| ECUEILLE, France
ECUEILLE, France Dec 9 Shirt manufacturer Marc
Roudeillac was delighted when 48 of the 49 staff in his factory
in central France voted to adapt their strict 35-hour week
contracts to meet the up-and-down demand of the fashion trade.
Then the labour inspector stepped in and ruled the contracts
must not be changed. So Roudeillac began an overtime system with
25 percent hourly bonuses. Again, the seamstresses were happy -
until the government this year scrapped tax breaks on overtime.
"Now, no one wants to do overtime anymore - they say it's
just not worth their while," Roudeillac said at his Confection
du Boischaut Nord (CBN) company in the region of Indre, a
two-hour drive south of Paris.
CBN is a small miracle of manufacturing: it is one of the
few firms in Indre's once-buoyant local textiles sector to have
withstood the onslaught of foreign competition, first from
southern Europe, then North Africa and now Asia.
Yet the overtime episode is a telling insight into a France
struggling with itself: the France whose appetite for work sits
uneasily with the France whose priority is to sustain one of
highest standards of living in the world.
In just over 30 years after World War Two, France lifted
itself from the ignominy of Nazi occupation into a sleek and
modern Group of Seven economy with world-beating industrial
champions in sectors such as energy and aerospace.
Its welfare system is among the most generous in the world.
A road and rail transport network means its companies are within
hours of tens of millions of potential customers. It is a leader
in luxury goods and is the world's top tourist destination.
But somehow that Gallic vigour is being lost.
Unemployment is at 14-year highs as plant closures mount,
France's share of export markets is declining, and the fact that
no government in three decades has managed a budget surplus has
created a public debt pile almost as big as national output.
Louis Gallois, the industrialist charged by President
Francois Hollande to address France's waning competitiveness,
even warned in a November report: "French industry has hit a
critical threshold below which it risks breaking apart."
The euro zone's debt crisis too has shone a harsh spotlight
on France. The International Monetary Fund believes France could
get left behind as Italy and Spain are pushed by the crisis into
profound economic reform. Ratings agencies Moody's and Standard
and Poor's have stripped French debt of its AAA rating.
Diagnosing France's ills has created a whole new literary
genre - the work of the self-appointed "declinologues" whose
tomes compete on bookshelves to explain and fix the problem.
But the simplest test of France's health is whether a
business like CBN can keep selling the world its shirts.
One hundred years ago, local entrepreneur Marcel Boussac put
Indre on the world textiles map when he ended what was known as
the "black look" in France by introducing colour into the
clothes manufacturing process.
Boussac founded a conglomerate that acted as its own bank
and insurance broker and in 1946 bankrolled the first Paris
fashion house of an up-and-coming designer called Christian
Dior. He had a stable of racehorses, a country chateau and was
at one point reputed to be Europe's richest man.
Boussac, like millions of French, was the beneficiary of
France's "Glorious 30" - 30 years of uninterrupted boom in which
post-World War Two U.S. aid and heavy state planning wrenched
its transport, energy, housing, financial and farming sectors
into the second half of the 20th century.
It was a period of high wages, high consumption, full
employment and very little foreign competition. And it all came
to a juddering halt when the 1973 oil crisis sent energy costs
soaring and capped the Western world's growth rates for good.
There are no racehorses or country estates for Roudeillac
and business partner Richard Boireau, who arrive for work in
modest family saloon cars and share a desk in a cramped
If their company survives, it is largely thanks to a 20-year
alliance serving a major Japanese fashion brand - whose name
they asked should not be published - and a manufacturing model
pared right down to the bone.
A trained engineer, Roudeillac, 45 , says 80 percent of CBN's
costs are labour - the local mushroom-picker, beautician or
school-leaver whom he and Boireau meticulously train to
contribute to the CBN production line.
Because CBN gets the client to purchase the raw materials,
and all other overheads are low, CBN's slender gross margin of
around six percent depends on optimising what Roudeillac calls
the "productive minute" of the seamstresses.
"What we do is sell French labour - by the minute," he says
of their daily output of 200 shirts and 90 jackets.
Now CBN wants to strike out and revive an 86-year-old French
brand of shirt called "Lordson" which fell prey to the textile
sector's decline but which CBN believes has potential in the
high-end quality segment of the market.
The "Lordson" will feature a rich cotton that feels smoother
on the back after three years of washes, sleek three-millimetre
seams about half the size of normal stitching, and buttons stuck
on with a special machine of which only three exist in France.
There is one snag.
"Given our costs, it is impossible to retail a "Made in
France" quality shirt for less than 140 euros," said Boireau,
who entered the trade sweeping factory floors.
