‘Macron is trying to encourage disruption as fast as society can accept it.’
The word ‘factory’ does not do justice to Bugatti’s state-of-the-art production site outside the town of Molsheim, in eastern France. There is no grease or grime around the assembly line. The floor is a shimmering white gloss. Light slants in through the picture windows from the forest-clad Vosges mountains, lending the airy space the feel of a museum of modern art. Gleaming eight-litre engines are displayed like so many design exhibits. Workers wear white gloves, as if handling treasures. In fact, they are building the world’s fastest supercar.
A Milanese engineer, Ettore Bugatti, founded a car factory in this corner of France in 1909. Germany’s Volkswagen, which later bought the brand, chose Bugatti’s historic French site to develop the Veyron, a car designed to combine elegance and speed. The French factory turned out every one of these luxury record-breaking cars after their launch in 2005. In 2017 Bugatti unveiled a successor, the Chiron, which pushed the limits of physics and sleek design further still. The car reaches 100 kilometres (62 miles) an hour in two and a half seconds and has a starting price of €2.4 million. Christophe Piochon, head of the French plant, compares the exquisite craftsmanship that goes into the construction of a Bugatti car to haute couture. ‘Functional parts,’ he told me when I visited, ‘should also be works of art.’
Although France has a reputation for making life difficult for business, and struggles to hold on to low-end industries and jobs, it is in some ways well placed to carve out a competitive niche in the knowledge economy – if it can get its policy mix right. Bugatti may be a commercial indulgence for its parent company: a badge of engineering and design prowess rather than the basis for a profit line. But its manufacture in France hints at some of the country’s fundamental strengths, notably its traditions in luxury and creative industries, as well as in engineering. France has more winners of the Fields Medal for excellence in maths than any other country except the United States, and has a number of world-class grandes écoles for business (HEC, Essec) and engineering (Ecole Polytechnique, Mines ParisTech, Ecole Centrale) that recruit the best high-school graduates after fearsomely competitive exams. French high-end luxury – Hermès, Chanel, Dior, Saint Laurent, Louis Vuitton, Cartier – is unrivalled in the world, and envied these days even by the Italians. The design aesthetic is part of the national mindset. French culture delights in elegance, sensuality, quality and form: the exquisite hand-stitching on the haute-couture dress; the geometrically arranged tartes aux framboises lined up in the pâtisserie window. The aesthetics of daily life, the art de vivre, remains a source of both grand gestures and small stolen pleasures. It is no coincidence that the two biggest and most successful luxury-goods groups in the world, LVMH and Kering, are French.
The world’s fifth-largest economy and sixth-largest exporter, France has more big multinational companies in the global Fortune 500 than Germany. The French have long been strong in top-end goods and services: luxury products, food processing, pharmaceuticals, fashion. The giants of the CAC 40, which covers the top-listed French companies, provide the world with tyres (Michelin), shampoo (L’Oréal), yoghurt (Danone), insurance (AXA) and handbags (Louis Vuitton, LVMH). These firms have long been globalized. Moreover, something has begun to stir in corporate France, as the car industry illustrates more broadly. In the past, French car designers had a reputation for a certain cool. When Citroën launched the futuristic DS ‘Goddess’ in 1955, Roland Barthes, the French structuralist, described it as nothing less than ‘spiritual’. After years of turning out dull vehicles and focusing on cost-cutting by shifting production to cheaper countries, French carmakers are beginning to return to form. PSA bought General Motors’ European operations. Renault recently launched the Alpine sports car, a retro nod to its 1960s classic, which it is building in the French port of Dieppe. The Renault-Nissan alliance took an early bet on electric vehicles. In the first half of 2017 it became the biggest carmaker in the world. ‘A few years ago the motor industry was said to be the steel of the 21st century, but today there’s an incredible effervescence in the sector,’ Jacques Aschenbroich, head of Valeo, which makes high-tech automotive parts such as sensors for driverless cars, told me.1 In 2017 half of Valeo’s orders were for products that had not existed three years previously.
Yet for all this creativity, corporate France has not fulfilled its potential, and in some respects has been losing ground. Most of the big French companies have been around for a very long time. Saint Gobain, a glass-maker, was founded in 1665 and given a monopoly over the manufacture of mirrors. By 2015 the average age of the top 150 American firms by market capitalization was 91 years, compared to 132 years for the top 70 French firms, according to France Stratégie, a government think tank. Even after excluding Google, Apple, Facebook and Amazon from the American sample, the average age of the top French firms is still 32 per cent older. Not enough French firms have invested in building a digital offering and in technology more broadly. The 2016 World Economic Forum competitiveness index ranked France 21st out of 138 countries for its overall performance, but only 33rd according to a ranking based on the adoption of technology by companies.
Too few new businesses grow to achieve proper scale. France has tied its mid-sized firms in a tangle of rules that deter smaller ones from expanding. The country has less than half as many mid-sized companies as Germany, and half as many firms that export. Most small firms do not recruit enough staff to expand as strongly as they might. By 2012 the average payroll of a French firm listed 14 employees, compared with 41 in Germany. France had 8,480 industrial companies with over 50 employees, compared with 20,340 for Germany. An arresting study by Luis Garicano, Claire LeLarge and John Van Reenen of the London School of Economics, showed that the number of firms employing 49 people was considerably higher than the number of companies employing 50.2 This was not a coincidence. The Attali Commission report calculated that, once a business in France grew to 50 employees or more, 34 extra regulations and laws came into force. At the start of 2017, a firm had to put in place a comité d’entreprise (works council), and hold meetings with it at least every two months, as well as pay for a délégué syndical (union representative) to spend ten hours a month on trade union matters. Businesses also had to set up a Health, Hygiene, Safety and Working Conditions committee, with quarterly meetings on company time. A quick glance at the country’s Code du Travail, a thick red doorstep of a book containing the French labour code, gave a sense of this regulatory thicket. Running to 3,448 pages by 2017, or 52 per cent more than in 2000, it was longer than the Holy Bible. Each industry and profession has its own branch agreement, the one for hairdressing running to 304 pages, and for bakers to 742 pages. Such rules are patrolled by an army of workplace inspectors, a profession established in 1892. The upshot of all this was that small French firms found it costly to grow, and so didn’t.
