Switzerland as an Example for the World
From the desk of Richard Rahn on Wed, 2010-03-31 22:58
Economists, political scientists, reporters and pundits spend too much of their time looking at dysfunctional societies and trying to explain why there are poverty, joblessness and hopelessness. In many ways, Haiti is easy to explain - no rule of law and 200 years of corrupt and incompetent governments. Switzerland is the polar opposite. It has almost no corruption and has the rule of law with honest, competent judges and government administrators. The question should be, "What can we learn from the Switzerlands of the world about how to do things right" rather than, "What is wrong with the Haitis of the world?" Switzerland manages to run a smaller government as a share of gross domestic product than the United States and most other countries while providing a higher level of service, security, prosperity and freedom. How does it do that?
In many ways, Switzerland seems unlikely to be such a long-term global success story. It is a small country with religious and language differences; nevertheless, the Swiss have managed to live peaceably together for a long time. It has few natural resources, yet it has managed to have one of the highest per capita incomes in the world. It has a world-class health care system, which is privately run. Health care insurance is subsidized, and everyone has access regardless of income, but there is no "public option."
Switzerland is not perfect, but it is clean, prosperous, well-managed, pleasant, humane and very free. In the more than three decades I have been coming to Switzerland, I have been convinced that the United States and the rest of the world can learn from many things the Swiss have done. The Swiss are practical rather than ideological, but they do revere liberty. They protect private property and free markets and restrain themselves from rampant deficit spending. The Swiss maintain a sound currency, which has been rising against the euro, dollar and pound. Capital, goods and services, with few exceptions, move freely into and out of the country.
Long ago, the Swiss understood that most things government needs to do and constructively does are at the local level. So, unlike in most modern nation-states, local government has the bulk of the resources and activities, while the central government remains relatively small and less important in the daily lives of the people. In the U.S., roughly two-thirds of government is at the federal level, and one third is at the state and local level. Switzerland is just the opposite, with roughly two-thirds of government being at the state (canton) and local level. Both the United States and Switzerland are federal republics. If one reads the Federalist Papers and the other works of the American Founding Fathers, it is clear they envisioned a nation that operates much more like Switzerland than one with the large central government the U.S. now has.
The maximum marginal tax rate at the federal level in Switzerland is about 11.5 percent, while in the U.S., it will be more than 40 percent as a result of Obamacare and the planned expiration of the George W. Bush tax-rate cuts at the end of this year. In Switzerland, maximum income tax rates in the cantons range from 10.9 percent in Zug to about 30 percent in places like Geneva. In the U.S., state and local income tax rates range from zero in places like Texas and Florida to roughly 12 percent in New York City and California. Thus, the overall maximum income tax rate in Switzerland ranges from roughly 20 percent to 40 percent, depending on location, while in the U.S., the maximum rate ranges from 40 percent to 51 percent.
Switzerland also does not impose a capital gains tax, and most cantons allow large deductions for interest and dividends. On the negative side, Switzerland imposes a value-added tax (VAT) and a very small wealth tax. On the positive side, the average combined federal-canton corporate tax rate is 21.3 percent (and may be as low as 11.8 percent in some places) while in the U.S., the average combined federal-state rate is more than 40 percent.
One of the things most misunderstood about the Swiss is their financial privacy laws, which they view as a human rights issue. Pierre Bessard, executive director of the Institut Constant de Rebecque in Lausanne, noted: "These laws are a relevant part of the Swiss tax system in that tax authorities do not have access to any financial information not expressly declared by taxpayers. However, there is an anonymous withholding tax levied on interest and dividend income paid to residents (and now EU nonresidents), who have the option of claiming a full refund when filing their tax returns. Bank secrecy laws in Switzerland underscore the principle of self-declaration in a contractlike relationship between citizens and government and reflect a moral imperative that individuals have a right to privacy. Indeed, the laws were significantly strengthened in 1934, helping German Jews protect their assets from Nazi expropriation. Today, bank secrecy performs the same role, providing a safe refuge for victims of religious persecution, ethnic discrimination, political harassment, fiscal oppression, government instability and crime."
Without Switzerland, the world would be a far less prosperous and more repressive place. The Swiss and other low-tax states provide the necessary tax competition to keep the high-tax states from totally oppressing their citizens. Financial privacy stops evildoers, whether criminal gangs or criminal governments, from totally expropriating the assets of innocents. It is ironic that many of the countries criticizing Switzerland are engaged in fiscal mismanagement, including the United States, and abuse of the basic human right of privacy.
@ peter vanderheyden
Submitted by Dr. D on Sat, 2010-04-03 01:34.
Actually Peter, both studying and praying help. Advise your son to do both. You will be amazed at the results.
This is not an accident
Submitted by generalbullmoose on Fri, 2010-04-02 11:56.
