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Ailing France nears a moment of reckoning

France is in a terrible state and President Hollande's putsch against the left-wing ministers in his Socialist government is a desperate and far-too-late attempt to put the country right. The new administration, purged of Arnaud Montebourg, the maverick who threatened Arcelor Mittal with nationalization over its closure of a loss-making steel plant, won't make a dent in the country's soaring unemployment and ballooning national debt but it is least an acknowledgment that France's underlying problem is deeply political.

If you want to understand the mess in France today, you need to look at Britain in the late 1970s. It was a time of economic stagnation: a Labour government, battered by internal party dissension and assaulted by militant unions, lurched from crisis to crisis until it was put out of its misery by the election of a Tory government led by an upstart female politician with a radical agenda to roll back the state.

The world was different then; Britain was plagued with a combination of high inflation and weak growth and investment. But at the root of Britain's crisis was a population in thrall to the notion that only the state could provide good economic outcomes; that "fairness" was better than competition. Even more insidious was the accepted political wisdom that in terms of economic power, Britain was "over" and that government's proper role was to manage the inevitable decline.

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You can hear powerful echoes of 1970s Britain in the cringing self-flagellation current in the French press about "la morosité." You can see it in the conservatism of the young, who march in the street to protest the removal of archaic benefits, such as early retirement for state workers. Yet it is the tax burden of such privileges that is costing the country in new jobs forgone and mounting youth unemployment.

The French, even more than the British in their 1970s nadir, are a nation intellectually enslaved by the state. In the U.K., the encroachment of government was more of a a cozy but ever-tightening embrace. It began in wartime economic planning and was allowed to continue in a postwar political consensus that placed a higher value on social solidarity than wealth creation. Inevitably, it led to the seizure of political power by special interests in the Labour movement who took advantage of the public's moral acquiescence. Attending a British university during the dying days of the 1970s Labour government, I can remember the bizarre spectacle of a student union voting to lend support to striking firemen, even promising to erect barricades in the event that soldiers attempted to enter burning buildings.

In France, the power of the state in the economy has a longer history, extending as far back as the 17th century when Louis XIV's treasurer, Jean-Baptiste Colbert, sought to enhance the quality of French manufacturing by regulating the quality of goods and by issuing licences to manufacturers and traders. Not surprisingly, the system soon gave enormous power to select groups of merchants and manufacturers to exclude and eliminate competitors.

So pervasive and enduring has been the influence of the Sun King's treasurer, that the French government is finally taking steps to reduce the monopoly power of "les professions" over certain activities. These extend far beyond the traditional professional monopolies of, say, notaries, over the sale of real estate. French pharmacists are aghast at the government's suggestion that it might be safe for supermarkets to sell non-prescription painkillers, such as aspirin. Meanwhile, driving instructors are up in arms over a proposal to widen access to their profession through e-commerce by removing the requirement that instructors maintain a shopfront with a minimum floorspace of 25 square metres.

France does not have to be in thrall to the pettifogging, bureaucratic mindset but the power of the collectivity, ruled by a government minister from Paris has not just strangled the economy but it has handcuffed a large proportion of the electorate. It's not just civil servants, but teachers, government workers and the employees of nationalized industries, such as EDF, the utility, and Air France who stand to lose from a rollback of the state. French public spending represents 57 per cent of the economy and it is still true that every French parent's most heartfelt wish is that their child should one day become a civil servant.

Sadly, unlike in Britain in the 1970s, there is no Margaret Thatcher to put forward a different view of French society. There is however, a powerful female politician with the ambition to unseat François Hollande, who is drawing popular support from left and right. Her name is Marine Le Pen and she is the leader of the National Front.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More

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