I began to understand these difficulties when I first met Pierre de Jean, a slight figure with a gentle manner who runs a small umbrella factory in the village of Donzy, in central France. Although only 200 kilometres south of Paris, it is very much in la France profonde, and a place that time forgot. Wedged between the wine-growing regions of Sancerre and Pouilly-Fumé and the bleaker uplands of the Morvan plateau, Donzy lies amid the verdant farmland of Nièvre. The village boasts a local goats-cheese maker and walnut-oil producer, and the high street has a boulangerie, pâtisserie and butcher, as well as hairdressers and a pharmacy. Many shops are shut, as provincial tradition dictates, on a Monday. Guy de Jean, Pierre’s father, was a New Wave designer and gave the brand his name in 1962. Today, the artisanal firm still manufactures umbrellas by hand in a modest industrial estate perched on a hill on the edge of the village. Pierre de Jean, who runs the factory with his wife, Catherine, took me on a tour of the shop floor, where 18 employees were stitching lace, ribbons, frills and bows, rolling out and cutting pastel fabrics, and threading spokes into their creations. In 2007, the year I first visited, his firm turned out 150,000 umbrellas a year, 63 per cent of them in Donzy and the rest in China. I asked him how he managed to keep manufacturing in France? ‘Through taste,’ he replied, ‘and folly.’3
‘Ten years ago we asked ourselves whether we should keep any production in France,’ de Jean explained, inspecting the laces on a racy jet-black latex umbrella designed for sale under the Jean-Paul Gaultier brand. ‘It was obvious that all the low- and mid-market production was going to move abroad. But we decided to stay, and concentrate on quality and savoir-faire.’ In the entrance hall, boxed umbrellas were marked for delivery to Harrods and Fortnum & Mason, stamped with the label ‘Lovingly created in artisanal France’. De Jean had no trouble finding skilled labour, nor talented designers, nor suppliers of quality fabric and materials. His great difficulty was getting around the rules that, he felt, hemmed him in at each turn. Back in 2007, he was still feeling the after-effects of the introduction of the 35-hour working week, which meant that he had to close the factory on Friday afternoons. The strict procedures, and uncertain legal outcomes, associated with redundancy laws meant that he was ‘afraid to hire’, he said, because ‘we don’t want to have to be in a position to make anybody redundant’.
Five years later, in 2012, I went back to Donzy. The factory was still working at full capacity, and the order books were full. But de Jean was visibly more frustrated. ‘We played the game. We kept the site in France, and the same number of employees, out of conviction and desire,’ he said. ‘But we have no intention of hiring more employees here. Every job created is practically a job for life.’4 Because of the level of social charges, bureaucratic complexities and personnel difficulties, the firm was outsourcing new demand to Asia. By then, the firm ran production out of two sites in Xiamen, in south-east China. Most dismaying of all for this softly spoken businessman, whose small office jutted on to the shop floor, he had to forego orders in France because of the rigidity of the country’s working-time rules. Some of his employees would agree to occasional overtime. But, he said, he had lost clients ‘because I couldn’t increase production at the site’. Instead of hiring, he let the orders go.
Such experiences were repeated in different corners across the country. France launched plenty of small firms, especially after it simplified the registration of new companies under Nicolas Sarkozy, when the country introduced the ‘auto-entrepreneur’ regime for new microbusinesses. But it singularly failed to develop a French version of the German ‘Mittelstand’, those mid-sized, export-oriented, mostly family-run industrial firms. The competitiveness of French industry, and with it economic growth, seemed to be on a path of inexorable decline. Between 2005 and 2010 France’s share of world exports shrank by almost 20 per cent, a decline exceeded within the eurozone only by Greece. France’s current account deteriorated. From a surplus at the start of the 2000s, it ran the biggest deficit (in cash terms) of any eurozone country by 2012. Four years later, manufacturing’s share of employment in France had declined to 12 per cent, higher than in Britain but below Germany’s 17 per cent. The French were more productive per hour spent in the office, but spent fewer hours there. While Germany used wage restraint and labour-market reforms to claw back the competitiveness that the country lost after reunification, France brought in the shorter working week. Although French employers secured some flexibility in return, the new rules caused headaches, particularly in the service sector. Many office workers received up to three weeks of extra holiday, in addition to the normal five weeks of paid vacation, leaving companies to juggle constant absences. By 2017 the country had slid from 16th in the World Economic Forum’s competitiveness index in 2008 to 22nd place.
As corporate France lost ground, and its attractiveness as a location for foreign investment declined, French politicians often seemed simply to make matters even worse. France earned a reputation as a country that not only had a cultural suspicion of wealth creation, and an ambivalent relationship to work, but also political misgivings about enterprise. Two episodes captured this. One was a row that broke out in 2013, a year after François Hollande had been elected on the back of a promise to impose a top income-tax rate of 75 per cent. Arnaud Montebourg, who was then his industry minister, ended up in a transatlantic war of words with an American tyre boss who had accused French industrial workers of being lazy, overpaid and unproductive. Tall, telegenic and bombastic, Montebourg was no wallflower. He had already got into a public row the previous year with the Indian steel giant, Arcelor-Mittal, over the closure of furnaces in eastern France. The tyre spat began with a letter the minister received from Maurice Taylor, the American boss of a tyre company that was considering buying a French factory, which was leaked to the press. In his missive, Taylor, who was known as ‘The Grizz’ for his tough negotiating style, held nothing back. ‘The French workforce gets paid high wages but works only three hours,’ he claimed: ‘They have one hour for their breaks and lunch, talk for three and work for three.’ On asking the unions about this, he wrote in his letter, he was told: ‘That’s the French way!’ As for the French government’s request for talks about his firm taking over the site, he told Montebourg: ‘How stupid do you think we are?’5
The French Twittersphere went hyperactive, and the airwaves buzzed with indignation. At the French tyre plant, the local head of the Confédération Générale du Travail (CGT), a big trade union with historic ties to the French Communist Party, said that the tyre boss belonged in the ‘psychiatric ward’. Montebourg fired back. In an open letter to Mr Taylor, he accused him in return of being ‘extremist’ and ‘insulting’. ‘May I remind you,’ he went on, that ‘the company you run is one-twentieth the size of Michelin, our world-class French technological leader, and one-thirty-fifth as profitable.’ If Taylor’s firm tried instead to import low-cost tyres to France, Montebourg warned, he would make sure his officials monitored its every move.
