The Swiss model

Swiss people tend to regard their political, social and economic order as something quite unique, that cannot be replicated elsewhere. That is a pity. Switzerland would not only do other countries a terrific favour by exporting its political and social order; it would also help make its own existence more viable, in the midst of an environment that has become quite threatening. Exporting Swissness would be an act of self-interest and not just altruism.

The members of the European Union are in desperate need of a working model of federalism and of democracy. Are there any useful or instructive foreign models for modern Europe in its hour of need? The history of the United States has some appeal. Many Europeans now regularly cite Alexander Hamilton’s famous negotiation in 1790 of the assumption of state debts by the federal government as a model for how a United States of Europe might be created. But the actual turn of events is less than appealing. The individual states embarked on a borrowing binge in the late 1830s, that was then followed by widespread default in the early 1840s. The revenue stream that was used to service the federal debt – the external tariff – represented a necessary part of the Hamilton scheme that was also inherently and intensely conflictual, and proved to be a cause of increased tension between the American North and the South.

Situated in the heart of Europe, the Swiss experience might offer a superior example for modern Europeans. It is actually both much more modern and more ancient than an eighteenth century American experiment. Historically, Switzerland has been at the origin of two contrasting mechanisms for integrating very diverse territories with differing social structures and traditions. An old Swissair in-flight magazine quaintly explained that the Swiss castle of Habsburg had been constructed by a family that played an important role in Swiss history. But the Habsburg empire was constructed to the east, and represented a non-participatory way of regulating difference via a usually benign and patriarchal authoritarianism. But there is no way of really organizing civic participation: you just have to accept empires or, alternatively, revolt against them – which is what the Swiss did. After 1291, Switzerland developed a model based on direct democracy.

One of the most critical questions in a globalized world involves how a country and a society devise responses to the crises regularly generated out of the process of becoming internationally connected. It is here that smaller countries, within which bonds of solidarity are often stronger, have advantages. For example, in the 1930s Great Depression (with which the current era is often compared), Switzerland generated a new consensus around a new kind of national solidarity. In an increasingly tense geo-political situation, Swiss labour unions worked with employers in finding solutions to the problems of the engineering industry.

Smallness also limits the scope for government activism and, in particular, for the notion that a government might be better at mapping out the course of economic development. It would be impossible in a small country environment to create a public sector stimulus package, for instance, to deal with the periodic structural crises of the watch industry. In the 1970s, at another rather less dramatic moment of general economic weakness, Switzerland seemed to have missed the move to quartz watches. An equivalent of the “cash for clunkers” scheme that many countries recently applied to stimulate sales of their automobile products would have been senseless: giving incentives to Swiss people to exchange their watches would have only slightly postponed decline. Revival rather depends on entrepreneurship, in this case the (Hungarian born) Nicolas Hayek’s championship of cheap but artistically elegant plastic cases that added a design and fashion element to the watch industry in the Swatch.

But that does not mean that there is no scope for government action. Public goods are important – price stability, the security and enforceability of property rights – in providing a stable backdrop against which entrepreneurial decisions can be made. In this regard, as well as in a continuing need for openness, Switzerland can provide a model for other countries facing the challenges of globalization. We might indeed think of the engineering (and artistic and social) work involved in building a Swiss bridge as a metaphor for how to integrate a technically and spiritually developing world community.

Topography plays a role in creating this entrepreneurial environment. Many parts of Switzerland are quite isolated, with particular specializations, different societies, and varied confessions; and linking remote valleys requires immense coordination. Bridges and tunnels are the mechanisms of integration. There are in consequence many diverse areas, with diversified products, that trade and interact with each other. In consequence, the economic integration of the Swiss Confederation has been a kind of test tube experiment with how the process of globalization might work.

The European problem is not just an economic problem of differing levels of competitiveness or a fiscal one of governments that cannot fund their deficits. It is also very obviously a problem of democracy. Almost three centuries ago in the Spirit of the Laws, Montesquieu concluded that democracy worked best in a small geographic setting, and was not applicable to vey big units – that was where empires worked better. The problem lay in the need for constant communication in order to build democracy: but it might well be argued that electronic communication (including the possibility of automatic or machine translation) allows for an ever wider circle of discussion. In this new communicative environment, scaling up small country democracy holds out an enticing possibility.

