The youngsters who are ravaging France realize that they don't have a future. That is why they are burning cars. But how many French politicians realize that their beloved "social model" is partly to blame?
Poor second-generation immigrants in France have no economic prospects for two main reasons. First, the economy is growing far too slowly. As in most of continental Europe, economic performance has been enormously disappointing over the last two decades. But France managed to do even worse than its neighbors.
During the period from 1980 to 2000, only two OECD countries, Germany and Greece, recorded slower growth in income per capita than France. But Germany had to go endure the huge costs and trauma of re-unification with East Germany. Greece was hurt by the wars in the Balkans. What's France's excuse?
Second, whatever growth there is in France does not trickle down to the poor. Many young second-generation immigrants are virtually excluded from the labor market. Average unemployment has been stuck at around 10 percent for several years -- one of the highest rates in the OECD. But the unemployment rate is more than double among the young. And it reaches 40 percent and over amongst those who drop out of school in the banlieues, which have become no-go zones of hopelessness.
Unemployment is high and concentrated amongst French minorities because of specific labor-market institutions. France has strict hiring and firing regulations that make it costly to dismiss workers and thus reduce job creation. Those with a job are protected, those without one are hurt.
Moreover, salaries cannot fall below a legislated minimum wage, which is so high that the least productive and least skilled workers remain shut out of the labor market. Wages are set in centralized negotiations by monopolistic unions, and apply throughout the economy. But the unions don't care if the sons and daughters of immigrants living in ghettos have no opportunity of even starting a working life.
These French social institutions are designed with a purpose: to protect the French labor market's "insiders." Regular workers enjoy secure and well-paid jobs, with much leisure time and little stress, particularly in the public sector. The poor minorities that remain excluded are provided with some social assistance. But too little is done to integrate them into society and increase their opportunities.
STATE INTERVENTION
The economic harm done by this corporatist social model is aggravated by widespread state intervention in all parts of the economy. Services are sheltered from competition, hindering both productivity growth and job creation in these sectors. Government intervention distorts the prices, leading to inefficient allocation of resources in areas such as healthcare, education and agriculture.
French civil servants, convinced that they can spot profit opportunities better than the market, engage in a proactive industrial policy with a variety of tools, including the retention of minority or controlling stakes in a number of large enterprises. All of this results in an economy that grows too little, where the weakest are condemned to a life of exclusion and are deprived of any opportunity for upward mobility.
Why has France fallen into this trap? Not only the myopic pursuit of insiders' economic interests is to blame. France is also burdened by strongly held ideological convictions.
According to opinion polls collected in many countries by the World Value Surveys in 1999 and 2000, the French on average fear income inequality much more than citizens of other industrial countries. Compared with other countries at about the same level of development, France stands out as being highly suspicious of the benefits of competition (only Belgium fares slightly worse in this regard).
French political institutions also bear heavy responsibility. France is a stable democracy, and large majorities in parliament often support its governments. But this stability comes at the expense of change.
Barriers to entry into the French political elite are exceptionally high. President Jacques Chirac was elected 10 years ago; he was already in government in 1969. His predecessor, Francois Mitterand, was elected president for the first time in 1981 and made his first appearance in government in 1956.
France is also a heavily centralized state, were most civil servants are recruited from a close circle of policy advisers to the top politicians, often educated at the same institution. Little wonder that change occurs so seldom in France.
To be sure, the corporatist welfare state is not the only cause of today's Gallic intifada. Violent riots by immigrants and ethnic minorities have taken place in other countries as well, from London to Los Angeles. But, ultimately, the best way to address them and prevent their resurgence is to make sure that economic opportunities are available to those who are determined to try. Social assistance with no hope of individual improvement is not enough. It is time that France starts questioning its economic model.
In a recent statement about the burning suburbs, Chirac declared: "We will have to draw all the lessons from this crisis, when the time comes and order has been restored, and with a lot of courage and lucidity."
But those lessons imply reforms that are more far-reaching than Chirac is ever likely to envisage.
Guido Tabellini is professor of economics at Bocconi University in Milan.
Copyright: Project Syndicate
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