David and Goliath politics

Every now and then you get a chance to work in a place that you’d happily pay to visit. There can be few more stunning places on earth than Interlaken in Switzerland. Therefore, waking up here this morning I could appreciate one of those rare joys in life – someone paying me to come to paradise.

When you look around this place, is it any wonder that the Swiss, with their banking, pharma, high-tech, attention-to-detail, light and heavy industry – not to mention tourism – want to avoid joining the dysfunctional EU?

The Swiss papers this morning are reporting on the European Parliament elections as if they are some sort of quaint ritual in a far-off and rather dysfunctional land. To the Swiss, the notion that you would elect people from your country to sit in a parliament which has no power and no accountability, seems not only illogical, but dangerous.

After all, this is a country where few people care about who is the prime minister. In fact, I’d wager precious few foreigners could name the prime minister of Switzerland. This is because in Switzerland – almost uniquely in the world – power gets weaker and weaker the higher and higher up you go.

It is a country where direct democracy works and is seen to work.

Local is everything, and all the cantons compete against each other to attract business and offer the best standard of living. Taxes are local and financing is local. If there is a national issue that any citizen wants to change, stop or advance, he or she has only to collect 100,000 signatures for a national referendum. This means the little guy can stop anything – or at least the average citizen can be mandated on every major national decision if 100,000 of their fellow citizens feel the same way.

At a time when so many countries are returning nationalist candidates in the European elections – people driven by what Freud described as ‘the narcissism of small differences’ – the Swiss, with their four distinct languages and three major cultures (German, French and Italian), manage to hold it together without hassle. Nationalism between the major ethnic groups is unheard of.

Can you imagine this in Ireland, Scotland or Spain for that matter?

As part of a new quasi-itinerant Irish professional class – a class that finds more work abroad than at home – I find myself comparing countries quite a bit.

Direct democracy as practised in Switzerland is truly interesting, and it appears to work very well. By diminishing the power of big politics, it seems that a country can reduce dramatically the latitude of unwieldy poisonous ideas that lead people up garden paths and ultimately, in extreme cases, pit them against each other.

I have come here from a lecturing stint in Madrid earlier this week, and the contrast between both countries couldn’t be greater.

The political contrast is between the primacy of local politics driven by day-to-day issues, and the primacy of big, national movements which try to bond people with a greater notion of race, religion or language.

In Spain, the nationalists in Catalonia are constantly trying to gain more and more independence and the nationalists in Castile are trying to stop them. In Switzerland, the wind has been taken out of the nationalists’ sails by local politics, so one village can speak Romansh and the next German and no one blinks an eye.

This can only be a good thing when you see what is happening in Ukraine and Scotland, where small differences are elevated to major issues and people are set against each other. Ultimately, this leads to the Balkanisation of people who have much more in common than they are allowed realise. Anyone who has travelled in Croatia, Serbia and Bosnia can attest to the savagery of the ‘narcissism of small differences’.

However, this is not the only difference: money helps, and helps a lot.

For example, economically the first thing that strikes you when comparing Spain and Switzerland is that Spain is cheap and Switzerland is expensive. Spanish unemployment is at 25 per cent, yet last week in Switzerland – where unemployment is virtually zero – there was a vote to introduce the highest minimum wage in the world at €20 an hour. At a macro level, Spain can’t pay its way and has budget and current account deficits; on the other hand, Switzerland runs a perennial current account surplus.

In a crisis, money leaves Spain, and where does it go looking for a home? Yes, to Switzerland of course.

This makes Switzerland richer and Spain poorer and the constant movement of capital reinforces this gap.

Was it the money that allowed Switzerland to run a system of direct democracy, or did direct democracy make the country rich?

Does centralised, big government and power placed in a few hands make countries poorer? Or is it the relative poverty of countries like Spain that drives this type of big politics?

It is a question worth asking in this weekend of elections.

If I were a citizen of Switzerland, I’d stick to the direct democracy model, because it works. They have a lot to lose by doing anything else.

It is amazing that Switzerland can compete with anyone for anything given how expensive the country is. It does so because the people are productive. They are educated and disciplined and, with such a reservoir of capital, capital deployment is rarely a problem. Maybe it is also a function of small governments which only deal with local issues that bind people together.
But enough of this Swissophillia!

Taken together, would I prefer to live in Madrid or Zurich?

Madrid any day. Sometimes, there’s more to life than efficiency!

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David McWilliams writes daily on international economics and finance at www.globalmacro360.com