Most of us know very little about foreign countries. Our lives are quite busy and we have only so much space in our brains to store information.
I notice that people often think about foreign countries in terms of anecdotes. Thus if you mention Singapore, then people might say, “Isn’t that the place that bans chewing gum.” If you mention Saudi Arabia, they might talk about the fact that women are not allowed to drive (a ban that was recently lifted.) Even big, complex countries such as India and China are often described in terms of anecdotes.
To see the problem with this, listen to foreigners describe anecdotes about your country. If I hear foreigners say America is the place where people can carry assault rifles, or where it’s legal to burn the Koran, or the place where there is a death penalty, I recognize that the anecdote is true. But it also seems like a weird way to characterize my country. I don’t know anyone who carries an assault rifle, or that burns the Koran. The death penalty is hardly ever implemented—a couple dozen times a year for more than 15,000 murders.
Over the past 10 years, I’ve frequently pointed out that Switzerland is the European country people should be looking at, not the Nordic countries. The New York Times has finally caught on:
There is, however, a country far richer and just as fair as any in the Scandinavian trio of Sweden, Denmark and Norway. But no one talks about it.
This $700 billion European economy is among the world’s 20 largest, significantly bigger than any in Scandinavia. It delivers welfare benefits as comprehensive as Scandinavia’s but with lighter taxes, smaller government, and a more open and stable economy. Steady growth recently made it the second richest nation in the world, after Luxembourg, with an average income of $84,000, or $20,000 more than the Scandinavian average. Money is not the final measure of success, but surveys also rank this nation as one of the world’s 10 happiest.
This less socialist but more successful utopia is Switzerland.
While widening its income lead over Scandinavia in recent decades, Switzerland has been catching up on measures of equality. Wealth and income are distributed across the populace almost as equally as in Scandinavia, with the middle class holding about 70 percent of the nation’s assets. The big difference: The typical Swiss family has a net worth around $540,000, twice its Scandinavian peer.
So if Switzerland is clearly the best, why do people spend so much time talking about places like Sweden?
But for the most part, intellectuals ignore Switzerland as a model, perhaps put off by its exaggerated reputation as a shady little tax haven, where Nazi gold and other illicit fortunes hide behind strict bank secrecy laws. In 2015, Switzerland agreed under pressure to share bank records with foreign tax authorities, but that has not slowed the economy at all. Switzerland always was more than secretive banks.
I’ve heard the same thing. If I touted Switzerland, people would tell me it’s only rich because of its bank secrecy laws. That was never even close to be true, just as Singapore is not rich because it bans chewing gum. Switzerland is rich because it is highly productive, and the recent end of the Swiss bank secrecy laws did almost nothing to dent its prosperity.
Anecdotes are a really bad way to think about countries. America has launched an ill-fated trade war with China partly due to anecdotes about China stealing intellectual secrets. It’s true that China steals intellectual secrets, as does India, Vietnam, and lots of other developing countries. But that’s no more an important feature of China than the US death penalty is an important feature of life in America.
Perhaps if people did not think in terms of anecdotes, then they would have recognized the obvious superiority of the Swiss system much sooner. Switzerland is by far the most democratic country in the world. They had more national referendums during the 20th century than the entire rest of the world combined. Their government is extremely decentralized, very close to the local voters. They are unable to raise taxes without the consent of voters. But intellectuals don’t want to recognize the Swiss success because they think average people are stupid. They believe we already have too much democracy and that we need to be ruled by experts. So they look for anecdotes to dismiss the Swiss success. That will work for a while, but eventually the truth wins out. The recent NYT article is a sign that this is beginning to happen.
PS. I live in a state that has statewide referenda, but lacks Switzerland’s decentralization. All of Switzerland has fewer people than LA County. And yet, a major portion of Swiss income tax rates are set at the canton level. (Total maximum income tax rates (federal and local) ranges from about 20% to roughly 36% for married couples, depending on the region.)
READER COMMENTS
John Arthur
Nov 3 2019 at 4:29pm
I think Swiss economic performance is somewhat overrated. Their per capita income is on par with the US, and the gap has closed somewhat drastically.
However, I not really sure you would like their system. Swiss citizens voted strongly against taking in migrants during the Migrant crisis, and their share of non-Whites is the lowest for a developed country, through they are pro-White immigration.
I think countries like Switzerland minimize risks, and this has benefits and costs. I don’t think that Switzerland will ever be as successful as Singapore, but it will never fall out of the global top spots, much less suffer a disaster like China during the 1950s and 1960s.
