Ten days ago, French youths and union members filled the streets of their country again to protest a new law meant to further allow companies to fire their employees. This is the latest chapter in a growing failure of the European model of global competitiveness. But it may signal that the tipping point for change has arrived.
Progress is stalling because of a rigid system that prevents companies from keeping pace with the rest of the world. The people of Europe are falling behind the nations that have embraced difficult changes. The Wall St. Journal reports that GDP per capita in Germany, France and Italy is falling, relative to the U.S., to levels below those recorded in the 1970s.
Labor laws in France are notoriously restrictive. For example, six years ago France imposed a 35-hour work week that studies show costs the country $17 billion a year. This recent law is aiming to only slightly make it easier for companies to run their businesses as they see fit. According to the AP:
"Under the current law, it is very difficult to fire anyone unless the company is facing bankruptcy or other dire financial difficulties, or if a worker has repeatedly committed grievous mistakes on the job. Many firings go to the courts, where judges often rule in favor of workers."
The one area where I side with the protesters is in the point that the young have been unfairly targeted by this latest bill. The bill would allow companies to fire employees under age 26 without reason within the first two years of employment. Businessweek data shows that the unemployment rate is 21.7% for French 15- to 24-year-olds,
compared to only 11% in the U.S. and 12.6% in Britain. These youths are the future of France, and their energy should be harnessed to power the revolution. Instead, like at a GM plant today, the union-dominated government has chosen to protect the older and established employees. And when you have nothing to do, no money, and no one is listening, rioting seems like a pretty good idea.
On the other hand, perhaps these riots will act as a wake up call for the French government. The reform itself is a positive sign, as is their determination to see it through in spite of ugly protests. Hopefully the people of France will realize that the short-term pain of adopting free market reforms will trigger the long-term benefit of economic growth.
UPDATE: The French government backs down to protests and will now scrap the bill. I should have known better. Note to broker, sell France.
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