France: budgeting to modernize

IN unveiling a relatively austere budget for 1985, the French government is stressing job creation and reinvigoration of the private sector over political ideology.

Whether the effort will be enough to lead to the major modernization of industry so urgently needed in France -- and indeed, throughout much of Western Europe -- is uncertain. What is certain is that by moving more and more to the right on economic issues, the Socialist government of President Francois Mitterrand has embarked on an economic course that, for him, is fraught with as many risks as opportunities. It is angering many of the members of his own constituency, even while not yet winning broad plaudits from independents and conservatives who are waiting for actual economic results.

The new $108 billion budget calls for a 5 percent across-the-board reduction in personal taxes while also cuttin certain taxes on French companies. Outlays for social programs are either curbed or held to modest increases. And taken as a whole, the budget is designed to hold the increase in government spending below the rate of nominal increase in output of goods and services.

Why is French economic policy moving to the right and away from the more interventionist policies put in place when Mr. Mitterrand first came into office? Those initial policies ranged from outright nationalization in some instances to promoting job-creation through expensive government work programs.

The reason is clear. Large companies have not modernized enough to enable them to compete effectively with their American and Asian (particularly Japanese) counterparts. Meantime, a combination of high tax rates and rigid state controls has worked against the capital formation and individual initiative needed to spur development of smaller companies. French government officials, like those throughout Western Europe, are keenly aware that most of the recent job growth in the United States -- which continues to lead the Western economies -- has come from smaller and medium-size companies.

Prime Minister Laurent Fabius recently had some tough words for his nation in a television interview. He said that France may well be facing a long period of economic difficulty. "Either we modernize," he said, "or we will retreat in the face of effort and difficulty." To retreat, he cautioned, would mean that "France in 20 years will no longer exist as a great power."

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