Turning Away From

By Janice Castro.

At a popular new Paris restaurant down the street from the bustling French Bourse, or stock exchange, diners play a different sort of market while they eat. The price of each item on the menu rises or falls by as much as 20% according to consumer demand. An IBM personal computer at the bar continuously recalculates the prices, and a printout from the machine provides steady commentary, like the bulletins on a stock ticker: "Relance de haddock" (Haddock on the rebound) or "Pieds de cochon en vif recul" (Pigs' feet dropping fast). The restaurant is a hit, explains one of the owners, because it reflects the latest rage in Paris: free enterprise.

More than ever, the market economy has been in vogue since President Francois Mitterrand's Socialists narrowly lost the national elections last March. Under a complex power-sharing arrangement that the French refer to as cohabitation, Mitterrand has taken the lead in foreign policy while the newly appointed conservative Premier Jacques Chirac has had the greatest influence on domestic matters. The dynamic Chirac wasted no time in launching a sweeping reform of the French economy, which has been slow to join the current recovery in Western Europe.

Starting with such measures as the removal of price controls and a reduction in taxes, the Chirac administration is trying to spur business activity by easing the constraints of government regulation. In addition, it plans to return some 50 state-controlled banks, industrial firms and other enterprises to the private sector. Said Chirac: "We must now go fast and far. France must change."

To help him engineer this dramatic transformation, Chirac named his longtime friend Edouard Balladur to be the Minister of Economy, Finance and Privatization. The most powerful Finance Minister in decades, Balladur, once a top aide to the late President Georges Pompidou, has been described by the French press as Chirac's alter ego.

While Chirac asked the National Assembly for the authority to begin the process of deregulation and denationalization, Balladur was already outlining other economic reforms. These steps will relax most foreign-exchange and credit controls and reduce interest rates. Balladur is confident that the program will pump new life into France's economy. Says he: "I don't see any more reason to hesitate to invest, to hire workers, to participate boldly in the resumption of growth and investment."

The overhaul was long overdue. "The French economy we found on taking office was in a state of weakness," says Alain Juppe, a Deputy Minister for the Budget. As evidence, Juppe points to a meager 1.1% growth rate in 1985, an unemployment level of more than 10% (25% for youths under 25), a trade deficit of $3 billion, and a mounting budget shortfall that is now expected to hit $20 billion for 1986. The government hopes to solve these problems, says Juppe, with a policy based on "wisdom and economic liberty."

For the French, this "liberty" represents a historic change of direction. Chirac means to free the economy from government-imposed restrictions under which it has labored for no less than three centuries. Known as dirigisme, France's system of economic controls originated in the 17th century with Jean Baptiste Colbert, Louis XIV's Finance Minister.

Among the innumerable constraints that eventually became part of this system were regulations governing the prices of everything from cement to haircuts, and work rules that made it difficult and costly to fire redundant employees, which frequently discouraged companies from hiring or expanding. The Socialists, who came to power following Mitterrand's election in 1981, augmented the dirigisme tradition the following year by nationalizing 38 French banks and nine industrial groups.

Business leaders have reacted enthusiastically to the Chirac revolution but have lately grown concerned that he is not moving fast enough to put his program in place. The Confederation Nationale du Patronat Francais, which represents 90% of France's major companies, has long argued that excessive state regulation was smothering the economy. Since 1980, according to C.N.P.F. President Yvon Gattaz, France's share of the world market for manufactured goods has dropped from 10.2% to 8.2%. The reasons for this decline, says Gattaz, include a "punitive" corporate tax and the substantial charges that companies must pay for their employees' social benefits. C.N.P.F. estimates that these corporate taxes and charges total about 17% of the French gross national product, in contrast to only 6.5% in the U.S.

In fairness to the Socialists, they did prepare some of the groundwork for Chirac's reforms. After a disastrous jump in prices, Mitterrand's party in 1983 adopted a more pragmatic, market-oriented program that brought down inflation from a 1981 high of 14% to about 4% last year. Chirac's regime also inherited a much improved energy outlook. The recent decline in world oil prices will lop $9 billion off France's 1986 bill for petroleum imports. These trends, plus Chirac's initiatives, have increased business confidence. In the past twelve months, stocks on the Bourse have enjoyed a spectacular 80% gain.

That rally stalled last week, at least temporarily, as the value of shares plunged by 6.8% on Monday. Finance Minister Balladur quickly moved to allay investor concern. Said he in the National Assembly: "The Bourse has risen enormously. From time to time, people catch their breath." But after Balladur's speech, prices recovered only slightly. Market experts in Paris ascribed the slowdown to an impatient mood among investors, who are waiting for more solid economic results before pushing prices higher.

Whenever the market starts to rise again, there will be plenty of capital available for investment. For years the French have sent large sums of money abroad, even though many of those foreign transfers were illegal. But since March, when Chirac announced an amnesty plan for those who bring their funds back home, an estimated $10 billion has returned.

As in most capitalist countries, the political fortunes of France's leaders tend to rise and fall with the success of their economic programs. Chirac will undoubtedly challenge Mitterrand for the presidency in the elections scheduled for 1988. From a business point of view, his prospects so far look promising.

With reporting by Adam Zagorin/Paris