Switzerland’s Improbable Success and the Important Role of Federalism
Here’s the 28-minute program.
When I first watched the program, I was slightly irked that there was very little discussion of the role of fiscal policy and the importance of spending restraint and competitive tax rates.
Indeed, Switzerland is the only nation from Europe or North America that gets high scores from Economic Freedom of the World for both fiscal policy and rule of law (a notable achievement since Wagner’s Lawtells us that it is very difficult to stop government from expanding once the private sector generates a lot of wealth that can be redistributed).
But I confess I’m biased about the importance of tax and spending issues.
And as I thought about what I had seen, I realized that the program’s focus on federalism and decentralization made sense.
Yes, Switzerland has a modest-sized government. And, yes, the debt brake has been a huge success. But those good outcomes are in part the result of a system where most government still takes place at the local (commune) or state (canton) level.
In other words, Switzerland generally still has the type of system America’s Founding Fathers envisioned, with a small central government.
I’ve already pointed out that the level of redistribution in Switzerland is relatively lowbecause of its decentralized model.
But there’s another feature of federalism that’s worth celebrating. As Nassim Nicholas Taleb (of “Black Swan” fame) has pointed out, decentralized systems are much more stable and successful since there’s far less risk of a mistaken policy being imposed on a one-size-fits-all basis.
And countless scholars, including many Nobel Prize recipients, have explained thatsmall, competing nations were a key reason why Europe became a rich continent in the first place.
Sadly, most Europeans have forgotten this lesson and have created the EU superstate in Brussels (which helps to explain why I’m delighted that the United Kingdom voted to escape that sinking ship).
So the moral of the story, from both the video about Switzerland and from all the other evidence in the world, is that federalism is good policy.
Let’s close with an interesting example of Swiss federalism in action. The canton of Zug is known for being a low-tax haven in a country famous for having a reasonable tax regime. Well, the town of Zug is on the cutting edge of digital money.
Wow, this says a lot about the quality of governance in Switzerland that a nation that doesn’t need Bitcoin (unlike, say, Greece or Argentina) nonetheless welcomes it as a competing currency.
Yet another reason why Switzerland is one of the world’s best nations.
P.S. Today’s column is about Switzerland, but I can’t resist pointing out that Hong Kongand Singapore both score highly for rule of law and small government. And Chile deserves honorable mention as well. For what it’s worth, the Princess of the Levant’shome country of Lebanon apparently has the world’s small fiscal burden, but the low score for rule of law suggests that the real story is that the government is simply too incompetent to collect and redistribute money.