When J?r?me Wirth and his business partner, Fr?d?ric Herbinet, launched their Internet startup, Beweb, in 1997, France seemed like a good place for a young person to enter Europe's burgeoning New Economy. The partners set up shop in the Sentier, a funky Paris neighborhood where the government was encouraging high-tech companies to move into abandoned turn-of-the-century garment factories. Today, Beweb is a $2.5 million-a-year business providing software and services to e-commerce companies. It has operations in Britain and plans to expand across Europe.
But Beweb is saying au revoir to Paris and moving this spring to London, where Wirth reckons payroll taxes will be less than one-fourth the 45% the company now pays. The coup de gr?ce for Beweb, though, was a French law cutting the maximum workweek from 39 to 35 hours. Introduced two years ago for major employers, it was extended this year to businesses with under 20 workers. Hiring extra staff to make up the lost work hours is impractical for Beweb, which has 15 employees with duties ranging from bookkeeping to Web design. "It's impossible," sighs the 33-year-old Wirth. "I love France, but I am very pessimistic for my country." As for this spring's presidential and parliamentary elections, he scoffs, "whoever wins, they won't change anything."
To the 76 million tourists who visit each year, France looks as desirable as ever. The Centre Pompidou and the Paris Opera boast expensive face-lifts. Sleek new high-speed trains whisk passengers from Paris to the Mediterranean in three hours. On spring afternoons, parks and caf?s are thronged with people, thanks to the 35-hour workweek. Corporate France, once the domain of lumbering state-run enterprises, has a new set of champions: companies such as Vivendi Universal (V) and insurance giant AXA (AXA), which are growing aggressively worldwide. True, French growth slowed to 1.6% this year--but that still beats the European average of 1.4%. Even the film industry is on a roll, with the delightful Am?lie scoring big at the U.S. box office.
So what's wrong? Plenty, especially if you're young. The cohort between 15 and 40--the source of economic vitality in any country--is getting a dwindling share of France's prosperity. The problem starts with a crumbling school system that turns out millions of kids lacking the necessary skills to find jobs. It continues with government policies that discourage job creation and stifle entrepreneurship. And it's about to get a lot worse, as the younger generation shoulders the burden of pensions for retiring baby boomers.
This generation gap isn't attracting much attention from candidates in France's Apr. 21 presidential election--but it should. "We must confront the breakdown of our social fabric and the exclusion of our young people," says Christian Blanc, who recently stepped down as head of Merrill Lynch & Co.'s operations in France to run a nonprofit group that is pressing for wide-ranging educational, economic, and political reforms. The bitter truth is that France, more than most other countries, stacks the deck against its young. Unemployment in France among those under 25 is 20.8%, one of the highest rates in Europe and more than twice the rate for older French workers. The poverty rate among French in their 20s rose from less than 6% in the 1980s to nearly 9% by the late 1990s, while living standards for the elderly improved.
Why don't the young get more of the economic action? Increasingly, the country's corporate icons aren't hiring them. To avoid rigid anti-layoff laws, big companies such as tiremaker Michelin and building-materials giant St. Gobain are moving manufacturing abroad. Others, such as carmakers Renault and PSA Peugeot Citro?n, have relied on improved productivity to limit hiring. For most young people, the best places to get a job are small businesses, which accounted for nearly 90% of the jobs created in France during the past decade. But as Beweb's Wirth discovered, taxes and regulations are making it ever harder for these businesses to compete.
Unemployment is only one of the younger generation's woes. Public schools are in crisis, with many classrooms overcrowded and plagued by violence. Although France spends more than the European average on education, critics say resources are unfairly distributed, with a handful of elite schools getting more money and better teachers, while schools serving poorer students get short shrift. "We have a two-speed education system, and we are getting fed up with it," says Marilou Jampolsky, 17, a Paris secondary-school student. She belongs to a student group that has recently held protests in several cities about school conditions. A recent poll of 18-to-24-year-olds found that 60% thought the schools had failed them.
Universities get poor marks, too, for outdated curriculums and run-down facilities. Ludovic Michel, a 27-year-old Parisian who has yet to find a paying job, says he was urged to specialize in economics at the University of Paris Dauphine but found his training useless when he began looking for work. "Employers want something more practical," he says. He recently began an unpaid internship at a film company.
Youth crime is on the increase, with the number of teenagers jailed for serious infractions now twice as high as in the mid-1990s. France also is failing to integrate its estimated 1.5 million North African immigrants and their French-born children. Run-down housing projects, hidden from tourists' view on the outskirts of big cities, teem with young people who feel locked out of society. "Even if you have a diploma, you can't find a job because you're a 'foreigner,"'says Yams, 19, one of a group of unemployed young men loitering outside a dilapidated high-rise in the Paris suburb of La Courneuve. Yams and his friends, who wouldn't give their last names, all were born in France to Algerian-immigrant parents but say they don't feel French.
At the same time, an alarming number of France's brightest young people are leaving the country. Since 1995, the number of French citizens living outside the country has risen 30%, to nearly 2 million, including 240,000 in Silicon Valley. Almost all are in their 20s and 30s. An additional 200,000 or so have fled to Britain. For France, a country of 60 million people, that's a big hit. Worse, young people living in France are about to get socked with the pension bill for the baby boomers. France has the most generous retirement system in Europe, allowing workers to leave their jobs at age 60 with full, government-paid benefits. And in 2006, the working-age French population will gradually start to decline, while the number of people 60 and over will grow from about 20% of the population now, to nearly 30% by 2025.
