Spring, 2006

From the Editor

France's Lottery Economy

Trade has its own virtues and sometimes can be an engine of economic growth. But robust, growing economies tend to encourage the growth of trade. So international traders cannot be indifferent to what has been playing out in France.

France has a 23 percent youth unemployment rate. Not long ago there were riots in the streets by young Muslims with, to be blunt, nothing to do and little hope of ever being part of the country’s economic system.

You don’t need a PhD in economics to see the problem: A network of laws that make it difficult or impossible to fire an employee is a disincentive to hire anyone, especially people who are strangers to you or whose education and skills are marginal or uncertain.

Yet a very modest proposal to limit, for very young people, the “property rights” to a job that French law has established was met with such outrage that President Jacques Chirac felt obliged to back off the proposal.

Those without jobs are not left to starve. The same system that restricts work opportunities for so many provides welfare to sustain them. That is why there are riots: Bored people, with few opportunities and no need to sustain themselves, are bound to start trouble from time to time.

What France has done is create a lottery economy. If you have a winning ticket, if you get the position, then you are guaranteed good pay, generous vacation and other benefits. But if your ticket doesn’t win, then you are outside the system, pounding on the door, hoping to get in.

Of course, I’m being generous in calling it a lottery economy since that implies some kind of fairness — actually the lottery is fixed, and those poor Muslim immigrants don’t have half a shot.

It is a horrible shame. Not just for France, but for the world, because it means that human potential is not being utilized. And it is not just France; much of Europe has distaste for what they perceive as the cruelty of “Anglo-Saxon” economies.

The failure of the French system to provide opportunities for those not in the winner’s circle is a great moral failure. It makes one think that all those French students protesting the proposed changes in labor law were really pursuing their economic interest — which is locking out competitors who might do the work better or cheaper.

It is not some abstract morality at stake here; the French approach is not sustainable in a world of globalized trade. Inevitably, Europe’s high labor costs will lead to a decline in both economic and political power. If a large and growing sector of the society, such as the Muslim immigrants from North Africa, are not given the chance to compete economically with their new countrymen, it is a recipe for revolution.

In an official agreement known as the “Lisbon Agenda,” European Union members committed to generate 20 million new jobs and sustain a growth rate of 3 percent a year, but France, Germany and Italy aren’t even close to these numbers.

Germany and Italy elected new leaders, but with such narrow margins they must govern with coalition partners that resist real change. In France, the protested law was opposed by two-thirds of the people — which makes you wonder how such a law can get passed.

The situation in France is cowardice by the elite afraid of their ability to compete with immigrants. If they don’t feel they can compete effectively with poor people in their own country, how are they going to compete effectively with the billions in China and India?

The opposition to the labor law was a kind of protectionism designed to preserve their jobs. It seems likely that tariffs or non-tariff barriers to imports are inevitable.

The United States has many problems: How to handle immigrants, labor unions looking to preserve their member’s jobs at any cost, politicians who overspend and are corrupt. Still, at the core, the United States is a robust, self-confident economy and provides an astounding opportunity to immigrants from every corner of the globe.

There are naysayers, of course, but the United States imports like no one else and has been the engine that has provided upward mobility not only to tens of millions of legal and illegal immigrants but also to war-torn Europe, Japan and to the tigers of east Asia and, today, to China.

Traders around the world have a unique role to play in making sure their governments understand the opportunities that being an open and free-trading economy offers to the people. And making sure leaders understand that walling out people and products inevitably must lead to economic stagnation and decline.

Every nation can play a role as an engine of economic growth for its trading partners and thus help reduce poverty, increase prosperity and create the links between peoples that build understanding and mutual interest, which encourage world peace. Leaders need to be explaining the new world order to the people, rather than cowering to protect the status quo. Such is the path to both prosperity and peace.  EXP