Globalisation and French discontents. Demon monde

A SOUR mood of protectionism has taken hold since French voters said no to the European Union constitution on May 29th. Politicians of all stripes, including Dominique de Villepin, the new prime minister, have been eagerly denouncing globalisation. Yet even as the political class turns introspective, the French economy becomes ever more open and globalised.

France is both the world's fifth-biggest economy and its fifth-biggest exporter, shipping out €450 billion-worth ($560 billion) of merchandise in 2004. Its private sector boasts world-class producers of cars (Renault, PSA Peugeot Citroen), cosmetics (L'Oreal), insurance (AXA) and oil (Total). Renault reported a 43% rise in net profits for 2004, to €3.5 billion. In the first quarter of 2005, Total's net profits soared by 50%, to €2.9 billion.

Its politicians may profess a fear of global capitalism, but France's businessmen are happy to exploit it. A French company (Sodexho) feeds the American army; another (Accor) runs leading chains of American motels; a third (Hachette Filipacchi) is the world's biggest magazine publisher. A Frenchman (Denis Hennequin) has been made head of McDonald's Europe; another (Jean-Philippe Courtois) runs Microsoft International.

This might just be an escape from domestic constraints were it not matched by an openness to foreign investors. The OECD recently reported a sharp downturn in foreign direct investment in France in 2004, from $43 billion to $24 billion, but its figures tend to be distorted by a few big deals, and by the location (often Luxembourg) of holding companies. The French Agency for International Investment, which measures only direct productive investment in industry and services, says that the number of foreign projects in France grew by 7% in 2004. Clara Gaymard, the agency's head, claims that these were worth $5.8 billion, up from $4.6 billion in 2003.

France is making a big effort to market itself abroad. Mrs Gaymard advertises “the new France”, reminding investors of its first-rate infrastructure, health care and educated workforce. Bosses who gathered this week for an annual investment conference in La Baule discussed ways to improve competitiveness; a group has formed an “attractiveness” council to advise the government. Some testimony to France's appeal as a location came when Cadarache, in Provence, was picked this week for the international €10 billion nuclear-fusion reactor. Christine Lagarde, the new trade minister and a former global head of Baker & McKenzie, an American law firm, is keenly promoting French exports. Big firms may sell lots abroad, but she notes that only 5% of all French companies export anything at all.

If France profits so much from globalisation, why is the concept so unloved? The short answer is unemployment. Companies invest in France despite, not because of, its labour laws. GDP per hour worked is higher in France than in America. The trouble is that, thanks to high unemployment (now 10.2%) and a short working-week, the French work fewer hours per head than any other OECD country. A high minimum wage and lengthy redundancy procedures deter job creation. Firms keep payrolls short and invest in mechanisation instead. Foreign investors often create few jobs. Labour-intensive activities are especially vulnerable to competition from lower-cost central Europe or Asia.

The message is getting through. Mr de Villepin is concentrating almost exclusively on jobs. This week, to the indignation of the opposition, he pushed through a law letting him introduce new measures by decree. His main idea is a new two-year employment contract for small firms, giving employers more flexibility. By itself, it will not dent unemployment: in the short run, subsidised work schemes will do more. But the thinking is edging the right way. Unless France can remove obstacles to hiring, and boost job creation at home, globalisation will continue to be seen as more of a threat than an opportunity.

The French people do not like globalisation but their companies embrace it.