"At 120 euros a shirt it works. But at 140 - not sure."
...AND THE PITIFUL
If veteran textile entrepreneurs like Boireau fear they
cannot hit the price point on their signature shirt, it is a
direct result of choices made by France after the oil crisis.
By 1980, French economic growth had shrunk to two percent
compared to its pre-oil crisis rate of above six percent - a
rate which France and most rich states have not seen since.
In the years that followed, governments around the world
reacted in their fashion: Britain's Margaret Thatcher faced down
Britain's unions in a drive to free up labour markets, while
Scandinavian leaders sought to free their economies of debt.
In France, governments of left and right chose entrenchment:
strong rises in public spending which helped ease the social and
employment shocks but which sent national debt soaring from 20
percent of output in 1980 to its current record of 91 percent.
The next three decades are sometimes called the "Pitiful 30"
Unwilling to switch from a pre-oil crisis policy of boosting
consumption with low sales taxes, French politicians used labour
to fund the bulk of the welfare spend. The result, 30 years
later, is that French labour charges are among the highest in
the European Union with those in Sweden and Belgium.
The high productivity of its workers might have compensated
for their rising cost. But decisions such as the 1997 cut in the
working week from 39 to 35 hours meant many French were also
starting to work less.
A 2008 paper on "the Liberation of French growth" by Jacques
Attali, ex-adviser to Socialist President Francois Mitterand,
calculated that while the French lived 20 years longer than they
did in 1936, they worked 15 years less over their lifespan - a
shortfall he labelled "35 years of extra inactivity".
"Even given that each French worker produces five percent
more per hour than an American, he produces 35 percent less over
his working life," he found in the 245-page report.
Even that would not be disastrous if employers simply hired
more people - the whole point of the 35-hour week after all was
to reduce unemployment by requiring more workers to be taken on
to do the same job.
But small companies like CBN insist it was plain unrealistic
to assume they can simply hire more people for the same cost and
without disruption to existing work patterns.
"When they brought in the 35-hour week, I wrote a letter to
our clients saying, "Sorry, but as of tomorrow, prices are going
up 11 percent," recalls Boireau.
INSIDERS AND OUTSIDERS
French laws which make it difficult to lay off workers have
created the perverse incentive for employers to stop offering
permanent contracts that in many cases equate to a job for life.
Instead they turn to temporary contracts when they need
extra labour, creating for millions of French the very labour
insecurity which the law was supposed to prevent.
While today the majority of French workers still benefit
from a permanent contract, three out of four new jobs are on
fixed-term contracts, often for no more than a month.
The split personality of the labour market is, experts
agree, a major drag on its economy. At one end there is
expensive but inflexible labour and at the other cheap but
ill-trained and often demoralised fill-in workers.
Roudeillac acknowledges that CBN is one of the employers who
turn to temporary labour to help with peak production periods -
but he would prefer not to. "We could take on six or seven more
people. But in France, hiring people is a risk," he said.
For think tanks such as the OECD, the solution is simple:
the first group needs to hand over some of their job security to
the second group by accepting more flexible contracts. Surely
such a burden-sharing should be easy for a country built on the
ideals of "Liberty, equality and fraternity"?
Not a bit of it. In the past 30 years, France became not one
country but two: the France of the "insiders" and the France of
the "outsiders". And the reason it is so hard to reform is that
the insiders are determined to keep the rest out.
Those "in" the system include workers on long-term
contracts, labour groups protecting their interests, and the
mostly large companies who have found an accommodation with the
system. Those left "out" are the growing army of temporary
contract workers, small firms such as CBN who do not have the
economies of scale to allay the high cost of labour, and of
course France's three million-plus unemployed.
"Neither the employers nor the trade unions want real reform
- they are both in the insiders' camp," explains Eric Chaney,
chief economist for insurer Axa Group. "The employers are scared
of strikes and unions don't want to change anything in the
system because the people they are protecting are insiders too."
Hollande has begun his plan to restore France's competitive
position with corporate tax credits linked to labour hires. He
has also launched a public investment bank aimed to make up for
France's lack of venture capital. At his behest, French trade
unions and employers have a year-end deadline to negotiate rules
offering more flexibility and greater job security.
Yet it is unclear whether any accord will crack the mould. A
dramatic cut in labour charges is not on the table and the 2013
budget stays clear of spending cuts sought by the reform lobby.
As CBN's managers gear up to bring the world the Lordson
shirt next year, they will need Hollande to go a few steps
further in helping them sell the product of French labour.
"We need something better adapted to the world now," said
Boireau. "It needn't take very much."