French labour protests and globalisation

Actually, these street demonstrations reflect something far more serious. They reflect the deep malaise that exists in the current French society, which has been caused by several long-unresolved issues of great economic and social importance.

Unfortunately, today France has become an economically stagnant country. Everybody accepts the status quo. No one, except perhaps the prime minister, seems to have the courage to make the much-needed structural changes.

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Yet, in order to move forward in this changing world, decisions on important issues such as which model of capitalism is best suited for France, how to make the labour market more flexible and how to deal with the effects of globalization must be taken sooner than later.

Ever since Adam Smith formulated the theory of classical capitalism in 1776, according to which economic decisions should be left to the free play of self-regulating market forces, the debate over the most appropriate form of capitalism that a given country should implement has not stopped.

What is the central purpose of an economic activity? Is it to enrich the community, to pay wages to the workers, to pay taxes to the government, to satisfy the consumers or simply to provide a return on the capital invested? The stakeholder model of capitalism says that a corporation has a longer-term responsibility to not only the shareholders but also to its employees, managers, customers and indeed to the whole community. It is in favour of a social contract that distributes the fruits and woes of a free enterprise economy equitably among all the stakeholders.

On the other hand, the emphasis in the fundamentalist model is on creating short-term gains for the investors. The pressure is so great on the managers to show short-term gains- their own compensation packages are tied to these results- on a monthly, quarterly and yearly basis that they are often prepared to fiddle the books as we have seen so many times in the recent past. This has also created a constant downward pressure on wages and benefits for workers and upward pressure on income from capital.

Globalization has complicated the labour market in highly industrialised countries like France even further. Outsourcing has not only added downward pressure on wages in France but also contributed to demands for protectionism, job insecurity and higher unemployment in low-wage sectors of the labour force, especially among the least privileged.

The rigidity in France's labour market is partially due to a situation, which has been aptly described by The Economist as an insider-outsider situation. Most insiders hold permanent jobs with high wages, guaranteed annual increases and full social benefits. Many of them work in the public sector, enjoy complete job security and are protected from any outside competition. The outsiders have no jobs or at best unprotected short-term ones. Because of strict labour laws, most employers are afraid to create new jobs. This stagnant situation has led to an inefficient labour market, high unemployment and rising unit labour costs, which in turn, have made the French products less competitive in the world market. All this has contributed to poor economic performance in recent times.

So, the question is: How can the French maintain their social model of capitalism and at the same time remain competitive?

First of all, the government must tell the people that an advanced welfare state can only be sustained if the economy keeps growing at a steady rate for which major reforms, including a complete overhaul of France's stagnant economic system are necessary. Labour laws regarding the overprotected segment of the labour market will have to be changed.

This new labour law is only a small step in the right direction. The prime minister should have involved the students and the unions in this venture. In France, where there is a crisis of confidence between the ruling elite and the working class, it was naïve on the part of the prime minister to think that he could push through such a sensitive piece of legislation by decree without the prior consent of the interested parties.

As far as the effects of globalization are concerned, it is imperative that the government, the employers and the unions understand that globalization is here to stay. The important thing is to learn how to take advantage of globalization, which after all, is a product of capitalism, to achieve economic growth. If a country is not competitive in the international market, it is highly unlikely that it can have economic growth and if the economy does not grow, it cannot create more jobs.

One way of taking advantage of globalization would be to outsource the low-tech jobs and concentrate on high-tech segment of the market where France still has an edge over the foreigners. This measure is likely to keep prices down at home, increase consumption and create new job opportunities.