Posted by on November 29, 2012

(“Come to London, my friends!)

These are the words of the irrepressibly wacky and mop-headed Mayor of London, Boris Johnson, to the controlling shareholder of ArcelorMittal, Lakshmi Mittal, on hearing of the threats of the French government to nationalize part of the company’s operations if it did not guarantee the jobs of approximately 800 workers at a non-profitable blast furnace slated for closure.  Predictably, the French media and les élites – now, there’s a misnomer! – have reacted with wrath as Mayor Johnson has broken the first commandment of the governing classes everywhere:

“Thou shall not compete!”

It has always been one of the hypocrisies of the political world that, while almost all politicians at least pay lip service to the virtues of competition in the private sector, these virtues somehow magically disappear when it comes their domain.  Anybody who dares to compete, and certainly anybody vulgar enough to compete on price (ie., the level of taxation), is greeted with the scorn and contempt directed at scabs and blacklegs everywhere.

Yet, this is a fundamental mistake.  And for the proof, we only need look at the island of efficiency and civility (and chocolate) called “Switzerland”.

It took me about a year of living in Switzerland to figure out its secret.  A year of boring my friends and colleagues to death with stories of the incredible competence and ease of the Swiss administration: the amazing infrastructure; the speed, quality and thoughtfulness of public services; the fact that everything worked and the country was a stress- and frustration-free zone.  And all of this on the basis of an average tax take, as a percentage of national income,  that was probably half that of any other major European country.  How could Switzerland do twice as much with half the taxes?  Was it the chocolate?

Then I read an article shortly following the IPO of Glencore, the huge commodities firm based not far from where this post is being written.   One of the major shareholders of Glencore lives in a nearby town.  Due to the IPO, and the suddenly increased wealth of this resident, the tax base of this small town was going to increase dramatically.  What was the reaction?  They immediately cut taxes across the board by 15%, returning substantially all of the windfall to their residents.

So, here is the Swiss secret: while every other government is a monopoly and provides monopoly levels of service and cost, Switzerland is a competitive market.  It is as simple as that.  Every Swiss town and canton competes vigorously with every other Swiss jurisdiction to attract businesses and people, a competition which continues despite the predictable efforts of the high-cost producers (eg., Geneva) to dampen it.  When the windfall hit this Swiss town, the local politicians reacted the way any competitive businessman would: they saw an opportunity to get a leg up by cutting price and they did so immediately.

Now, we have this kind of competition in America, too.  You only have to look at the stream of U-Haul vans heading out of California for Texas to realize this.  But the competition is much more muted.  In Switzerland, the federal government taxes everyone at a slightly graduating rate that tops out at 10%.  The local towns and cantons add to this a number of their own determining, running from a further approximately 10% in the low-cost areas to a further approximately 30% in the profligate (and decidedly French) city of Geneva.  The great bulk of the tax francs are collected and spent at the local level, reversing the situation in America.  The competition here is for the big money, not the scraps leftover after Washington has taken its outsized skim.

Competitive strategy goes a long way in explaining the bias of the American political parties between Washington and the States.  The Republicans, at least theoretically committed to less government and taxes, favor the States; although sadly and inexplicably unspoken, this is really a policy in favor of competition.  The Democrats, good monopolists that they are, favor reinforcing Washington’s territorial control.  They also howl with displeasure when a company slips the leash and actually attempts to restore competition in public services by moving to another country.  As any good Frenchman will tell you, the only solution for this lèse majesté is to extend the monopoly.

This solution has a name; it is called the “European Union”.  Not surprisingly, Switzerland wants no part of it.

Roger Barris, Switzerland


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Posted in: Economics, Politics

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2 Comments on "Venez à Londres, mes amis!"

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Amen Roger…good stuff.