Montebourg may have had a point. But, despite a measure of hyperbole and gratuitous insult in Taylor’s letter, so did the tyre boss. It was an absurd exaggeration to state that French industrial workers spent only three hours a day doing anything productive. Yet it was the case that the 35-hour working week, combined with an entrenched role for unions within companies and intrusive labour rules, made life particularly difficult for French managers. When Taylor claimed that the French government seldom confronted unions with the painful truth that it was better for them to make concessions than to watch potential investors flee and factories shut, he was not far off the mark.
A second saga exposed the political damage being done, not to old industry this time, but to new. It arose over pigeons. Or, to be precise, a movement led by French entrepreneurs who styled themselves les pigeons, or ‘suckers’, and used the back-slang hashtag #geonpi. This was an online revolt against the government’s plan to double capital-gains tax to some 60 per cent. Led by Jean-David Chamboredon, a venture capitalist, the rebellion went viral. ‘I’ve never seen people so depressed. They’ve had enough, they are leaving,’ warned Marc Simoncini, an internet entrepreneur and founder of the online dating site Meetic. The government seemed unaware that entrepreneurs rarely paid themselves a salary, investing earnings into the capital of their business, and thus that this tax would be deeply damaging to French start-ups. Had the fiscal revolt been led by corporate giants, it might have been dismissed as special pleading. But the ‘Pigeon’ movement captured the imagination thanks to its spontaneity, grass-roots nature and youthfulness. The biggest single age group backing the movement on Facebook was 25- to 34-year-olds. Four days later, the government, embarrassed, said it would think again.
Thanks to such poor and inconsistent policymaking, France damaged both its image, and its real economy. Over a period of 15 years from 2000, the French economy went from being one of the OECD’s stronger economies to one of its underachievers. Within the eurozone, France was no better than a middling performer. The euro had secured France low inflation and currency stability. But, by giving up control of monetary policy, the country could no longer devalue its currency to retain competitiveness, as it was able to with the old French franc. Failure to fix the competitiveness problem with domestic reform condemned France to mediocrity. In the two decades after the single currency’s launch in 1991, the French economy avoided the spectacular collapse witnessed in Greece, Ireland or Portugal, or even Italy and Spain. But it failed to keep up with the eurozone’s robust performers, including Germany and the Netherlands. France’s economy bumped along in the middle, doing less well in upturns, and less badly during downturns, including the financial crisis that began in 2008. Broadly, three brakes on French growth have kept its economy from realizing its potential: a rigid labour market, an overly large public sector, and overprotected professional and state-linked industries.
On the first point, France is a classic case of what labour economists call a two-tier jobs market, in which insiders enjoy the comfort of strong protection but to the detriment of outsiders, whether the young, unskilled or unemployed. For those aged between 25 and 54, France’s employment rate (79.8 per cent) is above the OECD average, and indeed marginally better than that in the United States (78.7 per cent). The real problem concerns older, and above all younger, workers. Little over half of workers between the age of 55 and 64 are employed, well below the OECD average of 60 per cent and 70 per cent in Germany or 77 per cent in Sweden. At 62 years, the official retirement age is well below the European average. On weekdays throughout the warmer months, tour buses across the country disgorge groups of sprightly French 60-somethings in trainers into cobbled squares and historic cathedrals. For the under-25s, at the start of their working lives, permanent jobs are scarce. French youth unemployment reached 25 per cent in 2016, more than three times that in Germany. Whereas only 5 per cent of the over 50s were on short-term contracts in 2016, the share was nearly 30 per cent for those under 25, who often find themselves stuck with years of back-to-back temping and short-term work. In other countries, temping is a route to a permanent job. In France, only a fifth of temps are in permanent jobs three years later.
Short-term contracts are a scourge that touches those with and without skills alike. In 2015, I came across Ange-Mireille Gnao, an energetic 28-year-old French woman of Ivorian origin, who had a master’s degree in communication strategy. When I met her, she had been looking for a permanent job for three years, but found nothing. Permanent jobs, she said, were impossible to find in France. To keep herself busy, she had set up her own communications consultancy, but yearned for the ‘stability’ that a permanent job would bring. ‘Psychologically, it can create a real lack of confidence,’ Ange-Mireille told me. ‘If you don’t have a permanent contract in France, it’s impossible to rent a flat, or get a loan.’6 The culture of temping also made it difficult for young people to move out of the family home, she explained, putting strains on their relationships and hampering their independence. Her 29-year-old friend, Florence Moreau, who lived in the Paris banlieue of Créteil, was also looking for work, and said that she ‘would take anything, as long as it is permanent’. She had gone through no fewer than eight consecutive short-term contracts. ‘Now,’ she said, ‘people think that I have an instability problem.’
Because the labour code offers little flexibility, firms use temporary contracts to get around it. These accounted for over four-fifths of new contracts in 2017. Many of these short-term positions last for less than a month, and firms use them as a means to circumvent the rules that deter them from creating proper jobs. So France’s overprotected labour market keeps the young in precarious work – and the unemployed out of a job at all. The financial risk of taking on new permanent staff is particularly high for small firms, which can be crippled by the payouts assessed in French labour courts for unfair dismissals if they get the redundancy procedure wrong. Termination cases can be brought up to two years after an employee is fired, and awards vary massively. Sylvain Camos, who runs an events business with 25 employees, explained that an employee he had fired was awarded €200,000 for unfair dismissal, a sum halved on appeal, but nonetheless huge for a small business. Jérôme Veneau, who ran a tiny one-man barber shop in Paris, told my colleague that he had never taken on another employee after his first one claimed to have been injured at work, and was awarded €17,000 in damages by a labour tribunal. In short, the excessive protection of insiders, along with the rules that weigh down on companies when they reach a certain size, deter job creation and contribute to structurally high levels of unemployment in France. It is a problem that will only be accentuated in the digital, data-driven economy. As intelligent machines and algorithms replace people, and job obsolescence accelerates, firms will be even more reluctant to take the risk of permanent hires.