Scott Sumner
Nov 3 2019 at 7:44pm
Your comment is full of errors and anecdotes. The gap between the US and Switzerland did not “close drastically”. Switzerland is not less successful than Singapore.
And point to a few areas where I prefer the US does not have much influence on my overall appraisal of a place. You can always find areas where one country is ahead of or behind another.
Switzerland’s performance is certainly not “overrated”, indeed it’s underrated.
John Arthur
Nov 3 2019 at 7:59pm
Scott: I personally like the Switzerland system, but their PPP levels aren’t that exceptional
World Bank numbers are here
https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.KD?locations=CH-US-SG
Of course in net wealth terms, Switzerland is by far the most successful country in the world, and beats every country by a large margin
https://en.wikipedia.org/wiki/List_of_countries_by_wealth_per_adult
Then again, I’m not so sure how accurate the World Bank numbers are, so perhaps I was wrong about this.
Though this strongly reaffirms the net wealth positions that I was taking a while back, and how the numbers should be fairly accurate.
John Arthur
Nov 3 2019 at 8:03pm
In fact, I prefer the Switzerland system to the Singapore and the US system, as I love people being in charge rather than committees.
The Net Wealth positions do strongly support your thesis, and in that regard Switzerland is the most successful country on earth, perhaps we should emulate them 🙂
Matthias Görgens
Nov 3 2019 at 9:33pm
Switzerland has been richer for longer.
So if by success you mean progress since eg 1960, Singapore wins. But if you look prosperity today, it’s not clear that Singapore is better off. (And I love the place to bits.)
Singapore got really lucky with their benevolent dictator Lee Kuan Yew, and even today’s administration compares well internationally. But I doubt eg the restrictions on eg free speech they have made them richer.
But, for what it’s worth, the Singaporean government is obsessed with labour productivity. At least in their rhetoric.
For a foreigner, Singapore is the easier place to integrate. Even for someone from Germany. Singapore is still very much a city of immigrants itself.
Not sure which place will be ahead on various metrics in the next few decades. I wish both Singapore and Switzerland the best of luck.
John Arthur
Nov 4 2019 at 2:06pm
https://data.worldbank.org/indicator/NY.GDP.PCAP.PP.KD?locations=CH-US-SG
Switzerland is less successful when you utilize PPP data, however their Net Wealth Data does showcase them as #1
I like the Switzerland system, as I rather be ruled by direct democracy than committees.
This does show that my view of Net Wealth from before seems to be accurate, otherwise Switzerland is no outlier in any way
Lorenzo from Oz
Nov 3 2019 at 4:55pm
Switzerland and Australia: ignored inconvenient economic success stories.
Including on migration: the migration-as-panacea folk find Switzerland awkward and the migration-as-disaster folk find Australia awkward.
Those of us who think that migration is a classic “it depends” issue are, of course, comfortable with both cases.
Scott Sumner
Nov 3 2019 at 7:45pm
Lorenzo, Both Australia and Switzerland have very high levels of immigration, so I’m not sure what you are referring to.
Matthias Görgens
Nov 3 2019 at 9:35pm
Add Singapore to the migrant success stories.
Oh, and if you look at just movement of humans, and ignore national borders, than the vast majority of successful places has oodles of immigrants.
robc
Nov 4 2019 at 8:05am
I just moved. In my new city, only about 30% of the residents were born in this state, and almost none in this city, as it wasn’t really here 20 years ago.
It exited then, but just barely.
Lorenzo from Oz
Nov 4 2019 at 5:15pm
A bit chicken and egg that: migrants want to go to successful places.
The vast majority of the gains from migration go to the migrants, the rest to capital. It is harder than folk generally admit to make local labour beneficiaries from migration policies. If one imports high skill migrants, then beneficial-to-local-labour complementary and positive productivity effects are much more likely. Lots of low skill migrants, and then negative for local labour substitution effects are much more likely.
Institutional stress is kept down if sources of migrants are diverse and high skilled, institutional stress is increased if sources of migrants are concentrated and low skilled.
The US could cope with being part slave and part free (1783 to c.1840). If could cope with mass immigration (1865 to 1924). What it could not cope with was mass immigration while being part slave and part free (c.1840-1860). Given the current level of polarisation, the US better hope that it current botched migration does not interact badly with another major social stressor. The sort of social stressors that might, for example, generate declining life expectancy. History does not repeat but it can rhyme pretty strongly.