Many current reform suggestions emphasize the need to improve democratic institutions and democratic accountability in the EU. Commission President José Manuel Barroso has thought about mechanisms that might allow parties in the European Parliament to line up candidates for the Presidency of the Commission. The call has been endorsed by luminaries such as Tony Blair. Parties of the left would agree on one candidate to compete with the person chosen by the parties of the right. Some academic commentators see this suggestion as an attractive way to deal with legitimacy problems, with the critique that the EU is technocratic, and with the condemnation of the EU’s democratic deficit.1

It is hard to see how producing a mechanism for a more direct popular choice of the EU Commission President would ease discontent and lessen fears. On the contrary, artificially creating a new European polity split between left and right would create new struggles – and intensify old ones – about redistribution. The only thing that would hold the left together would be a claim that there should be more redistribution: but to whom and according to what mechanism? Neither is it really clear that a Spanish socialist has more in common with a German social democrat than with their fellow nationals. Each ideological grouping would likely become factionalized along complex national lines. The proposal rather resembles some ill-fated British exercises in the 1960s, when eminent legal and constitutional advisers urged newly independent former African colonies to create competitive two party systems. Instead of guaranteeing stable government, the innovation fanned factionalism. Much better to take the Swiss model of Konkordanzdemokratie, in which all the major parties are represented in the government, and are consequently obliged to hammer out compromises. Sometimes there are regional loyalties, sometimes ideological ones: they all need to be negotiated in the process of making decisions.

But the Konkordanz principle does not just work in the abstract – it requires a notion of solidarity that is built through other institutions. In particular, the systematic compromises that are regularly required can only function if many decisions are made in other settings: in parliament, but also on a regional (cantonal) level. The fundamental working principle for Konkordanz is thus a well-established system of subsidiarity, with decisions being left as far as possible to the smallest territorial units: cities and districts as well as nation-states.

Another Swiss instrument would be helpful in building a sense of common issues that link the European continent. A wider use of the referendum – with a right of initiative – would serve as a corrective to the widespread feeling that the Council and the Commission are distant, removed and unresponsive. But the way that the referendum is used also requires that a positive motion – rather than a simple statement of political rejectionism – is at the basis of popular involvement.

One of the strongest fissures in modern Europe lies between an internationalized and educated elite that feels comfortable in many countries and less well-educated people who if they move will only be able to take low skilled and low pay jobs in other countries. Is there any long-term way of building more solidarity across society? In the past compulsory military service built Swiss national identity; a new millennium equivalent in a Europe with no big external security threats would be the establishment of a European social year. Young Europeans would then work for some period in another country and another language, and experience on a personal level both the otherness of different parts of the European continent and the ways in which strangers are linked together in a community of identity and of service.2

Swiss identity is not just a thing of the past. It is also constructed in the present by a system of social solidarity (AHV). The advantage of making transfers on the basis of individual contributions and individual entitlements is that it avoids transfers between organized regional units, in which redistribution becomes a question of organized bodies tussling with each other.

A European equivalent would also complement the labour mobility that is a core principle of European integration. If Europeans work in many countries at present they accumulate a potpourri of entitlements in different and incompatible social security systems. A systematization and homogenization of these contributions would ensure that the fundamental transfers that balance out differences in the fortunes of various regions are not paid through the governmental institutions (whose inadequacies or inefficiencies may actually be the cause of regional failures) but to individuals.

Finally, the modern Swiss system is tied together by a principle of fiscal restraint through a carefully coordinated mechanism that limits increases in state debt. The adoption of the Schuldenbremse (the “debt brake”; a balanced budget amendment) in 2001 by a majority of 85 per cent was one of the great triumphs of Swiss democracy.

Is there any way to sell the Swiss model as an export product? There is a constant Swiss temptation to think that Switzerland can exist as a unique “isle of the blessed” in the midst of a surrounding chaos. The experience of the two twentieth century World Wars is instructive. From 1914 to 1918, Switzerland imported inflation from the belligerents, and at the end of the War was close to civil strife. The effect of neutrality in 1933-1945 was to leave Switzerland profoundly isolated.

Switzerland is deeply connected with Europe. Since the outbreak of the eurocrisis phase of the Great Recession, Swiss links with Europe have intensified. In particular, the defence of an exchange rate which does not produce large competitive distortions has led to an accumulation of large reserves at the Swiss National Bank of government securities, presumably from northern European states. Such de facto ownership of a significant part of European debt of course does not give any right of control – any more than the Chinese ownership of US debt leads to Beijing having a sway over Washington. But the ownership in both cases leads to a need to look for constructive solutions.

Institutions form habits and habits create values. Switzerland in particular often suffers from international ridicule – or maybe envy – of its bourgeois values. Its defenders are quite rare: Alain de Botton, a popular British philosopher, talks for instance about Zurich. That city’s “distinctive lesson to the world lies in its ability to remind us of how truly imaginative and humane it can be to ask of a city that it be nothing other than boring and bourgeois.” The view was memorably expressed in Carol Reed’s film The Third Man: “In Italy, for thirty years under the Borgias, they had warfare, terror, murder and bloodshed, but they produced Michelangelo, Leonardo da Vinci and the Renaissance. In Switzerland, they had brotherly love, they had five hundred years of democracy and peace – and what did that produce? The cuckoo clock.” Europe is now in a position where it requires less terror and bloodshed, and more unspectacular bourgeois normalcy. Why not become more Swiss?