The second constraint on growth has been France’s over-heavy public sector. For years the French argued, with some reason, that the excellence of their public services justified the scale of their public spending. Back in 2000, as a share of GDP, French public spending was below that in Sweden, whose stripped-pine model of social welfare was more comprehensive still. Yet over the better part of the following two decades, Sweden grasped that its model was unsustainable, and decided to rethink its state in a way that did not jeopardize solidarity. While France continued to hire civil servants and build grandiose headquarters for its regional governments, Sweden kept its public nurseries and generous paid paternity leave but trimmed spending elsewhere. By 2017 the two countries had swapped positions. France’s public spending, at 56 per cent of GDP, was seven points above that in Sweden.
Up to a point, the French accept high taxation, and the platoons of bureaucrats needed to administer it, as part of the bargain that brought them good hospitals, roads, ambulances and schools in return. France was built by a strong centralizing hand and it is part of national mythology that the state steers the economy, and shepherds society, through a form of hyper-centralization that survived the transition from monarchy to republic.7 Jean-Baptiste Colbert, Louis XIV’s finance minister, put the Gobelins tapestry firm under royal control in 1662, founded the Saint Gobain mirror factory in 1665, and approved the building of the Canal du Midi in 1666. The Napoleonic code, established in 1804, imposed a systematic set of civil laws and rules to unify the nation. Over the course of the twentieth century, the country’s acquis, or social rights, were incrementally enshrined by law and the protections afforded by the state became a mark of progress towards a better society. Léon Blum introduced the two-week paid holiday for all workers in 1936. François Mitterrand extended this to five weeks in the early 1980s, and brought in retirement at age 60, and the 39-hour working week, which Martine Aubry reduced to 35 hours.
After 1945, France drew on this dirigiste tradition to transform a war-battered country, publishing five-year plans for the economy that were run from Paris, and setting up a social-security system directly inspired by the résistants of the National Resistance Council. Entitled ‘Les jours heureux’ (‘Happy Days’), this was designed to ensure ‘to all citizens the means of existence in case they are unable to procure it through work’. These progressive improvements buttressed France’s sense of the state as a guarantor of progress, carrying the country forward, however fitfully, like an ‘endless cortège proceeding towards the light’, in the words of Jules Ferry, the nineteenth-century educationalist. Faith in the state did not, of course, preclude revolt against it. The French harboured ambiguous feelings towards central authority, lurching from veneration to uprising, torn between the ‘cult of the State and the inclination to rebellion’.8 Alain Peyrefitte, a former minister under de Gaulle, put it well when he wrote that the French are ‘passively submissive to their administration, and in (disappointed) love with authority; rebellious towards their State, at the same time unfit to live without this irksome tutor’.9 All the same, a strong, well-financed central state remained intricately linked in the French mind with the idea of progress and the guarantee of a decent life. What was the point of France, after all, if it was not to demonstrate to the Anglo-Saxon world how to run a society in a more civilized way: less individualistic, more protective, more solidaire?
By the early years of the twenty-first century, however, the cracks in the model began to emerge. Michel Pébereau, a banker and former civil servant, put it bluntly in a 2005 report on French public finances: ‘Each time a new problem has arisen in the past 25 years, our country has responded with more spending.’10 France did indeed supply its citizens with a first-class health system, fast trains and comprehensive public services. In 2016 no country in the world spent a greater share of its GDP on social, health and pension programmes. At 31.5 per cent of GDP, French social spending was far higher than in either Norway (25.1 per cent) or Sweden (27.1 per cent), the Nordic countries that Macron seems to want to emulate. While Sweden and the Netherlands reduced their share of social spending between 1990 and 2016, in France it just kept on rising. Thanks to generous benefits, a low retirement age and high longevity rates, French spending on pensions imposes a particular burden.
Yet successive governments created the illusion that this was sustainable by running up hefty debts and taxing their citizens with abandon. By the end of 2016, the overall French tax take as a share of GDP was higher than any other EU country. An employer who pays a worker twice the minimum wage, or €2,400 a month, has to contribute nearly half as much again to the state in social-security contributions; the employee, for his part, has to hand over 22 per cent of his pay in social-security contributions, on top of income tax. A French pay slip typically runs to over 40 itemized lines, with deductions for pension, unemployment, social-security, work-accident, work-medical, transport funds and so on.
Were the state taxing the French in order to service debts incurred for long-term investment, it might make sense. Yet most borrowing pays for current operations, not research and development, higher education or infrastructure. Overseeing all of this is an administration that keeps on growing. Over two decades to 2012 the state hired nearly a million extra civil servants, bringing France’s total to five million. In the Ministry of Agriculture alone, which serves an ever-shrinking number of farmers, the number of staff grew by 8 per cent. France boasted a post office for every 3,530 inhabitants, twice as many as Germany, yet fewer of its letters arrived the next day. It numbered 90 civil servants for every 1,000 inhabitants, compared with 50 in Germany. Over one in five French workers was employed by the public sector. A mille-feuille of public administration, which reached from the mayor in the town hall, to the département, via the region, to the top layer of national government, sustained a public sector with a voracious appetite for taxes, paperwork, forms and rules. The French state taxed their people more, and spent more, than any other country – yet still did not generate better economic growth in return.
At the same time, the state overprotected and intervened in industry, the third check on French growth. In 1856, Alexis de Tocqueville wrote about the country’s ‘regulating, restrictive administration, which seeks to anticipate everything, take charge of everything, always knowing better than those it administers what is in their interests’. To this day, the state sets the dates that shops can hold sales; prohibits supermarkets from selling paracetamol; limits the number of Paris taxis (hence the anger of those taxi-drivers who did hold precious licences at the arrival of Uber); and prevents chemists from owning more than one pharmacy. It retains a deep portfolio of public shareholdings in private companies, which it does not always manage well. According to a 2017 report by the Cour des Comptes, the official public auditor, the French state had investments in nearly 1,800 firms, holdings that together were worth almost €100 billion. Nearly 800,000 people in France worked for firms in which the state held a majority shareholding, more (in absolute terms) than in America or Germany. Yet the Cour des Comptes was scathing about the public management of these state assets, pointing to ‘chronic weaknesses’, including failures of oversight and a lack of vision over strategic purpose. Between 2011 and 2016, when the overall value of the CAC 40 rose, the state’s portfolio lost value. The state, it concluded, ‘has difficulty being a good shareholder’, and ‘needs to break with an inappropriate vision of its role as a shareholder and with its desire to intervene under the pressure of the moment for fear of appearing impotent’.
