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Le Charm Offensive
Does this count as rearranging the deck chairs on the Titanic? Prime minister Dominique de Villepin has announced a set of measures designed to convince international companies that France isn't the anti-business basket case it appears to be.
The thing is, foreign investment into France is actually fairly high. The nation's private sector is productive, outward-looking and staffed with well-educated workers. Unfortunately, it isn't enough: Unemployment remains stubbornly fixed at the 9-10 percent mark, and France needs more international companies to invest in France to help nudge it downwards.
Sadly for France, the past year hasn't exactly been a great advertisement for France as a sound destination for foreign money. Indeed, vociferous elements of France's labour force and media have made it clear that speculation might even be unwelcome, and that France should shut its doors to overseas investors, save those willing to agree to punitive terms.
First, the rejection of the EU constitution, which was interpreted by some commentators as a blow against globalisation. Last autumn's riots and the government's response in calling a state of emergency spooked more nervous investors. Recent intervention by the French government in high-profile takeovers suggest that there will never be a level playing field for international investors in France. Paris' opposition to liberalising laws emanating from Brussels, and its endless rhetoric against Anglo-Saxons and their fiendish neo-liberalism made the climate chillier still.
All of this would be unpleasant enough, were Paris to continue with its usual strategy of talking up resistance while sneaking reforms via the back door. However, the goverment's failure to push through the timid CPE labour contract reform in April convinced many commentators that France was beyond reform. According to the International Herald Tribune, several large US firms are looking for alternative locations.
Even companies who weathered France's opposition to the Iraq war are beginning to despair of the nation's future, the paper reports: ""The message that has been sent is: France can't be reformed," (a partner in a large US law firm with several Paris-based clients) said. "The response in America is no longer irritation and outrage as it sometimes was during the Iraq war, it's just disappointment.""
In Japan, too, investors are getting cold feet. The bizarre tale of MP Jean Lassalle, who went on hunger strike to protest against rumours that a Japanese factory was planning to leave his village for another location in France, doubtless convinced many Japanese businesses to purchase investment guides to central Europe. "The Lassalle affair and the CPE have given an unfortunate image of France, especially of France as an investment destination," Japan's ambassador in Paris told the IHT, though he added that France's political and economic malaise are harming the nation's prospects more than any one symbolic case.
Hence the new measures, including speeded-up customs and travel measures, an English-language tax helpline and funds for more English-language university courses. French citizens enjoying more agreeable business climates overseas will be targeted by new organisations, which hope to persuade them that the tax burden in France might not be as dreadful as they imagine.
The newspaper reports that the new moves have been welcomed, but more is needed. Changes in the tax code and labour reform are top of the shopping list, it says. This is understandable - France's hugely inflexible labour laws became the subject of international debate during the CPE debacle, but its employment taxes are equally off-putting. For every 100 euros an employer pays a worker, he has to pay the state nearly the same again. While France's lower salaries relative to competing western nations, such as the UK, kept total labour costs reasonable, prices in France, like everywhere else, are rising fast.
Moreover, investors have more choice than before. The enlargement of the EU two years ago introduced 12 new countries to the EU: Manufacturing is already moving to central Europe, while the success of businesses like Skype in Estonia demonstrates that the new Europeans are no slackers in new media either.
The future is hardly promising for France. Jacques Chirac's discredited reign is set to end next year, and judging on its recent performance, few could argue that his UMP party deserve re-election. It's possible that the Socialist Party will win the National Assembly and the presidency. To govern, they may have to form a coalition with various far-left groups, who have been enervated by the government's CPE failure. What will be their price?
It's worth remembering in 2001, when Marks and Spencer announced the closure of its Paris branch, the moderate Socialist government of the time mulled a law that would prevent profitable international businesses from closing branches or laying off workers in France. That proposal didn't work out - but it could gave a flavour of the kind of populist lawmaking that investors can expect from France, should it continue along its current path: Investors might like doors to be opened politely, but the prospect of having them bolted and locked behind them when they enter far outweighs any cosmetic lures.
