Switzerland has recently held a referendum on „basic income“ – the idea that each Swiss citizen should be provided with a guaranteed income of around CH 2500 a month from the government. While the proponents claim this guaranteed income is necessary to cover for the basic needs of the citizens and compensate for the consequences of work automation, the citizens rejected the proposal with 77% voting „NO“.
The referendum has sparked new discussions about Swiss prosperity and high standard of living. And while many are familiar with how how the Swiss standard is, most people do not know much about the foundation on which the Swiss prosperity was created and there seem to be many myths regarding the reasons for Swiss success.
Libek has reached out to Pierre Bessard, the Director of the Liberal Institute from Switzerland. Liberal Institute, set up in 1979, is promoting individual freedom, peace and political diversity in Switzerland, and is the biggest organization of this kind in the country, having offices in three cities and publications in four languages.
Pierre Bessard explains the reasons for Swiss success, reflects on the „basic income“ referendum and speaks about what is true and what is false regarding common perceptions of Switzerland as a country.
1. There is a lot of debate about crises in Europe – the crisis of the Eurozone, the migration crisis, slow economic growth and reduced international competitiveness. But it also seems like that there are countries which do not have these issues, and Switzerland certainly seems to be one of the most successful countries in Europe and the world. What is the secret of Swiss success?
Switzerland faces many of the same challenges as other advanced countries, such as rising healthcare and pension costs, excessive public spending, or the overpoliticization of society. It’s true, however, that in relative terms, Switzerland is in much better shape than most other countries. The reason for this success is the same for any country: a higher level of economic freedom. In fact, in the annual Fraser index of economic freedom, Switzerland ranks fourth worldwide, behind Hong Kong, Singapore and New Zealand. This is reflected in practice by freer trade, reliable rule of law, smaller government, a lower tax burden, a lightly regulated labor market, a decentralized, highly accountable political system, or historically low inflation.
2. Many people from former Yugoslavia settled in Switzerland where they sought and found security and opportunities to work and earn money. How is it possible that the same person who works in Serbia for about EUR 500 a month, earns 15 times more just 1000 km from Serbia for the same work?
The main reason for this difference is the level of productivity. Switzerland is a capital-intensive economy, with a stock of investments that is not only significant within the country, but also abroad. The country is home to the (proportionately) highest number of multinational corporations, some of which were founded in the 19th century, such as the food giant Nestlé or the financial services firm Credit Suisse. Over 90% of businesses, however, are small and medium-sized firms. Often these smaller businesses are very innovative and export-oriented.
Economic freedom translates automatically into more savings, and therefore more investment. That’s why Switzerland is a very productive economy, characterized not only by high wages, but a high purchasing power and high standards of living. The other part of the explanation is the good quality of the education system, which is largely geared toward the needs of the labor market and productive life. Serbia unfortunately suffered for many decades from the extremely harmful and destructive system of socialism. Switzerland has always had relative liberal government.
3. When we speak about the success of Switzerland what role does the culture and tradition have compared to politics and institutions? Is culture more important than politics?
Culture is really the underlying foundation for politics and institutions. In fact Switzerland has had a narrative of freedom for centuries, and it was revived in the early 19th century in the German poet Friedrich Schiller’s play William Tell. Swiss freedom was always understood as freedom from government, at first from the surrounding empires and monarchies. In the 13th century the three principles behind the founding of the country were defense against external agressors, the impartial judge, and protection of individual property rights, notably against theft or damages.
Moreover, this freedom was always coupled with an ethics of individual responsibility, so it’s never been the freedom to do anything, but the freedom to do what is right. This heritage is grounded in Greco-Roman and Judeo-Christian wisdom. Freedom, responsibility, respect for property are after all universal humane values. They are based on reason, and you can find such traditions in Asia, for example in Chinese Taoism, and many other parts of the world. I’m sure that Serbia has a similar tradition. In Switzerland these ideas were able to become dominant thanks to the battle of ideas waged by the bourgeois elite in the 18th and 19th centuries, and government was eventually conceived as governement by citizens for citizens, and not by a ruler for his subjects. That’s why every Swiss male citizen is also a militia soldier keeping his weapons at home, and why direct democracy through referendums plays such a large role in politics: the power lies (at least in principle) effectively with the people, not with government.
