Saturday, November 10, 2012

Rethinking Economics 2: Lessons from Switzerland!!

See here for part 1 on the private sector vs. the public sector.

Reading a post on a favorite blog, I learned that the far-right wing news outlet World News Daily recently wrote an article praising Switzerland and Sweden for having strong economies despite the current economic problems throughout the developed world.

Said the WND author: "Other governments could learn something." I agree wholeheartedly. I have learned some fantastic ideas from observing how things are done in Switzerland!! Mostly a simple point that absolutely can and should be applied elsewhere.

First off, what I learned is totally outside the box of the current Republican-Democrat polarized thinking in the United States today. WND naturally looks for interpretations from inside its ideological box -- but even on face-value that's a little absurd. Sure the Swiss political system is economically right-wing by European standards (though, still, practically flaming communists by American standards), but Sweden? Does there exist a country that is more Socialist? Clearly what we learn can't be simply that the Republicans' ideas are right and the Democrats' are wrong (or vice-versa). Maybe it's something else!

Now, I don't know much about Sweden, but Ed Brayton (linked above) points out that while they have low public debt, they also have one of the highest effective tax rates in the world, so maybe the lesson is to actually pay for government spending rather than repeatedly borrowing in order to cut taxes again...? Seems as good an interpretation as any. But, anyway, back to the country I know something about: Switzerland.

Before attempting to apply the Swiss model, it's important to understand the ways in which Switzerland is unique. The key point is that Switzerland is a tiny country with a ton of money. And the fact that the country is relatively less socialist than its neighbors is in large part the result of the wealth rather than the cause. How Switzerland became wealthy is a long and complicated story -- I'll just mention that the highly lucrative and questionable banking industry played a non-negligible role, and staying neutral during WWII didn't hurt either.

Then, when more people have the means to find their own individual solutions to things (like quality child-care and early-childhood education, for example), there's less push to find common solutions. So, for example, if you have small children and don't happen to be wealthy, you're better off in neighboring France.

But the interesting part of Switzerland's story isn't so much where the wealth originally came from as what they've done with it.

Switzerland supports an astonishing amount of scientific research. The Swiss Federal Institute of Technology in Zurich (ETH) gets more than a billion Francs per year (a Franc is about a dollar), and several other universities in Switzerland have comparable budgets. In addition to hosting CERN (a multi-national nuclear physics research organization), there's also the Paul Scherrer Institute (which I have toured) -- full of particle accelerators as well.

The research performed at these institutions gets applied in real-world practical applications. For example, the Paul Scherrer Institute studies proton therapy, which is better than traditional radiation therapy for certain types of tumors. Additionally, ETH provides assistance for people to start their own companies based on research done there. I've seen how effective their programs are -- I work for one such company. And that's just the tip of the iceberg.

Also, remember how amazed I was by French public transportation? Well, Swiss public transportation is even better. If you haven't lived it, I can hardly describe how quick and convenient it is to go anywhere in the country (including wilderness) without ever getting behind the wheel of a car.

Additionally, Switzerland is a world leader in healthy, organic, sustainable agriculture, and a trend-setter in terms of buying local, seasonal foods (or, failing that, buying fair trade items).

In the US, economic health is constantly viewed in terms of consumer spending. But most of these consumer goods we're talking about are fundamentally disposable, and typically aren't even produced in the US. A wise economist once said that you don't pay people to dig holes and fill them back in again just to fuel the economy.

Suppose that one country (say, Finland) chooses to make education the top priority, and turns "teacher" into a highly-respected, well-paid, coveted position. Suppose another country (say, Germany) chooses to create incentives to power the country with solar energy. Suppose another country (say, Switzerland) funds world-class science research institutions, plus a super-efficient rail network, and creates incentives for sustainable agriculture. Suppose another country (do I need to name names here?) chooses to buy a mountain of junk from China.

All of these purchases fuel their respective countries' economies.

But at the end of the day, one of these countries has a highly-educated populace. One of these countries has extensive renewable power (and all of the security that goes with it). One of these countries has a robust and innovative tech industry, not to mention highly efficient transportation and a clean environment. And one of these countries has an enormous landfill and massive debt to China.

That's what I learned from Switzerland.

The US needs to stop seeing spending for the sake of spending as a good thing -- especially going into debt to do it. America's children would be better off if the American people could find the political will to make it a priority to spend wisely for the future.


groovesocket said...

