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The Economics Fueling the French Riots

By Michael Mandel Could the riots in France spell the beginning of the end of the European economic model? So far the unrest, which started in a Paris suburb and has now spread to more than 300 French towns, including Orleans, Nantes, and Rouen, has been mainly attributed to religious, ethnic, and immigrant issues. And the arson, car burnings, and other attacks so far seem to be centered in Muslim and African communities, fueled by pervasive discrimination and genuine grievances.

Yet the outbursts were supercharged by an economic system that not only tolerates but actually fosters sky-high youth unemployment. In September, an incredible 21.7% of 15- to 24-year-olds in France were unemployed, compared to only 11% in the U.S. and 12.6% in Britain. France isn't alone -- other European countries, such as Belgium, Spain, Greece, Italy, and Finland -- also have persistent youth unemployment rates above 20%.

Such sky-high levels of idle youth are a by-product of the welfare-state mentality that's still pervasive across much of Europe. The idea is that government's main role is to provide a safety net for the population, in terms of jobless and health benefits. Generating growth and creating jobs takes a distinctly lower priority, resulting in high unemployment, especially among the young.

UNDIRECTED ENERGY. By contrast, in the U.S. economic model, rapid economic growth and low unemployment can help pull young people over racial and ethnic hurdles. When businesses need lots of new workers, they are willing to take chances, as they did in the late 1990s. From 1996 to 2000, for example, the unemployment rate for young Americans dropped from 12% to just over 9%.

The problem for Europe -- and France in particular -- is that no society can long survive when 20% of young people, with plenty of energy and no place to put it, are unemployed. It's not simply an immigrant problem. Romano Prodi, the leader of the center-left coalition in Italy, says living conditions are terrible in that country's suburbs, even in areas made up only of Italian citizens.

One important lesson of the French riots is that the European economic model is leaving too many people behind, and that's not sustainable.

Mandel is chief economist for BusinessWeek in New York

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