4. Many people think that Switzerland is rich because many banks are located in Switzerland ad rich people keep their money there. Is this true, and if not, what would you say to the people who bring up this argument?
Well, you basically need banks in a market economy. And it’s also true that banking has a very long tradition in Switzerland, due to the fact that it developed very early as a market economy. Switzerland was an early player in the industrial revolution. But in fact the financial sector makes up only 10% of the Swiss economy today. And private wealth management is only about a third of that proportion. So in fact it is not so significant at all compared to the rest of the economy. The reason why Switzerland developed as an offshore safe haven, beyond the longtime expertise and cosmpolitanism of the financial center, is the country’s political stability, the framework of economic freedom that is conducive to wealth preservation, and the legal certainty that the money you deposit there will still be there in 5 years, in 20 years or in 100 years.
People who think Switzerland is rich because of banks do not make much sense, because the wealth deposited in Switzerland by international depositors obviously does not belong to the Swiss. Pointing to the banks is a convenient way to avoid to think, in particular about economic freedom.
5. Switzerland is a small country but around 25% of the citizens are foreigners. In many European countries, even way smaller share of immigrants would face opposition from anti-immigration circles and populist political parties. How come that Switzerland does not have big problems with immigration and even seems to benefit from the influx of migrants?
There are ongoing debates about immigration in Switzerland as well, and concerns over asylum seekers, for example. But the secret of integration is really that most immigrants take up jobs in the labor market; in fact in addition to all the non-Swiss residents living in Switzerland, the Swiss economy also relies on tens of thousands of commuters from neighboring towns in France, Germany, and Italy who come into the country every day to work in border regions. The opposite is not so common. Again, with higher economic freedom you have a lot more jobs available. Switzerland offers more opportunities than the neighboring countries, because it attracts more investment and more entrepreneurs.
Another very important factor is the vocational education, or apprenticeship, system. It ensures that young people even with no academic inclinations or less advanced language skills can learn a profession from the age of 15. They choose what they want to do: florist, plumber, carpenter, car mechanic, salesman, hairdresser, or whatever, and are employed in a business, while going to professional school about one day a week. This is the best integration you can think of. When young people come home with a salary at the age of 15, it sharpens their sense of self-responsibility but also of self-worth and pride. That’s why there are no ghettos and very little crime and communautarism in Switzerland. The country is united around productive work, as it were.
6. Switzerland has just held a referendum on Basic Income, the idea that each citizen should get around 2500 Swiss Franks every month from the government, regardless of their employment status or income. Proponents of the idea say that it would provide the citizens with the amount of money necessary for basic needs and that the „free money“ from the government would not discourage anyone from working. The vast majority rejected the proposal. What do you think are the most common objections and the biggest problem with the idea of Basic Income?
Conceptually, the idea of an unconditional basic income is akin to an immature child’s whim. It promises an income for no effort or work on the part of the recipient. But it still needs to be financed by someone, namely the taxpayer. Yet if the incentives to work are destroyed it is hard to see how an unconditional basic income could be financed. In other words, it is a completely absurd idea. It would end up reintroducing forced labor into the economy because not enough people would aquire the necessary skills to fill up jobs on the labor market.
You should know that this proposal was put to the vote because a small group of activists gathered 100,000 verified signatures of citizens to call for the referendum, as any group can do in Switzerland. No political party was in favor of it, even the left was against it. The unconditional basic income would be a disaster and lead to total economic collapse if it were implemented.
7. Many countries would like to be like Switzerland, but they do not always know quite how to reach Switzerland. What do you think are some things that any country could easily do to get closer to the level of prosperity Switzerland has?
The first condition is that decision-makers really care about improving their country and the well-being of the people, and not just their own short-term self-interest. That requires a culture of integrity. The second condition is to let entrepreneurs flourish and people prosper freely, by liberalizing the economy, cutting public spending and taxes, and deregulating business. The government should do as little as possible, at most keep the peace and administer justice in an impartial way as a subsidiary servant of society. People in government could still assume leadership if they are inclined to do so, but for the good of citizens, which means maximizing individual freedom and personal responsibility, and safeguarding private property.