Why policymakers should watch the Swiss

Published in Business Spectator (Melbourne), 12 November 2015

One of my favourite jokes about Switzerland goes something like this: An American walks into a Swiss bank with heavy sacks in each of his hands. He goes to the teller, brings his face close to the glass and whispers, “I have two million dollars with me. I urgently need to open a secret Swiss bank account!” The Swiss bank teller replies in a normal volume, “Sir, there’s no need to whisper. Poverty is nothing to be ashamed of in Switzerland.”

Like every good joke about national stereotypes, there is some truth in it. Yes, Switzerland has a reputation of being a safe haven for all sorts of funds, including those you would not want to talk about too loudly. And true, it is one of the wealthiest addresses on the planet, which is good for the Swiss because it is also one of the most expensive places to live.

But if wealth and secret bank accounts are all you associate with Switzerland, you should think again. To help you do so, there is no better starting place than a new book just released by Swiss think tank Avenir Suisse (‘Swiss Future’), Watch the Swiss.

Watch the Swiss is, of course, a pun on yet another quintessentially Swiss product, the Swiss watch (only rivalled for Swissness by cuckoo clocks and army knives). Yet it is a well-chosen title for a compilation of essays because they are exclusively written by international observers (including yours truly).

The list of contributors is impressive, ranging from former Austrian chancellor Wolfgang Schüssel to Australian economist Wolfgang Kasper, from long-serving editor of The Economist magazine Bill Emmott to Princeton historian Harold James, and from Germany’s former economics minister Wolfgang Clement to legendary soccer coach Ottmar Hitzfeld.

As you read through their contributions, what emerges is a country that is nominally and geographically positioned right in the middle of Europe. In every other aspect, however, it has little to do with the countries that surround it. It is the antithesis of the European Union and, in many ways, a constant provocation to it.

Not that the Swiss like to provoke — but they don’t like to be provoked either.

Or to borrow the words of Friedrich Schiller, taken from his play about Switzerland’s national hero and freedom fighter William Tell: “The best of men cannot remain at peace, if any wicked neighbour will it not.”

Switzerland is a democratic, freedom-loving and free-market exclave in the surrounding sea of the European Union. And yet, at least in principle, Switzerland and the EU have something in common, as Wolfgang Clement observes: “Switzerland is exactly what the European Union would have to become if it were allowed to become what its founding fathers and mothers wanted it to be: a ‘nation by will’, as the Swiss say about themselves, a ‘union by will’ — the only shape the EU can possibly take, since it is not a uniform entity.”

The only problem, as Clement immediately concedes, is that the EU has become an increasingly centralised “regulatory machine against which the majority of the Swiss citizens obviously seems to have a strong aversion. How right they are!”

Switzerland’s resistance to the EU has had some obvious negative side effects, especially for the Swiss themselves. Harold James points to the Swiss franc’s uneasy co-existence with the euro. To James, the monetary historian, it was nevertheless a mistake for the Swiss to stop defending the peg to the euro. While many other economists and commentators (myself included) argue that Europe’s debt crisis undermines the case for monetary union, James maintains it indicates the opposite. To him “it shows the need for political and institutional arrangements that ensure fiscal and financial stability.” Which raises the question why healthy and small countries such as Switzerland should voluntarily pay the price for their neighbours’ excesses.

Meanwhile, Watch the Swiss leaves it to German-born Australian economist Wolfgang Kasper to deliver the strongest broadside against Switzerland’s EU neighbours. Writing with the verve of an old liberal, who incidentally went to school in the neighbouring principality of Liechtenstein, Kasper takes no prisoners in his verdict on the Swiss against the EU-ropeans.

“The post-industrial welfare states are bankrupt,” Kasper declares. “The cartel of high-taxing governments (a.k.a. G20) cannot tolerate Swiss competition in tax policy and the quality of government services.”

Kasper, an emeritus professor of economics at the University of New South Wales, is especially condescending of the way in which other developed countries are fighting Switzerland’s low taxes under the guise of harmonisation. “Harmonisation,” he says, “has become a political spin word within the cartel of governments who want to ensure that individual property and other rights are not too well protected.”

Running like a thread through most essays is the exceptionalism of Switzerland. The country is a “thorn in the European side and serves, it must be hoped, as a liberal ‘garde-fou’ for at least some politicians, sometimes,” the German journalist and former economics editor of the respected Frankfurter Allgemeine Zeitung, Karen Horn, writes.

It is quite an appropriate year to celebrate Swiss uniqueness. It is the 700th anniversary of the Battle of Morgarten, in which the Swiss defended themselves against the Austrian soldiers of the Holy Roman Empire. It is also the 200th anniversary of Switzerland’s neutrality, which was guaranteed at the Viennese Congress.

The challenges to Switzerland today are different compared to those in the past. Nowadays, no country would militarily challenge the Helvetic Republic even though a former German finance minister once half-jokingly threatened to “send in the cavalry” to deal with Swiss tax avoidance schemes. It is a more pernicious threat to Switzerland’s way of life: to be an island of freedom and prosperity within a continent that seems to have given up its belief in either.

From an antipodean perspective, Watch the Swiss is an eye-opener. It makes one realise how much mixed economy models, shaped by other European and North American countries, are taken for granted. And yet Switzerland, one of the world’s most developed, most prosperous and most democratic countries, defies conventional wisdom by going its own idiosyncratic and devolved way.

If our politicians were looking for a radically different way of delivering good government, they could do much worse than watch the Swiss.

Dr Oliver Marc Hartwich is the Executive Director of The New Zealand Initiative (www.nzinitiative.org.nz). ‘Watch the Swiss’, edited by Gerhard Schwarz and Karen Horn, was published by Avenir Suisse in conjunction with Neue Zürcher Zeitung Publishing (Zurich).

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