The underwhelming performance of some of France’s publicly owned firms is an awkward reality for the country’s dirigistes. Even some of the former crown jewels of French industrial policy, such as its nuclear-energy firm Areva (now known as Orano), 83 per cent owned by the state, have become strategically weak and financially precarious. Nuclear energy provides three-quarters of the country’s electricity, a level that Macron’s government had promised to reduce to half by 2025 until it realized that such an ambition was unrealistic. Yet the French model of large pressurized water reactors, expensive to build and decommission and prone to delays and cost over-runs, is increasingly being challenged by the more nimble mini-reactors offered by American and Asian firms, and by the big switch to gas and renewables, notably solar power. Vast sums of taxpayers’ money are still being pumped into Areva (Orano) to keep it going. The SNCF, which operates all those fabulous TGVs, also devours big state subsidies while piling up debt. Despite the collapse in letter-writing, La Poste, the French public postal service, is still the second-biggest public employer in the country, with 250,000 employees. All this is overseen by a caste of highly trained elite managers, part of a system well suited to the dirigiste planning of the post-war years, which protects its own in the upper echelons of the administration and the boardrooms of publicly controlled firms.
In the years leading up to the 2017 election, the thinking in France was beginning to evolve. Competition, long considered somewhat suspect, brought cheap mobile telephony, to the delight of a new generation. In 2009 the state awarded a licence for a fourth mobile telephone operator to Free, a phone company launched by Xavier Niel, who went on to become godfather to the Paris tech scene (and a friend of Emmanuel Macron). Niel built the business against the odds, and the resistance of incumbent operators. With no university education, no family money, and a background that included marketing sex shops and chat lines, Niel was originally treated as a disreputable outsider, and existing operators lobbied hard against him. ‘If I commit suicide, or if I die in a car accident in the next three months or so,’ he told my colleague a year before he won the licence, ‘you will know the threats were serious, because I am not feeling at all suicidal, and I drive very slowly.’ France came late to competition for service and utility providers compared with most other European countries, and had to be prodded into action by the European Commission. But French consumers have begun to understand the benefits. Over the six years following the launch of Free, the price of telecommunications in France fell faster than in Germany, Italy or Spain.11
At the same time, the Greek debt crisis awakened the French to the risks of high levels of public debt. When France lost its triple-A credit rating, and worries about debt-servicing costs rose, this became a subject of fevered political debate. The French began to realize that they could not defy forever the rules that applied to their neighbours. Indeed, Macron judged that public opinion was a step ahead of the politicians, and that the weaknesses of the costly French model ought to be discussed during the election campaign. When it is no longer oriented to serve the right purpose, he wrote in his book Révolution, the state machinery in France ‘becomes an obstruction and a weight to the whole nation. Hundreds of structures exist that should disappear. Agents carry out useless tasks. Rules invade everything, because it is more convenient to write a law or a decree than to set a direction. Bureaucrats find in all this a raison d’être and politicians an opportunity to justify their privileges ... The country lives for the administration and not the administration for the country.’12 The candidate was clear. The question was: what would the president do about it?
On a winter’s day before Christmas in 2003, a young French computer-science graduate from Stanford University was working flat out for a software consultancy in Paris and hadn’t much time to think about travel plans. He didn’t own a car, and had been hoping to take the train to join his family in the Vendée, in western France, for the holidays. By the time he got round to booking, though, the trains were full. He persuaded his sister to take a detour via Paris to pick him up for the ride and, as they headed down the motorway for the 500-kilometre journey, Frédéric Mazzella noticed how many other cars on the route were empty apart from the driver. That moment, he recalled later, was when the idea came to him of launching a long-distance ride-sharing service that could link passengers to empty seats. Three years later, BlaBlaCar was launched. By 2017 it was the biggest ride-sharing service in the world, with 60 million users.
The idea behind BlaBlaCar is simple: the driver ‘sells’ empty seats to cover petrol and road tolls, but not at a profit; the passenger gets a cheap trip, even last minute. The business model is that of Airbnb: BlaBlaCar takes a cut on transactions; trust is built through peer review. Mazzella told me that he sees his firm as a disruptor of the mobility business rather than a competitor to trains, coaches or taxis. What he does is open up the inventory of empty car seats. In 2016 a funding round valued BlaBlaCar at $1.5 billion, making it one of the rare French ‘unicorns’, those privately held tech start-ups with a valuation equivalent to $1 billion or more. Within Europe, there are still far more unicorns in Britain. And Europe’s are dwarfed by the number in America. BlaBlaCar itself has more recently had to rethink its branding and operations, after running into expansion difficulties. But what the start-up managed in France, where the genial and fashionably bearded Mazzella became the public face of the newly emerging French tech scene, was to transform the image of corporate success. ‘What has really changed is that students from the best schools in France, who five to ten years ago would have joined L’Oréal or BNP Paribas, are now looking at start-up jobs,’ Mazzella told me, ‘Things have really changed.’13 Mazzella, like many French tech types of his generation, is also close to Emmanuel Macron. The pair appeared together in 2015 at an investor event in London, designed to promote the country’s emerging start-up scene. Together, they were the new faces of a more open, innovative France.
There has been no better example in recent years of how smarter incentives, and fewer burdens, can release French economic growth than the country’s tech entrepreneurs. High taxes on stock options and bureaucratic rules used to make France a difficult place for them to operate, as the Pigeon protest made clear. For years, London and Berlin had a far better buzz, and French tech types could be found setting up in converted warehouses in Shoreditch and Hoxton. But the boost Macron gave the sector when he was economy minister has helped bring about a cultural shift. By 2015 a quarter of graduates of HEC, the top business school, had started their own company, up from one in ten a decade previously. Many spoke good English, and had an uncomplicated approach to doing so. From 2014 onwards, venture-capital investment in France increased sharply. By 2016 it had reached €2.7 billion, more than was invested in Germany. That year saw 590 rounds of capital-raising in France, more than any country in Europe. Venture capitalists in London, who had until then shied away from Paris, became bullish about France for the first time. Sheryl Sandberg, COO of Facebook, said the country now had ‘some of the most innovative technology companies in the world’.14 Tony Fadell, the inventor of the Apple iPod, moved to Paris to work with entrepreneurs in the French capital. In 2009, he said, French corporate life was all about big, old companies, and ‘felt like the Dark Ages’. Now, he declares with all the passion of the convert: ‘I’m telling everyone, “Do you know what’s going on here?” One day, it’s going to take just one big company that comes out of here or any of these incubators around France.’15 Xavier Niel told me: ‘There has been a transformation of mentalities in France.’16 He has become an evangelist, urging young people to take risks, think big and break conventions and describes a ‘new alchemy’ in France.
