What have the Swiss ever done for us?
21 May 2018 // Kristian Niemietz
This article was first published under the title “Danke, Schweiz” in the Basler Zeitung, a Swiss daily newspaper. Translation by the author.
Classical liberal ideas work. But they are usually counterintuitive, and often hard to explain. Proponents of interventionist policies therefore enjoy a natural rhetorical advantage in policy debates.
It is therefore helpful for classical liberals if we can point to a practical example, i.e. a country or region which already practices something close enough to our ideas. For British liberals, it is Switzerland which, in many ways, represents such an example.
Switzerland is not a libertarian paradise. But it is a country which, through its mere existence and its economic success, refutes a lot of the UK’s conventional wisdoms.
Take decentralisation. Britain is extremely centralised. Almost 95% of all tax revenue accrues to the national level. Municipalities and regions have almost no tax revenue of their own, so they rely on transfer payments from on high. Even London can only self-fund about a quarter of its budget. Transfer payments, needless to say, come with strings attached.
Hardly anybody is truly satisfied with this situation. We can already see this from the fact that the word “Whitehall” is almost never used with positive connotations. “Whitehall” has become a synonym for top-down control.
And yet, real alternatives are virtually never discussed, because nobody wants to talk about the connection between autonomy and responsibility. As long as the regions and municipalities are not liable for their finances, it is perfectly understandable that the national level does not want to give them a lot of discretion. We can only get a decentralisation of political power if it is accompanied by a decentralisation of the tax system.
This means, among other things, that, yes, there will be regional differences in tax burden and the quality of public services. Some places will operate more economically than others. As long as such differences are seen as unacceptable, and as long as “tax competition” is seen as a ruinous race to the bottom, we cannot sensibly complain about the concentration of power in Whitehall.
This is a shame, because the Swiss example shows that local autonomy and pluralism can be a recipe for success. In Switzerland, even tiny cantons like Glarus or Obwalden, which have far fewer inhabitants than a typical London borough, enjoy a degree of political autonomy that London, which has more inhabitants than the whole of Switzerland, can only dream of.
The most sacred of sacred cows in the UK is the NHS. Almost all British hospitals are state-owned, almost all doctors are contracted by the state, almost all health expenditure is tax-funded. There is little room for choice or competition.
It is not exactly a recipe for success. The system stumbles from one crisis to the next. Survival rates for cancer and stroke patients are among the lowest in the developed world. Long waiting times and crude rationing of care are fixed features.
And yet: every time a government tries to introduce a bit of competition at the margins, all hell breaks loose. Opponents claim that this is an attempt at “privatisation through the backdoor”, and invoke the bogeyman of the US system. This is enough to choke any attempt at reform.
And yet, the Swiss system shows that a healthcare system based on choice and competition can work exceptionally well. The Swiss system offers ample choice between insurers, insurance plans, providers and delivery models.
The Swiss system is too expensive, it needs stronger incentives for cost control. But it has nothing in common with the Mad Max dystopia that the British public associates with market-based healthcare.
Housing and conservation
The most severe social problem in Britain has to be the housing crisis. It is certainly a factor behind the current surge in the popularity of the far-left, especially among young people. In Switzerland, house prices have risen, too – by about one third, in real terms, since the mid-1990s. But in the UK, they have risen more than two-and-a-half-fold over the same period.
The reason is our restrictive land-use planning system, an important element of which is the greenbelt (a massive misnomer, since a lot of greenbelt land is not remotely green).
Greenbelts are not new; the first ones date back to the 1950s. Initially, they did not cause great problems. There was enough land for development within existing urban areas, as well as developed land that could be densified. But as these low-hanging fruits ran out, housing construction declined. It has since almost ground to a halt.
The problem is that in the meantime, greenbelts have acquired a sacred status in the national psyche. Supporters believe that without them, the whole of England would soon disappear under a carpet of concrete.
Again, it is the Swiss example which shows that such fears are entirely unfounded. Switzerland has no greenbelts or anything comparable. And yet, Switzerland is world-famous for its stunning countryside.
Remarkably, Switzerland’s population density is not much lower than the UK’s, and regions like Zug, Basel and Aargau are quite comparable to the Southeast of England in terms of their settlement structure. And yet, the Swiss housing market is much more relaxed than the UK’s, at least when considering that wage levels in Switzerland are much higher.
The hottest topic at the moment is, of course, Brexit. The British EU referendum was meant to finally put an end to a tiresome old conflict. So far, it has done the precise opposite. Bitter “Remoaners”, who refuse to accept the referendum result, and Hard-Brexiteers, who want to cut virtually all ties with the European institutions, are ideologically much further apart than Europhiles and Eurosceptics ever were.
The example of Switzerland shows that there is a sensible middle ground. Switzerland is largely politically independent. It is, for example, not bound by the EU-wide minimum rate of VAT (which it undercuts substantially), and it can pursue its own trade policy. At the same time, however, it is economically highly integrated in the European market. Per capita, the Swiss export volume to the EU is greater than, say, the British one, which shows that one does not have to be part of a common political federation in order to trade for mutual benefit. Switzerland shows that it can be done.
Liberal market economists in the UK would have a hard time if we had to explain all of this in the abstract. Luckily, we do not have to. We can simply refer to the successful example of Switzerland. We can end a lot of tedious discussions by simply saying, “Of course it works – just look at Switzerland”.
So thanks for that, Switzerland! You probably don’t realise it, but you guys are making our lives a lot easier.
The English version was first published on the IEA’s blog.