Turning Away From Dirigisme

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Among the innumerable constraints that eventually became part of this system were regulations governing the prices of everything from cement to haircuts, and work rules that made it difficult and costly to fire redundant employees, which frequently discouraged companies from hiring or expanding. The Socialists, who came to power following Mitterrand's election in 1981, augmented the dirigisme tradition the following year by nationalizing 38 French banks and nine industrial groups.

Business leaders have reacted enthusiastically to the Chirac revolution but have lately grown concerned that he is not moving fast enough to put his program in place. The Confederation Nationale du Patronat Francais, which represents 90% of France's major companies, has long argued that excessive state regulation was smothering the economy. Since 1980, according to C.N.P.F. President Yvon Gattaz, France's share of the world market for manufactured goods has dropped from 10.2% to 8.2%. The reasons for this decline, says Gattaz, include a "punitive" corporate tax and the substantial charges that companies must pay for their employees' social benefits. C.N.P.F. estimates that these corporate taxes and charges total about 17% of the French gross national product, in contrast to only 6.5% in the U.S.

In fairness to the Socialists, they did prepare some of the groundwork for Chirac's reforms. After a disastrous jump in prices, Mitterrand's party in 1983 adopted a more pragmatic, market-oriented program that brought down inflation from a 1981 high of 14% to about 4% last year. Chirac's regime also inherited a much improved energy outlook. The recent decline in world oil prices will lop $9 billion off France's 1986 bill for petroleum imports. These trends, plus Chirac's initiatives, have increased business confidence. In the past twelve months, stocks on the Bourse have enjoyed a spectacular 80% gain.

That rally stalled last week, at least temporarily, as the value of shares plunged by 6.8% on Monday. Finance Minister Balladur quickly moved to allay investor concern. Said he in the National Assembly: "The Bourse has risen enormously. From time to time, people catch their breath." But after Balladur's speech, prices recovered only slightly. Market experts in Paris ascribed the slowdown to an impatient mood among investors, who are waiting for more solid economic results before pushing prices higher.

Whenever the market starts to rise again, there will be plenty of capital available for investment. For years the French have sent large sums of money abroad, even though many of those foreign transfers were illegal. But since March, when Chirac announced an amnesty plan for those who bring their funds back home, an estimated $10 billion has returned.

As in most capitalist countries, the political fortunes of France's leaders tend to rise and fall with the success of their economic programs. Chirac will undoubtedly challenge Mitterrand for the presidency in the elections scheduled for 1988. From a business point of view, his prospects so far look promising.