What Macron understood during his time as economy minister, and from the contact he had with the likes of Niel and Mazzella, was the scale of economic upset being brought about by the digital revolution. He argued that the country both needed to open up to innovators and embrace these changes, but also to put in place a proper regulatory framework. Macron spent a lot of time hanging out with tech types at the time. When I interviewed him in the autumn of 2015, I asked him what he had read recently on the subject. Most French ministers would have quoted a piece of French research, or more commonly a French government report. Macron cited The Second Machine Age, by Erik Brynjolfsson and Andrew McAfee. He had a good grasp of the pace and nature of technological change, as well as its implications for jobs and society as machines hollowed out the salaried working middle. French policymakers have long tended to favour producers over consumers, and to protect incumbents from newcomers to the market. This, he judged, made it difficult for tech innovators, and needed to change.
At the same time, as ever, Macron argued that rules needed to be ‘fair’. It would be short-sighted to consider everything about start-ups as ‘supercool’ and to shy away from regulation as a result. This was a line he was to take to the presidency, pushing strongly for a hard line towards Google, Amazon and Facebook over tax. But regulators would nonetheless need to start putting consumers first. ‘They vote every day, by taking Uber,’ Macron said back then. The French might reason more like producers, but workers were transformed after office hours into shoppers and users of services that had to start to respond to them. To side only with those threatened by technology was to favour conservatism and defend insider privilege. ‘Rules need to evolve with society,’ Mazzella told me in 2015. ‘Macron is trying to encourage disruption as fast as society can accept it.’
In office, Macron has been guided by an approach that puts the need to encourage business, risk-taking, entrepreneurship and job creation at the centre of policy. In doing so, he has begun to deal with the first two big checks on French economic growth: labour-market rigidity, and the outsized, ill-adapted state. On the first count, just four months after he was elected, his flagship labour reform was discussed, fine-tuned, adopted and put on the statute books. The new law was designed to give companies more flexibility over staffing, in order to encourage them to create more permanent jobs. Among the various measures, the law brought in a cap on court-awarded redundancy payouts for unfair dismissal, in order to reduce financial risk; simplified worker representation in companies; gave small firms the right to bypass union agreements; and introduced a more straightforward procedure for hiring people for specific projects. Although the unions secured a role for branch agreements in some areas, the underlying principle was that employers were to be trusted to reach deals with employees. Small firms were freed of many constraints. The basic concept of a single labour code for all, progressively enshrined since the time of Napoleon, had been challenged. France could not stand still while technology dislocated the job market, Macron argued. ‘For 30 years we’ve suffered from the sickness of mass unemployment,’ the president said. ‘That’s the French problem.’17
There were two arresting features to this piece of legislation. The first was the shift it represented in French thinking about employment policy. In 2000, when the Socialist government of Lionel Jospin introduced the 35-hour working week, the underlying idea was to share existing work in order to create more jobs. Martine Aubry, the Socialists’ labour minister at the time, described the shorter week as a ‘project of solidarity towards the unemployed’. This was in keeping with a long-standing French preference for public spending as a tool to combat unemployment. Directly subsidised jobs were favoured over a loosening of the rules that deterred firms from creating such posts themselves. France operated a menagerie of such schemes for subsidising jobs. The names came and went, as governments of the left and right rotated in and out of power: contrats jeunes, contrats d’avenir, contrats aidés, contrats de génération. Bold was the French politician who defended the idea that firms might be more willing to hire more staff if redundancy rules were less punitive. ‘Who could imagine that making redundancies simpler will favour jobs?’ wrote a group of politicians and intellectuals in Le Monde. Macron’s labour law, though, involved no new project to subsidise jobs, a policy that the labour minister, Muriel Pénicaud, described as ‘the least efficient of all employment policies’. The idea, rather, was to take some of the uncertainty and risk out of taking on staff. The new law was designed ‘to liberate the energy of companies to invest and create jobs’, said Pénicaud. Contained in five ‘ordinances’, it was passed using an accelerated parliamentary procedure to speed up implementation.
The second element was the method that Macron used to get his reform through. Most observers were expecting an outpouring of anger and protests on the streets in the autumn of 2017, as tradition dictated. There was even discussion of whether a ‘Thatcher moment’ might be helpful for the new president, a way for him to show his determination not to cave in. On the far left, Jean-Luc Mélenchon tried to drum up support for his campaign of protest known as les casserolades: a noisy banging of saucepans in the streets. Protesters, he promised, would show the president that his economic reforms ‘ruin our life and keep us from dreaming, so we will stop you from sleeping’. A few protests and strikes took place that autumn, but none took hold, and the numbers dwindled by the week. Some 223,000 took part in protests across France on 12 September 2017 according to Interior Ministry figures; by 21 September the figure had fallen to 132,000. A month later, on 19 October, only 38,000 turned out. Philippe Martinez, secretary-general of the hard-line CGT, who sports a Mexican moustache, promised that he would ‘keep going to the very end’. But the movement failed to capture the broader imagination. Macron had obtained a clear mandate for the reform and for the use of the fast parliamentary procedure to pass it. ‘I do what I say. In effect, that’s quite new,’ Macron said afterwards, sardonically.18
This tactic not only gave him legitimacy; it also disarmed his opponents. Pénicaud, a personnel specialist respected in the industry for handling difficult negotiations while head of human resources at the dairy giant Danone, held around 100 meetings with union leaders during the summer, which resulted in some concessions. She found a constructive partner in the Confédération Française Démocratique du Travail (CFDT), a moderate union, which in 2017 overtook the CGT as the biggest union in the private sector for the first time since it was founded in 1895. Midway through the talks, I went to see Laurent Berger, the softly spoken head of the CFDT, at the union’s headquarters in eastern Paris. Recalling that the country had stepped ‘very close to darkness’ that year, a reference to the presence of Le Pen in the presidential run-off, he seemed to sense a historic responsibility. ‘The French elected the president because they wanted something new,’ he said. ‘I’m convinced they want that novelty elsewhere too, including from unions.’ Jean-Claude Mailly, leader of another big union, Force Ouvrière, also chose not to block a deal. In the end, Macron did not negotiate his labour reform so much as neutralize its opponents. Faced with a democratically elected president who was doing what he had said he would, the unions struggled to mobilize.
