Socialists Bring France Prosperity

ALARMISTS REFUTED

WHAT a difference a decade makes. When French Socialists were elected to power nine years ago, French and international economic analysts and business leaders were morose, even cataclysmic, about prospects for the French economy.

Today the Socialists, led by President Fran,cois Mitterrand and Prime Minister Michel Rocard, are still running the show here, but the dire prognostics have turned into glowing reviews. Gone are the threats to pull up stakes from what was feared would become an anti-business economic climate. Instead there is growing interest in what is increasingly viewed as a profitable, in some respects inexpensive, and - for Europe - safe marketplace.

In the midst of a turbulent Europe, it is now France that displays an attractive stability - in its currency, prices, and politics.

The Paris stock market has become the darling of Europe this spring, gaining as much as 5 percent some weeks, with gains passing up Frankfurt. Job creation continues to be impressive. And the office market is booming, with international investors finding Paris a bargain compared with London, New York, or Tokyo.

``This hasn't happened overnight. It's been building on generally stable government policy,'' says J. Paul Horne, an international economist with Smith, Barney here. After starting out in 1981 with an economic policy of nationalizations, public-sector job creation, and indexed wage hikes that virtually everyone now disavows, Mr. Mitterrand switched course in 1983.

The fruits of a stable seven-year economic course are what's behind ``a certain shift toward the French economy,'' adds Mr. Horne. It should be accentuated by concerns next door over inflation and higher interest rates that are expected to accompany German monetary union, he says.

France's latest impressive report card comes from the Organization for Economic Cooperation and Development (OECD), which in a recent economic survey said France had ``surpassed expectations'' on many economic fronts.

Awarding kudos to the country's ``stable and coherent'' economic policies, the report said France could outperform the OECD 24-nation average for both growth and inflation in 1990. Noting that the French economy has surpassed most international forecasts over the past two years, the OECD predicted a 3.1 percent growth rate this year, and 2.8 percent in 1991.

The OECD reserves special praise for the French government's policy of ``competitive disinflation,'' which aims to reduce France's inflation rate to, or even below, those of its principal trading partners. The means has been a tight monetary policy - not always popular with the government's fellow socialists - which has placed the French franc among the very strongest currencies of the European Monetary System.

Has the policy worked? The OECD report includes a graph showing the differential between the French inflation rate and the traditionally lower rate in West Germany falling from about 4 percentage points in 1987 to near equality today.

As for economic and monetary unification of the two Germanys, it ``will have a number of beneficial effects on the French economy,'' says Stephane Lollivier, an economist with the National Institute of Economic and Statistical Studies. While there are real risks of higher interest rates as a result of the reunification process, Mr. Lollivier says that as a ``privileged trading partner with Germany,'' France should be able to play an important role in a renewal of East Germany's industry and infrastructure.

Even France's largest organization of industry owners and management, the CNPF, has positive words for the French economy this year. It says the freedom to manage industry more independently of government controls has resulted in new jobs (750,000 over two years, it claims) and lower production costs.

On the other hand, it says government social charges on industry are still too high compared to other industrial countries, and says policies are needed to cut companies' costs while at the same time encouraging greater profit reinvestment in companies, more in-house job-training, and higher direct salaries.

Some analysts say they see signs of blooming French self-confidence in the country's international economic stature in an uncharacteristic willingness to engage in self-criticism.

No one from the Finance Ministry on down is happy with the country's 9.2 percent unemployment rate, which the OECD says will continue to decline slowly despite impressive job growth.

Further evidence came in a recent Foreign Trade Ministry report that says France's ability to compete in the European Community's single market will be hampered unless ambitious reforms are undertaken. It calls the public sector protected and monopolistic, the education system rigid and ill-adapted to a modern economy, and corporate taxation too burdensome.