Is a showdown brewing between young and old? Blanc, the former head of Merrill Lynch in France, who also ran Air France in the early 1990s, thinks so. He has been crisscrossing the country for the past year warning that France is headed for its biggest upheaval since 1968, when students rocked the Establishment with demonstrations demanding a greater say in the educational and political systems. But the politicians have brushed off his ideas, which include overhauling the civil service and opening up the nominations process for political candidates.
The two leading presidential candidates, Socialist Prime Minister Lionel Jospin, 64, and center-right President Jacques Chirac, 69, have no interest in disturbing the status quo. True, they have offered a few modest proposals to help the young. Jospin wants to increase government subsidies to young people looking for work, while Chirac would offer tax breaks to employers who hire young workers. Both candidates promise to reform the pension system, although they offer few details of the plans. With polls showing them in a dead heat, they aren't voicing ideas that could upset beneficiaries of the present system, from retirees to civil servants.
It's unrealistic to think that France, with its long tradition of economic dirigisme, will embrace U.S.-style market capitalism. If anything, the dot-com meltdown and the collapse of Enron Corp. have made the French even more wary of throwing in their lot with les Anglo-Saxons. Younger Frenchmen, who in polls say they favor a free-market economy, are also partial to the benefits of the welfare state. But by defending the status quo, France's politicians are only postponing the day of reckoning.
Why does no one speak for the young? For one thing, the system locks out newcomers. Instead of holding primaries, French political parties let insiders choose who gets on the ballot. To run for President, a candidate must round up 500 signatures--not from ordinary voters but from elected officeholders. Chirac and Jospin have each held elected office for more than a quarter-century, and they ran against each other for President seven years ago. "The political system is so depressing: always the same faces and the same ideas," laments Franck Mahe, a 31-year-old systems engineer in Paris. A few years ago, he volunteered for the free-market Liberal Democracy party but quit because, he says, "I saw that my ideas would make no difference."
France's young people are staying away from politics in droves. Turnout among voters under 25 has fallen sharply in recent elections. Anne Muxel, an expert on youth voting at the Center for the Study of French Political Life, predicts another dismal turnout in the coming presidential race. "There is a deep loss of confidence in the system," she says.
Chirac bears a good share of the blame. When he defeated Jospin in 1995, Chirac drew 55% of the under-25 vote by promising "a different kind of politics" to young people who felt betrayed by Fran?ois Mitterrand's Socialists. But now, it's Chirac's supporters who feel betrayed. One of them, 23-year-old St?phane Jourdain, has just published a book, The Chirac Generation: The Stolen Generation, in which he blasts the President for breaking his pledge to promote growth and social justice. "The gap between rich and poor has only widened," says Jourdain. Recent polls show Jospin winning 54% to 59% of the youth vote against Chirac, even though most are unenthusiastic about either candidate.
To be sure, many young French are doing well. Students at elite universities are getting a world-class education free of charge. The nearly 30% of 18-to-25-year-olds who are employed have a pretty good deal, too: generous benefits, tough anti-layoff laws, and that 35-hour workweek.
Yet while France dithers, Germany has cut corporate taxes, and Italy has reduced public spending from 54% of its economy to under 45% in less than a decade. In January, the French were shocked to learn that their per capita output had fallen from No. 3 to No. 12 among the 15 European Union countries over the past decade. The euro's launch, by making the high cost of French taxation more evident, makes it harder for the private sector to compete. And France's public sector consumes 51% of the economy. "You can't hide anymore," says Michel Landel, CEO of food-service giant Sodexho's (SDX) North American operations. "Somebody has to pay."
The biggest risk is that small businesses, the engine of French job creation in recent years, will start to falter. They have accounted for 88% of new hires since 1997. But startups have declined every year since 1995. Small-business profit margins are narrowing, too. Unlike big manufacturers, most small businesses can't easily move operations abroad. Moreover, they are concentrated in the service sector, where productivity gains are harder to achieve, says economist Christel Rendu de Lint of Morgan Stanley Dean Witter & Co. (MWD) The 35-hour workweek only makes things worse, de Lint says.
To create more jobs and lighten the impact of the new workweek, the government has offered employers a big reduction in payroll taxes if they hire extra workers. That's been a sweet deal for many large companies, which have hired about 300,000 new employees. But even with the tax breaks, small companies such as Wirth's Beweb cannot afford the extra expense of hiring new workers. To cover for absent employees until Beweb moves to London, Wirth postponed his vacation and worked unpaid overtime himself. Prosper Assouline, 41, the owner of Editions Assouline, a publisher of luxury art books with operations in Paris and New York, says the law will depress France's productivity. Young people, he frets, are quickly becoming accustomed to working less. "We are teaching extremely bad attitudes to young people," he says.
Jospin and Chirac have both hinted that they might modify the 35-hour rule for small businesses. That would improve young peoples' job prospects. But it's not what the campaign rhetoric is really about. The hot-button issues are crime, immigration, and France's place in the world. Lurking behind each of these topics is the central problem in the minds of the French: how to hold on to their affluent way of life. It's a fair question. But ignoring the young is not part of the answer. By Carol Matlack, with Christina White and John Rossant, in Paris