Investors greeted Sarkozy's election with enthusiasm, as the French CAC-40 blue chip share index hit a fresh six-year high shortly after opening. U.S. investors may find it surprising that despite France's well-know socialist bend, the French stock market has more than doubled the return of the S&P 500.
The Sarkozy Revolution: The New Margaret Thatcher?
Conventional wisdom is that with the election of Sarkozy, France finally joined the pro-market revolution launched by Ronald Reagan and Margaret Thatcher almost three decades ago.
As well-known left wing commentator Bernard Guetta noted on French radio:
Almost 30 years late... France has at last taken the liberal turn that Margaret Thatcher and Ronald Reagan gave the world. Others will say that after three decades of resistance, France has been caught up by international change -- the retreat of the state and the pre-eminence of the market, which it could no longer avoid. Some are rejoicing, others are deploring it but the fact is there.
Yet the reality is more complex. Nicolas Sarkozy is no ideological successor to Margaret Thatcher. Going back to the days of Jean-Babtiste Colbert, France has always tolerated government intervention in its economy more than the Anglo Saxons. Even today, the French treat the free market with distrust. An opinion poll in 2005 found that while 74% of Chinese, 71% of Americans and 66% of Britons said they were in favor of the market economy, only 34% of the French agreed.
Sarkozy defines himself as a pragmatist and a committed progressive. His objective is to modernize France's social model. He wants to achieve low unemployment, economic stability, and growth -- but in combination with France's traditionally high level of investment in public services. That is why Sarkozy refers so often to Tony Blair -- and not to Thatcher. As Sarkozy has noted: "I don't wake up every morning asking what Hayek or Adam Smith would have done."
The Sarkozy Revolution: Can He Do It?
Now that Sarkozy has been given the keys to The Élysée Palace, can he really deliver? Labor market reform is at the top of Sarkozy's ambitious agenda. He intends to break the big five unions' stranglehold on union representation; to remove taxes on overtime pay; to do away with the 35-hour work week; and to shrink France's massive government bureaucracy.
Sarkozy's triumph was already marred by sporadic violence on Sunday night as demonstrators took to the streets in Paris, Lyons, Marseilles and Bordeaux. About 300 youths (more were named "Mohamed" than "Pierre") stopped traffic while marching in Central Paris yesterday, chanting "Sarko Fascist, the people will have your hide." Public-sector unions are already making threatening noises about Sarkozy's planned reforms.
Those who have worked with Sarkozy note his impatience for change. Nor does Sarkozy shy away from making difficult decisions. But he will need all the stamina he can get. The reforms he hopes to push through in his first 100 days will antagonize every socialist faction in France. Three prime ministers of the Chirac era -- Alain Juppé, Jean-Pierre Raffarin and Dominique de Villepin -- stepped back from unpopular reforms in the face of demonstrations. So far, Sarkozy appears to be made of sterner stuff. But even the mighty de Gaulle lost his nerve in the face of the student demonstrations of May 1968.
The Sarkozy Revolution: The Politics of Catch Up?
Sarkozy's election is a watershed in French politics. But here's the irony: Politics is only playing catch up with business. The popular image of France as a socialist haven that is hostile to entrepreneurs and employers has long been outdated.
Here's why. It turns out that nearly half the companies on Paris's CAC 40 index are now led by CEOs in their late 40s and early 50s. They have MBAs, have grown up with the single European market, and they did not wait for a nod from French politicians to reform France's business culture. While politicians agonize over globalization, France's new generation of corporate executives have long transformed French companies into globally competitive players.
Some 47% of companies listed on the CAC 40 are now owned by foreign investors. That makes the French stock market more international than any other European market. French companies make the majority of their profits abroad.
Despite the millstone of labor market regulation around company executives' necks, French workers for several years have had the best growth in productivity in Europe. France has privatized many of its state-owned enterprises, including parts of national utilities and airports. The recent sale of state toll highways netted the French government almost $20 billion.
Foreign investors have voted with their feet. Foreign direct investment in France was up nearly 40% to $88 billion last year. Britain's pharmaceutical giant GlaxoSmithKline and FedEx have already set up shop in France. France's leading foreign investor? The United States, with corporate investments valued at $171 billion, supporting almost 550,000 French jobs. There is no better example than the NYSE's acquisition of Euronext, whose primary asset was the Paris Bourse.
With or without Sarkozy, France's business culture has already come a long way. In Nicolas Sarkozy, the world will see a very assertive and very French leader. With France set for a political revival to match its corporate reforms, Les Anglo-Saxons might even come to miss not having Jacques Chirac to kick around any more.