It would be premature to suggest that Macron has turned the page on theatrical conflict resolution in France. But a smarter way of managing, and explaining, reform seems to be emerging. Macron applied it to his second set of early decisions, designed to rethink the role of the state. This began with a bold shift in fiscal policy. As adviser to Hollande during the presidential election of 2012, Macron had tried to nudge economic policy in a more business-friendly direction. For all the philosophy, or perhaps precisely because of his Ricoeur-like belief in crossing experience with theory, Macron’s attitude as president was often pragmatic, rather than ideological. He had argued clearly during the campaign that those who took risks, invested in the productive economy rather than property, and earned profits, should be encouraged, not punished. ‘My predecessor massively increased the wealth tax,’ the president said, a few months after his election. ‘Did that bring in a lot of money? No. Why? Because people who succeeded left.’
All the same, by 2017, the politics of taxation in France remained highly charged. The only previous time a government had tried to abolish the wealth tax, in 1986, it proved so unpopular that the politician who dared to do it, Jacques Chirac, was roundly beaten at the presidential election two years later, and the tax was promptly brought back in. Nicolas Sarkozy once promised to get rid of the impôt de solidarité sur la fortune (solidarity tax on fortunes), to give it its full name; but he never did. By 2017 this tax was levied each year – and on top of a separate income-tax bill – on a household’s combined assets worth over €750,000, including property, securities, cash and furniture. The tax rate ranged from a base of 0.55 per cent to 1.8 per cent for assets over €15 million. Back in 2004, a Senate report showed that the tax prompted a steady flow of exiles to lower-tax Belgium and Switzerland, deploring a ‘loss of dynamism for the French economy’ and warning that, in the long run, ‘the situation is not sustainable ... if we want to preserve the attractiveness of the country and hence French jobs’. Yet there was little, if any, public sympathy for those who had to pay it. When it emerged shortly after Hollande’s election that Bernard Arnault, the founder and chief executive of the iconic luxury group LVMH and one of the country’s richest men, had applied for Belgian nationality, the left-leaning newspaper Libération rejoiced. It ran a front page with a picture of Arnault under the headline ‘Casse-toi, riche con!’, which translates roughly as ‘Sod off, you rich bastard’. Fed up with French taxation, Gérard Depardieu, star of Cyrano de Bergerac among many other films, fled the country, swapped his French passport for a Russian one, and took up residence in neighbouring Belgium.
In office, Macron was unrepentant. He had spelt out during the campaign that he would transform this tax, and duly did so. His first budget, for 2018, abolished the wealth tax, and converted it into a property tax. ‘I don’t believe in a French jealousy that says there are rich people, let’s tax them and everything will be better,’ he explained on prime-time television. Macron hoped that this might encourage wealthy French people to invest in home-grown start-ups, as they do in London or America. At the same time, he introduced a flat tax of 30 per cent on financial income, on which higher-band earners had been paying tax at a rate of 60 per cent. The government also began to reduce the corporate tax rate, which Macron said would drop from 33 per cent to 25 per cent over five years. In order to tax work less, and inactivity more, the payroll burden was eased by transferring some social charges to a more broad-based tax (the contribution sociale généralisée), which includes – to the dismay of the retired – pensions. To make this tax-cutting programme, perceived as a gift to the rich, more palatable, Macron also began to phase out the taxe d’habitation (council tax), a regressive tax that disproportionately touched the worse-off. Luck, as ever, came Macron’s way too. Economic growth helped the government both to cut taxes and to bring down the budget deficit to below 3 per cent – for the first time in ten years.
If Macron has managed to shift the balance of French taxation, he has so far been less convincing on public spending. Judged by words and ambition, he seems plain enough. ‘There are no magic finances which allow the reduction of taxes without touching spending,’ Macron told a gathering of mayors. By 2022 the president plans to have curbed the share of GDP consumed by public spending to a more Swedish-style 52 per cent, and stabilized the public finances. Yet exactly how he intends to do it remains unclear. Macron’s plans to trim the civil-service headcount have been slow to firm up. He has rejected the option of raising the retirement age as a way of saving on the public pension bill. And he puts great faith, as governments always do, in the idea of efficiency savings.
Nor is it yet clear that Macron is willing to take on the third constraint, and shake out the industrial-administrative complex. Although he forged his political reputation on the back of the deregulation of protected professions, most notably the coach industry, he has yet to show that he is willing to go much further. Indeed, as economy minister, Macron used publicly held stakes to engineer industrial results, taking an extra 5 per cent in Renault in 2015 in order to give the state and other long-term shareholders double voting rights, and prompting a spat with Renault’s boss, Carlos Ghosn. At the time, the minister insisted that this would be a short-term holding. By the start of 2018 the stake was still on the books.
Macron may well decide to pick other battles rather than to take on the industrial lobby and what is known in France as the ‘techno-structure’ of the elite civil service: the strata of high-flyers that supplies bosses to many of the big industrial firms, but has an uneven record of managing them. France’s nuclear industry is highly cosseted. Areva (Orano) in particular has been plagued by technical and financial difficulties. Some big industrial and defence firms that depend on state contracts still also own media assets, giving them exaggerated lobbying power. The same firm, for example, that makes Mirage fighter planes for the French army (Dassault) also owns Le Figaro newspaper. Plenty of other sectors – such as the pharmacy industry, with its monopoly on many non-prescription drugs – still hide behind professional protection. Macron has promised to sell off some 10 per cent of state holdings, and may be ready to let go of industrial assets, especially if they remain in European hands. As president, he nodded through the merger of the French firm Alstom with the railway business of the German company Siemens, on the grounds that it could forge a European champion to rival the likes of the Chinese state-owned CRRC rail firm. But the president’s willingness to unlock value by upending other industries and professions could turn out to be limited, and will test his professed belief in the power of disruption.