Nice work!

C. L. Hanson said...


The Sinister Porpoise said...

A wise economist once said that you don't pay people to dig holes and fill them back in again just to fuel the economy.

I assume you are referring to Hayek and his students with this statement. Unfortunately, the US has been following the Keynesian school of economics since the Great Depression. I wonder if Keynes died before he said you eventually have to pay for all of that spending.

You're also touting another basic. Country's with a competitive advantage should take that. If France is really good at making win and cheese, they should make those and trade for the goods they need.

ivo said...

A side remark on Swiss research investment: my father, who works for the Federal government (at the Secretariat for Education and Research), once told me that the yearly public investment in research in Switzerland is actually dwarfed by what the private sector puts in. E.g. the federal government pumps lots of money into the ETH and EPFL, but these also have very strong links with the industry (they're engineering schools after all): much research is done here with money from the private sector, and (as you've mentioned) the researchers are encouraged to create spin off companies based on their research. This is even more true for the many Fachhochschulen ("Universities of Applied Sciences and Arts"). But there is also the huge amount of research going on within the companies (think e.g. of the chemistry and pharma giants here). So, I'd say that the Swiss private sector is quite enlightened and long-sighted too, in this way.

Of course, being a pure mathematician I am - like all other fundamental researchers - especially grateful for the public money! :-)

ivo said...

Also, this:

Federal funding of education, research and innovation 2013–2016

Spending for education and research going *up* by 3.7% yearly in these times of economic crisis!

Sometimes I'm proud of my country.

C. L. Hanson said...

Hey Ivo!!!

Thanks for the additional perspective!

My discussion of public spending vs. private spending was essentially directed at Americans because there's this bizarre belief there that private spending and public spending are two opposite animals (one good and one evil). If you spend a lot of time talking people on the American political right about taxes and government spending, you will quickly pick up on this weird vibe that they see the government as some foreign occupying power exacting tribute. I was trying to question that attitude by pointing out how public and private investment can work in concert, and we can use our knowledge of the strengths and weaknesses of each to make that happen.

Your example of the private investment in ETH and other research institutions is a case in point. Of the three Swiss items I mentioned in the original post, investment in research institutions comes from both public and private, investment in public infrastructure (eg. public transportation) is almost entirely public, whereas the extensive Swiss support for local/seasonal or fair-trade agriculture is (I think) almost entirely due to private initiatives. So public and private spending are not somehow totally opposite and unrelated beasts.

The biggest thing that has impressed me about Switzerland since I've been living here is the cultural value people place on making solid investments for the future (both for individuals and for society). This has been a big culture shock for me as an American because I grew up surrounded by a cultural attitude that it's great to buy more junk just for the pleasure of buying more junk.

Now, I apologize if this whole series comes off as very negative towards Americans. I do think that there are a lot of great things about America and about Americans. But even more, I think there are great things about observing other cultures. You will get new ideas and new perspective on your own beliefs.

C. L. Hanson said...

p.s. Very cool article. "Switzerland considers education, research and innovation to be a top priority." I would love to see the US adopt those kinds of priorities and put them into action like that.

JoeB said...

Chanson: May I offer a bit of testimony about the amazing Swiss rail system. In June I was part of a Ramblers (British walking group) 14 days of alpine hikes, based in Villars-sur-Ollon, Pontresina (near St. Moritz), and Saas Fee (near Zermat)--all connected by rail, out of London. The return west, from P to S, was via the famous Glacier Express, over one spectacular stone trestle after another. In the other direction, V to P, to save some money, I think, we went the more prosaic route, to Aigle (by bus), then by rail to Lucerne, Zurich, Chur, Samadin, and Pontresina. Four times we had to change trains, dragging our luggage out onto the platform, to the stairs, down and across to another platform (finding the right one), and getting onto the appropriate second class section. The time we had for these changes, in minutes: Lucerne, 5; Zurich, 9; Chur, 6; and Samedin, 3!
No problem. We would get into our seats, catch our breath, and the train would start moving, exactly at the scheduled time.
Only in Switzerland!

C. L. Hanson said...

Hey Joe!!!

Amazing, isn't it? And yet your story doesn't surprise me at all -- that's just what it's like. The Swiss rail system is incredible!