The first line of the Constitution of Switzerland reads, "In the name of Almighty God." Haiti was formed after making a deal with the devil to get rid of the French. Coincidence? I think not.
Submitted by peter vanderheyden on Fri, 2010-04-02 14:28.
So it's the almighty God who did it. I'll advice my son: Stop studying, start praying. Prosperity will follow automatically.
Haiti's Problem Is ...
Submitted by dchamil on Thu, 2010-04-01 15:50.
What's wrong with Haiti? Well, can you think of a single majority-black country that you would be happy to live in? I can't.
Submitted by Cogito on Thu, 2010-04-01 14:03.
The only conclusion that the politically correct world will draw as to why Switzerland is thriving so good is that Switzerland acts as a parasite on other countries who are trying to implement heavy taxes for the best of their people, which can be evaded by doing financial transactions with the Swiss.
Haiti and Switzerland
Submitted by valknot on Thu, 2010-04-01 12:09.
A long shot but could it possibly be connected to IQ which is connected to mental age, Haiti's is probably about ten.
To Reconciler RE: the Swiss Example
Submitted by Kapitein Andre on Thu, 2010-04-01 09:18.
It is disingenuous to make German and Polish "aggression" equivalent. The Polish-Lithuanian Commonwealth is not comparable to the German Empire, and the German nation has benefited from sharing its eastern borders with Poland. Even during its golden age, Poland was not a threat as it never harbored the territorial ambitions of Austria, France and Sweden. Despite Moreover, it served as a bulwark against the Ottoman Empire, Russia and then the Soviet Union. In retrospect, Poland should have taken advantage of the Thirty Years War and joined either France or Austria and Spain in order to secure its western borders. Had the Swiss lacked natural barriers, they certainly would have faced little threat from the Poles. Of course, that is culture and not geography.
In addition to holding assets seized during the commission of war crimes by Hitler's Germany, Swiss banks have also held onto assets deposited by WWII refugees. There are numerous and publicized cases of refugees' surviving family members being denied inheritance of these assets. If you disagree, you can do your own research. The reference to Swiss mercenaries was intended to further highlight my opinion that the Swiss have a history of profiting from others' misery. This is not to single Switzerland out. Belgium too has positioned itself as a quaint center of supranational influence, conveniently ignoring its past. While never being a great power, Belgium nevertheless perpetrated genocide in the "Congo Free State".
Submitted by Reconciler on Thu, 2010-04-01 15:28.
Polish and German aggression of the past are certainly not equivalent and I did not mean to imply that. Additionally a distinction should be made between the periods of German unity and division, where the latter makes up the lion's share of its history. I am sure that many German states used to be quite similar to Poland in their level of aggression, as the driving forces behind European feuds were the noble houses. These were never exclusively aligned according to ethnic association.
just one example
Submitted by kappert on Thu, 2010-04-01 07:12.
Who is Marc Rich? Why did he need a presidential pardon?
@Frank Lee, Kapitein
Submitted by Reconciler on Thu, 2010-04-01 03:32.
Frank, it would be helpful, if you pointed out the implications of "only looking out for oneself" for the rest of the world. "Jack shit" does not really add anything of value to your argument.
Kapitein, that was more insightful. However, I disagree on a couple of points. Poland, just like Germany, had for a long time been both aggressor and playground to others. Yet they developed in different ways (especially regarding prosperity and system of government) until the onset of modernity. Geography might therefore only partially account for the differences between insular and non-insular states.
I would like to ask, to what extent the mercenary trade has contributed to Swiss prosperity. Are there any figures? Furthermore, could you refresh our memory on particular cases of asset theft by Swiss banks?
The Swiss didn't just make their own luck
Submitted by Kapitein Andre on Thu, 2010-04-01 02:35.
I must agree to a certain extent with Frank Lee. After enjoying centuries of security due to natural barriers that make their country almost insular, the Swiss people have indirectly benefited from the shield provided by the American and NATO militaries. It is unfair to impose upon Switzerland the obligations of a great power. However, we should remember that a lack of natural barriers made Poland “God’s playground”. Luxembourg was occupied by the German army and avoided the death and destruction wrought in other theatres. Secondly, the Swiss did not exactly rely upon the free market to compensate for scarcity. Swiss men found employment for centuries as mercenaries ravaging other lands for pay and Swiss banks stole the assets of foreign depositors.
Submitted by KO on Thu, 2010-04-01 12:46.
Non-action abroad can be more economical, egalitarian, and libertarian, since foreign projects frequently involve subsidizing one domestic faction's interests (including in political posturing) at the public expense.
Might I suggest?
Submitted by Frank Lee on Thu, 2010-04-01 00:07.
The author wrote: "Switzerland manages to run a smaller government as a share of gross domestic product than the United States and most other countries while providing a higher level of service, security, prosperity and freedom. How does it do that?"
By looking out only for itself and doing jack shit for the rest of the world.