Perhaps the most arresting ambition behind Macron’s talk of transformation is his effort to rethink the role of the French state, in order to ‘emancipate’ people’s capacity to make the most of their lives. His central insight is that France needs to adapt its system of rules and safeguards, designed in the post-war years to protect jobs, in order to meet the needs of the new economy and focus on the protection of individuals instead. ‘The term Etat-providence has a maternal connotation, one of hyper-protection, one that disempowers, that I’m not fond of,’ Macron told me in July 2017.19 ‘I would rather talk of a state that offers security, that makes things possible, that gives autonomy. That’s what I want to do.’ His guiding principle is to try to break down the protection system that defines jobs by rank and status, improve flexibility and mobility in and out of jobs and careers, put choice in the hands of users, and transform an insurance-based welfare system into one based on universal, portable rights. This is why he wants, for instance, to unify the country’s baroque system of 35 different pension regimes.
If the post-war welfare state was born to deal with accidents of life, Macron wants his twenty-first-century version to be a flexible safety net that treats movement in and out of jobs and spells of unemployment as a normal feature of working life, and the need for new skills as a lifelong affair. Protecting people, not jobs, is the central concern. This draws heavily on ideas that have long been put in place in other European countries, notably the Danish ‘flexicurity’ model, with its emphasis on training and retraining to get the unemployed back into work and keep their skills updated. The French labour minister Pénicaud visited Denmark, Switzerland and Germany to look at how others do it. France spends a hefty €32 billion a year on state-mandated training programmes. Yet 62 per cent of this goes on those who already have jobs, and only 14 per cent on the unemployed. France’s complicated rules create only half as many apprenticeships as in Germany, often at higher cost and with poorer results. If anything, as the economy picked up in 2017 and 2018, French employers began to report an increase in unfilled vacancies, pointing to a widening skills gap. Putting in place a credible scheme for improving apprenticeships and vocational training, especially for the low-skilled and the young, will be a good test of Macron’s capacity to update the French model.
It is too early to judge whether Macron is on to something really new, or whether it is just new for France. Transforming one of Europe’s heaviest, most bureaucratic states into a nimble, user-friendly public service for the digital era will require a transformation of mindset. If the state is to be an enabler, a facilitator, a liberator and a simplifier, it needs to change the way it treats its citizens. One early attempt to nudge the public service this way was a law that Macron introduced known as the ‘droit à l’erreur’, or the right to make a mistake in dealings with the French bureaucracy, in order to temper the feeling of punishment that tends to prevail. ‘Who hasn’t suffered when filling in enrolment forms for the umpteenth time at the start of the school year?’ sighed the prime minister Edouard Philippe on Twitter, as he launched a consultation on making the bureaucracy less soul-destroying. People will be able to book training courses via a smartphone app, using a personal credit account topped up by the government. It is an exciting project, to be watched closely. To do this properly, though, will require deep shifts in public-service habits, a willingness by government to take on resistance from the public sector and unions, as well as sustained policy follow-through.
If France under Macron can start to get even half of this right, the prize could be significant. With its top-class mathematicians, the country has particular potential in sectors set for rapid growth over the next decade, notably machine learning, artificial intelligence (AI) and big data. In 2015, Facebook set up its only European research lab into AI in Paris. After I toured their offices, complete with an outside deck overlooking the zinc rooftops of Paris and the Eiffel Tower, Antoine Bordes, who runs the lab, told me that Paris was chosen because of the excellence of the university research in this field already taking place in France. Britain and Germany, he judged, did not have the same depth of doctoral research nor diversity of existing AI expertise. The lab in Paris is one of only three AI research centres that Facebook runs in the world, and Bordes is planning to triple staffing levels there over the next three years. Elsewhere, young French graduates are increasingly shunning corporate life and trying their luck with their own start-ups. One day I had a meeting scheduled with Hugo Mercier, the French engineer who launched Dreem, a headband that uses promising neuro-technology to improve deep sleep; he turned out to be 25 years old. Such entrepreneurs, a new generation of tie-less French youth, can be found huddled over their laptops in the open spaces and cubic break-out rooms of a disused railway building in the east of Paris, where Xavier Niel opened Station F, the world’s biggest incubator for start-ups. Macron introduced special grants to international researchers, with a focus on climate change and green tech, as part of his ‘Make our Planet Great Again’ initiative. ‘Within five years,’ claimed Niel with his customary flourish when I spoke to him shortly after Macron’s election, ‘France will be the top country in Europe for start-ups.’
Until recently, France had underperformed for so long that it seemed to have lost the will to make such heady claims, or when it did they sounded like the hype of state-run marketing agencies. By 2018 they appeared less absurd. ‘There is every reason in the medium run for economic growth in France to match or exceed the average in the eurozone,’ François Villeroy de Galhau, the governor of the central bank, told me.20 If growth in the French economy were to reach this average, combined with labour market reforms, he said, the effect on unemployment could be ‘spectacular’. Macron has yet to face real domestic conflict, so his will to push through tough measures, particularly over public-sector reform, remains untested. Michel Crozier, a French sociologist, once argued that his country was a ‘blocked society’: too many top-down bureaucrats bred popular distrust and created a system that was unable to reform except through crisis. Macron nodded to this idea when he launched En Marche, vowing to ‘unblock’ France. Others blamed the problem on themselves. Asked in a 2006 poll why reform in France was so difficult, respondents identified the biggest single reason as the ‘state of mind of the French’. Macron has said that France ‘is a country that reforms less than it transforms itself, in sudden spasms’. His ambitions are immodest, and the risks of disappointment plain. Macron is working with administrations, and against lobbies, that have entrenched habits and interests to defend, at a time when the shifting balance of global economic power and pace of digital dislocation will not be forgiving. Perhaps most intractable of all, he is trying to bring all this about in a country that, as the election revealed, remains deeply fractured.