Economics Everywhere, Politics Nowhere: The Benefits of Swiss Decentralization
Is there any hope in the Western World that individual citizens can win some release from the relentless and imprisoning growth of government? In the US, government spending, a reasonable proxy for their power over us, increases every year, except for a few minor blips. The citizens’ situation becomes more and more dire. We have precious little say and little influence over our taxes, our health care, our energy and water supplies and costs, not to mention the social rules with which the government constrains us. The number of rules and regulations, using the proxy of pages in the Federal Register, also increases every year, and very few rules are removed. The government closes in on us more and more every day.
There is one western country that we might look at to see a glimpse of hope. That country is Switzerland. In a small landlocked country with precious little in the way of natural resources except water, the people have created a high level of prosperity based on innovation and creative capitalism.
100% Economics, Zero % Politics
Prior to its 1848 constitution, Switzerland was a confederation of states, each of which was sovereign and independent, bound together by a treaty of mutual defense from external aggression. As a country, it was the most economically developed in Europe. It was religiously and ethnically diverse, highly innovative and highly productive. Huguenots expelled from France in religious wars started the Swiss watch industry, and German protestants escaping Catholic oppression founded major industrial companies. There was a focus on knowledge and education to compensate for the lack of natural resources, and the Swiss were globally networked and energetic traders.
“Economics was everywhere and politics nowhere” was a phrase used to describe this productive, energetic, innovative, decentralized trading nation in the mid-nineteenth century. What a wonderful picture of economic freedom unencumbered by political extraction is conjured up by that description.
Switzerland has been able to retain some of these characteristics despite the predations of the twentieth century. It stayed on a gold standard until 1999, and resisted internationalization until it joined the UN in 2002. In fact, internationalization is what has eroded Switzerland’s uniqueness as a nation. The influx of internationally-oriented MBA’s and the McKinsey mafia is dragging Switzerland down toward the lowest common denominator of statism and interventionism. The EU aims to get Switzerland to sign a bilateral agreement which will inevitably lead to Brussels gradually imposing its multicultural socialism, just as it did on the UK.
Nevertheless, Switzerland has at least six structural advantages which will keep it ahead of its mediocre peers for a while longer.
Switzerland remains a confederation of 26 cantons. Its more centralized than prior to 1848, but the functions of the central government are limited. There’s a national constitution, a national military and security force, a single currency and a central bank, and a national foreign policy. But the people have been able to keep the powers of the central government enchained to a greater extent than in the US. James Madison promised, but his Constitution was unable to deliver. The Swiss have done better.
Subsidiarity is the principle of resolving all problems and issues at the lowest level. Most taxes are imposed at the municipal and canton level. The federal take is limited to about 20% of total tax payments. This starves the central government beast. Citizens are more engaged around their local governments and their taxing and spending decisions. And they can vote with their feet, moving to another town or canton if they feel it will improve their circumstances.
3) Direct Democracy
In Switzerland, the people are sovereign. One way their sovereignty is maintained is through regular referenda, in which the people vote on matters of national policy, laws, and proposed constitutional changes. There is typically a high voter turnout for these referenda, and the people take direct democratic control of their government seriously.
4) Free Trade
There is little debate about free trade in Switzerland. It’s an imperative. It’s a country heavily dependent on imports of basics — energy, food, commodities. It therefore developed a strategic exporting industry strategy: unique high value products and services meeting global demand. Watches are the famous example. Today, it’s biotech and other technologies. Always, free trade has been the binding condition to Switzerland’s prosperity.
In foreign policy and diplomacy, Switzerland is famously neutral and non-aggressive. It goes with global free trade — creating enemies would be counterproductive. Switzerland has a military, and compulsory military service, but for defense against external invaders only. War is the number one barrier to economic progress, and political reconstruction after war is often a worse disaster than the physical destruction of war itself. Switzerland has avoided all this.
6) Entrepreneurial innovation
Switzerland ranks fairly high in the list of countries for ease of doing business, although its ranking has deteriorated in the 21st century. It’s easy to start a company, taxation is relatively low and laws are transparent. Numerous international companies choose Switzerland for their headquarters. Innovation is embedded in education and in a network of research centers, representing investments in people and knowledge. It’s in the individual psyche and the nation’s institutions.
Not perfect, but better
Switzerland is by no means perfect as a nation-state. The whole concept of nation-states is detrimental to the individual lives of the people who live in them and form them, and the concept calls for a lot of disruptive innovation. Maybe it’s the Swiss, with their tradition of decentralization, subsidiarity, individual initiative and a free trade in ideas who will be the ones to implement the innovation. That is, if they’re not overwhelmed by the internationalists at the EU, UN, IMF and McKinsey before they can break out. It’s economics versus politics. We hope for economics everywhere and politics nowhere, but it’s proven impossible to maintain. The fact that economics once prevailed in Switzerland gives us hope to believe they could re-establish its primacy.