President Jacques Chirac's re-election incited a sigh of relief across France that is echoing around the world. But the scare Jean-Marie Le Pen threw into French politics will be for nought if the political class in Britain slips back into its old hauteur and complacency.

France has always been a nation of sharp divisions. Once its divide marked the chasm between Left and Right. Today it marks the economy's division between its public and private sectors. Premier Lionel Jospin, who was humiliated by Le Pen in being denied a place in the final presidential run-off, had presided over a strong economy, with many new jobs created, more leisure due to the 35-hour week, and some liberal reforms such as privatization on a scale hitherto unseen in France.

But despite all that, unemployment remained stubbornly high and a pervasive insecurity had set in. Jospin's program failed to diminish these twin ills primarily because French society is divided between a large public sector and a dynamic private sector, much of which is increasingly being driven outside the country because of high taxation and endless bureaucracy. Businesses that remain must bear the costs France's leviathan public sector.

The fact that France has experienced high unemployment for over two decades, no matter who holds the reigns of power, is a clear sign that French economic policy is amiss. French unemployed are well off compared to their international counterparts, but the system is costly and inefficient and has shortcomings. Social benefits, for example, are paid only for a limited amount of time; they are then replaced by a minimum living allowance, which represents an exclusion from society.

In August 1945, Jean Monnet told Charles de Gaulle that: "you speak of grandeur but the French are small today. There will only be grandeur when the French assume a status that justifies grandeur...There must be more production, more productivity; [we] must transform the country from a material point of view."

The General did not need convincing. He believed that the state had an "ardent obligation" to engage in economic planning. One of Monnet's first actions was to declare that modernization could not be attained while the French worked such short hours; a 45-hour working week was the minimum that was necessary. French workers put in an average of 46 hours per week through the early 1960s. Since then, work-time has steadily declined. A 32-hour work week is now deemed something worth going on strike for.

Monnet's effort to rebuild France by mobilizing business, unions and government authorities at all levels mutated into France's "Great Organizational Myth"- the idea that technocrats can allocate resources better than the market. French central planning attempted to blaze a new path between Communist centralisation and Vichy corporatism. Five decades on, the wheels of state are still mostly spinning in that muddy middle ground.

The French state employs around five million people - nearly one-fourth of the working population, including at the local level. The salaries and pensions of these fonctionnaires represent about 40% of the national budget. This trend is completely opposite that prevailing in other sectors. For example: the number of French farmers fell steadily over the last three decades, yet the number of Ministry of Agriculture bureaucrats doubled.

Compare that bloat with the French private sector. EU single market provisions have forced French companies to compete without the crutch of traditional protectionist measures and state subsidies. The best French companies have cut costs ferociously, improving productivity and expanding production abroad. Cosmetic giant L'Oreal, Danone, Michelin and Club Mediterranee are but a few of the highly competitive companies that are more global than French. Their achievement demonstrates the strength of the external side of the French economy, which is the main engine of French growth.

But "Private France" - despite its dynamism - cannot continue to compete and innovate while carrying the dead weight of "Public France" on its shoulders. Many ill-managed public or semi-public enterprises only survive because they are saturated by state subsidies. The private sector's burden is not limited to state enterprises, but stems more generally from the vast share of national income (51%) that the state taxes and spends, with a large part of taxation falling on employment. Additional obstacles include a lack of labour flexibility, especially legal barriers to shedding labour.

The more immediate explanation for the lack of reforms derives from the paradox of the strength of the French economy. The situation is not bad enough to incite demands for serious reform. Indeed, high living standards and high social expectations make it political suicide for any party or leader to propose even the short-term sacrifices serious reform will entail. So the strength of the French private sector has created the material basis for a welfare state that is truly parasitical: it weakens its host (the private sector) without killing it.

Europe was thought by the French political class to be the solution. But Europe and the euro could are increasingly catalysts for public resentment. Jospin and Chirac have done nothing to implement the large liberalization program (including energy, financial services and transport) agreed among EU members in Lisbon two years ago, which means that the benefits of liberalization are denied France at a time when the public perceives the EU as imposing all sorts of restrictions on the French way of doing business.

It is time for France to abandon the indulgence of French exceptionalism ('L'Exception Francaise) and start serious reforms that engage the French electorate. The shame of Le Pen's newfound prominence may yet prove beneficial if it forces the mainstream political establishment to heed popular concerns and address the country's problems.