting up a planning commission that puts local employers, town councils, national and regional employment agencies, and job-seekers in touch with each other.

The goal is to provide a personalized service that "matches the needs of local enterprises with the public's needs," says Françoise Herbreteau, who is in charge of the project.

Such case-by-case care, though labor-intensive, works, according to an EU report released last week. It found that this approach, including personal career coaching, training, and carefully targeted higher spending have helped lower unemployment in countries such as Denmark and the Netherlands.

Unless France makes some adjustments, the country faces major financial problems, warns the OECD's Mr. Martin, who heads the international organization's Employment and Social Affairs department.

"A fragile equilibrium has emerged under which 85 percent of the population is OK and 15 percent get benefit support," Martin explains.

"But in the long run an aging population is going to knock real holes in that." Already the government is having difficulty financing the growing gap between the social security system's revenues and its expenditures, leading to arguments over how to proceed.

Prime Minister Dominique de Villepin insists that cautious reform, such as the new labor contract he introduced this summer, will modernize France's social model sufficiently to keep it afloat. His leading challenger for the ruling party's presidential candidate's slot at the 2007 elections, Nicolas Sarkozy, advocates a "rupture" with the past.

"We must break with the unstable reforms and the hypocritical prudence which have led us up blind alleys for the last 30 or 40 years" he told a meeting of businessmen earlier this month. "The only social model worth the name is one that gives everybody a job, which ours does not," alluding to Britain's relatively successful "Anglo-social" model.

Mr. Sarkozy has not said how far he would break with tradition, and how broadly he would deregulate the economy. But his willingness to speak bluntly about the country's problems has won him growing support on both the right and the left.

"Most politicians will not risk saying that things cannot go on like this," says Mr. Glucksmann.

"But the French are smarter than their politicians believe: they know there is a pensions bomb, they know 10 percent unemployment is serious, so it is not impossible for a political leader to break the conspiracy of silence.

"The ones who talk about it are in a minority still," Glucksmann adds. "But they are beginning to talk."

There is no single European social benefits model. According to Brussels Free University economics professor André Sapir, there are four models.

In a briefing paper prepared for EU finance ministers prior to Thursday's Hampton Court summit, Mr. Sapir outlined the models, and argued that only the Anglo-Saxon and Nordic models are economically sustainable.

Anglo-Saxon - (Britain, Portugal, Ireland) This model features social assistance as a last resort. It's characterized by free markets, relatively less protection from firing, but vigorous measures to help unemployed find work. Health and other benefits are attached to employment, even for low-income jobs.

Many analysts say Britain has moved to an "Anglo-social" model, a hybrid of the Anglo-Saxon and Nordic models.

Nordic - (Finland, Sweden, Denmark, Austria, and the Netherlands) This model is marked by high taxes, and high spending on education, research, universal healthcare, child care, maternity leave, and welfare. It features less job protection, but higher employment rates than Continental and Mediterranean models. A strong social safety net lowers the risk of poverty.

Continental - (France, Germany, Belgium, Luxemburg). This social support model relies on state insurance-based benefits and pensions. Poverty is fought by protecting workers from being fired. Unemployment benefits are less generous than the Nordic model. Labor union membership is declining but still influential.

Mediterranean - (Italy, Spain, Greece) This model concentrates social spending on old-age pensions. It's characterized by strong protections against firing workers and generous early retirement plans. Unemployment and poverty rates are higher than other models.

Source: Bruegel, an EU-funded think tank in Brussels.