That mass low skill migration in big lumps is a significant social stressor is obvious. It is why migration is to much less of an issue in Canada, Australia and Switzerland (who have very high rates) than it is in in the US and Europe (who have significantly lower rates).
Lorenzo from Oz
Nov 4 2019 at 5:05pm
I was confusing migration per se and citizenship. Switzerland has lots of foreign born residents, but it is hard to become a citizen.
Paul
Nov 3 2019 at 5:21pm
They also have a health care system that earns the praise of many right-leaning intellectuals because it’s based on an individual mandate and subsidies for the needy, rather than outright state control of health coverage. You know, the same thing as the ACA they’ve spent a decade excoriating.
Pierre Lemieux
Nov 3 2019 at 7:00pm
I have also often thought that ACA is nothing but the Swiss health care system. (Medicare for All, of course, is very different.)
Matthias Görgens
Nov 3 2019 at 9:37pm
Doesn’t Switzerland have one of the most expensive (if not the most expensive) healthcare systems in Europe?
Still cheaper than the US, of course.
By the way, we can learn not just from the contemporary experience of other countries, but also from the past.
Mark Brophy
Nov 3 2019 at 9:48pm
The Swiss government pays 30% of medical bills while the US gov spends much more, 50%. Ours is the socialist system, their’s more capitalist. The population of Switzerland is less than the 6 largest states. If the federal government left healthcare to the states we might find a state that regulated it as well as the Swiss. Let’s hope that happens someday but I’m not optimistic. We’re too centralized yet very few people understand the problem.
P Burgos
Nov 3 2019 at 5:26pm
Does the US have the population quality to do what Switzerland does? (A joke for all the CCP fans).
Pierre Lemieux
Nov 3 2019 at 6:56pm
Lots of interesting ideas in your post, Scott. Switzerland is a big mystery for me. The fact that Jean-Jacques Rousseau lived there only deepens the mystery. Perhaps this country is just a statistical outlier, although we should be open to learning from their experience.
Scott Sumner
Nov 3 2019 at 7:47pm
What did Adam Smith say about peace, easy taxes and a tolerable system of justice?Switzerland’s had centuries of that system.
Pierre Lemieux
Nov 3 2019 at 8:03pm
In many ways, yes. But a closer look might be warranted. At the beginning of the 20th century, Swiss public expenditures as a proportion of GDP were about twice the level of many classical-liberal countries in the West.
Scott Sumner
Nov 4 2019 at 11:48am
Interesting. What was the government’s share of GDP?
Thaomas
Nov 4 2019 at 8:16am
We tried to approach their system of universal insurance but without controls of drug prices) and it provoked a hysterical decade-long opposition.
Mark Z
Nov 4 2019 at 1:04pm
The US government doesn’t regulate drug prices (and prices for other medical goods services)? Not through Medicare for example? Really? The ACA didn’t seek to keep Medicare compensation even further below market rates than before?
The ACA was replete with direct controls and cross-subsidies, I’m not sure how it has come to be regarded as a model of non-interventionist healthcare reform. “At least the federal government didn’t assert total control over the industry” is faint praise, especially for a policy branded as being moderate.
Matthias Görgens
Nov 3 2019 at 9:20pm
Scott, funny enough, Singapore bans chewing gum sales (not possession or use) in an effort to be slightly richer: the government reckons that the gain in cleanliness and reduced cleaning costs is worth the loss in consumer surplus.
(As far as I remember the ban is more or less explicitly justified in those terms. Unlike with the bans on drugs, Singaporean authories don’t have anything against chewing gum in principle.)
Phil H
Nov 3 2019 at 10:35pm
This sentiment is surely right, but if not anecdotes, then what? We need something to help us make sense of the world. In economic terms, we could use GDP stats, but then you’d spend all your time talking about how Monaco and Luxembourg aren’t really the most successful countries in the world. I think Scott was saying, don’t be simplistic and think outside the box. But it would be great to think of some genuinely better heuristics to use.
Mark Z
Nov 4 2019 at 1:21pm
We should indeed use data instead of anecdotes. And as data points, Luxembourg and Monaco are less significant than France and Germany because they are tiny. Less can be inferred from a small sample size. Luxembourg, for example, has, in recent decades, been far more dependent on international finance (such by being a tax haven) than Switzerland. It’s easier for a country of 600,000 to build its economy around a single industry. So what lessons could we take from Luxembourg? If anything, that extremely low corporate tax rates are the solution to all our problems; they have almost the lowest in the developed world. But that would be a mistaken inference for the reasons above: a few big corporate inversions can make a very small country significantly wealthier much easier than a large country. It’s just a fact that there’s less to be inferred from smaller data points.
