Rhein on Energy and Climate

Switzerland enjoys the fourth highest per capita income on earth, after Luxembourg, Qatar and Norway. It owes its high living standard to long-term political stability, a well-educated population eager to innovate, an open competitive economy and last, not least, small government.

Industry continues to be important, comparable to Germany with a share of 23 per cent in GDP, though services play an increasing role, as in all highly developed countries.

Despite its close interdependence with the EU – 60 per cent of its exports go to EU countries – Switzerland has weathered the global economic crisis infinitely better than most EU countries.

  • It is the only European country to enjoy full employment. In April 2012 its unemployment rate was merely 3 per cent!
  • It has no public deficit problem. During 2009-12 its public finances registered an average surplus of 0.4 per cent of BIP!
  • It has no public debt problem. In 2012, its gross public debt, including social security, amounted to no more than 34 per cent of BIP, compared to 92 per cent in the euro-zone!

Five main reasons explain the Swiss success in passing through the crisis without major bruises.

  • The country enjoys a very diversified and competitive economy built on high productivity and constant adaptation to changing world market conditions.
  • Switzerland practices “small government”. Its public expenditures are lower than in any other European country. In 2012 they account for only 32 per cent of BIP compared to 49 per cent in the euro-area.
  • Government spending focus on social and educational activities.
  • The Swiss federal system offers a good protection against excessive state expenditures. It has managed to keep the federal level under strict control.
  • As early as 2002 Switzerland has introduced the “golden deficit rule” , under which budgets have to be balanced in the medium term. Switzerland was therefore very cautious in 2008-09 with big stimulus programmes.

Switzerland offers at least three lessons to economic policy makers.

  • “Small government is beautiful”.
  • Governments cannot create jobs. They should focus spending on education & research and provide a stable business climate in which business and individuals learn to adjust to an ever changing economic environment.
  • Decentralised political responsibility, including regional and local level, can be an important factor of good government.

Brussels 18.11.2012 Eberhard Rhein

 

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Comments

  1. …Switzerland also pracices turning a blind eye to tax evasion from abroad, a quite strongly protected internal consumer market with (extremely) high prices, and a real estate market that is mainly in the super prime league. Switzerland has had no growth except through immigration (and it prefers immigration of well-educated, well-off persons over “normal” migrants).

    Futher, a detailed comparison would have to take into account, which proportion of social insurances is paid for through taxation etc.

    And finally: the “without bruises” point has first to be proven, as the financial sector is now being hit considerably (also thanks to “small government” and ineffective regulation).

  2. Peter
    Thanks for your constructive comments.
    Switzerland is in free trade with the EU and therefore not able to protect its market. High real estate prices are no argument against my main point that Switzerland has been doing fine during the crisis thanks inter alia due to small government.
    Tax evasion exists certainly and is being tackled belatedly, but is too small to explain low unemployment: Nor is their intelligent immigration policy that is not only focused on highly qualified personnel (tourism!)
    Eberhard Rhein

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