Phil H
Nov 4 2019 at 5:55pm
That’s too long and involved to fit in my head! Secretive banks, Nazi gold… it’s quick and easy and backed up by many cultural references. I don’t mean this to be a counsel of despair. I’m saying the research is in: we know how people think. Now any message that an educator wants to stick in people’s minds has to be packaged in a digestible and memorable way. I haven’t figured out what that could be for national economic performance yet.
robc
Nov 4 2019 at 8:10am
I didn’t live there long enough to have anything beyond anecdotes myself, but I remember a coworker telling me how the local tax collector worked with you on your forms to help minimize federal taxes. Everything important is done at the Canton level.
Scott Sumner
Nov 4 2019 at 11:50am
Interesting.
Thaomas
Nov 4 2019 at 8:11am
“But intellectuals don’t want to recognize the Swiss success because they think average people are stupid. They believe we already have too much democracy and that we need to be ruled by experts.”
This sounds like the equivalent of “Americans carry AK47’s
Scott Sumner
Nov 4 2019 at 11:53am
Not at all. I’m not saying that the views of intellectuals o nSwitzerland is the best way to think about what it means to be an intellectual. I am accusing others of thinking about complex nations in terms of a single anecdote.
I may be wrong, but if so it’s an error that is completely unrelated to what I describe in this post.
robc
Nov 4 2019 at 8:12am
Anecdote on immigration: I didn’t need a work visa for Switzerland but I needed a visa to reside there. I could have got my job without a visa and commuted from Germany ( if I had been German).
Vasileios kostelidis
Nov 4 2019 at 8:34am
What I find troubling about the Swiss success is the import tariffs on beef or other agricultural items.
I don’t understand it. I don’t know if they lowered the tariffs on some items, but as of 2017 the price of beef was super high due to tariffs.
So, if they have tariffs on these items, why not on other things as well? How did the cattle farmers managed to successfully persuade the government or the citizens in order to have tariffs on their products and the other industries didn’t manage to do that?
Despite this, they consistency rank on top of the economic freedom charts on heritage and Frazier.
Benjamin Cole
Nov 4 2019 at 9:07pm
The problem with anecdotes, or even less-then-even and less-than-deep studies, is often the problem of omission.
Singapore is often touted as a free-market citadel, but Nobel Prize winner and internationalist and international trade expert Paul Krugman has dubbed Singapore a “Stalinist” economy. While Krugman was being Krugman, anyone who even lightly studies Singapore quickly concludes that “free markets and free enterprise” mix freely with government, the way black and white paint make grey.
Switzerland’s central bank has openly targeted an exchange rate for the Swiss franc, and acquired a balance sheet equal to the Swiss GDP in doing so.
I wonder if the US would be more-prosperous also, if the Fed targeted a lower exchange rate for the US dollar, and built up balance sheet of $20 trillion in foreign sovereign bonds.
One would have to study Switzerland for a while, from a variety of sources, to know if the country is a free-market mecca, or the usual European mix of markets and government, a tad more market-oriented than Germany.
I watched a TV show that indicated that one cannot import strawberries into Switzerland when Swiss farmers have their seasonal strawberries on the market.
That’s an anecdote too.
robc
Nov 5 2019 at 11:40am
Switzerland has contradictions. Just like everywhere else.
I like to ask antiwar libertarians: Would you accept the US having swiss-style foreign policies if it came with swiss-style military service requirements?
Ot is a tricky question, but I would accept it in a heartbeat, but understand why others wouldnt. Although, at my age, it isnt a fair question, I might have felt differently 30 years ago.
Robert EV
Nov 8 2019 at 11:38am
I’d rather pay a 90% tax rate yet have the choice of where and when I earn those taxed dollars than to not have a choice of job.
Serfdom sucks. The reasons a free tenant peasant was of higher social status than a serf are obvious.
Robert EV
Nov 8 2019 at 11:34am
I’d like to see wealth figures for nations with land cost factored out to more directly compare productivity.
I’d more prefer wealth with every category separated out, so that it’s possible to see what is driving wealth creation in each nation, and try to find the bottlenecks to wealth creation.
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