"The Swiss Economy - the Cinderella of Swiss Politics?"

Speech by Federal Councilor Christoph Blocher to the Association of Statistics and Economy at Basel University, March 26, 2007

Speeches, FDJP, 26.03.2007. Both the spoken and the written word are valid. The speaker reserves the right to deviate - even considerably - from the manuscript!

Basel. In his speech to the Association of Statistics and Economy at Basel University, Federal Councilor Christoph Blocher took the view that the economy is best served if the government does not interfere. He adduced Swiss, the successor airline to Swissair, as a striking example to advance his thesis that nothing good can come from it if the government intervenes with the economy.

1. A little more laissez faire, please

Let us look into the question whether the Swiss economy rightly feels as if it were pushed into the role of the poor cousin of Swiss politics. Or, to rephrase it: does Swiss politics fail to properly take into consideration the needs of the Swiss economy? Does the economy have reason to feel neglected?

Talking about “poor cousin” invariably evokes the image of the much neglected Cinderella, her wicked stepmother, bean-counting, harsh treatment, favoritism, and discrimination. Those who are neglected or poorly treated are thus popularly said to get the Cinderella treatment.

Like so many children, Cinderella suffers from neglect - true neglect in the proper sense of the word. Neglecting a child is a grievous thing to do. But the economy is a different story. In fact, the national economy would not be harmed, if "getting the Cinderella treatment” meant less governmental regulation in commerce and to the minimum necessary for a free-enterprise system to operate according to its own economic laws.

Again, have a child suffer from neglect is a bad thing. The suffering of the national economy is of a different order, however. In fact, the national economy is not being neglected but rather overly looked after. An overkill of attention by way of government interference, regulation and control is detrimental to prosperous development. If economic success is punished with taxes, an economy can not thrive. If too many politicians pursue their own political agendas and feel they have a mission of meddling in areas they do not understand, the economy will stall. In short, if the economy truly were the Cinderella of politics, it would still be far better off than being preyed on by the well-meaning efforts of politicians.

2. Swissair and Swiss - a tale of woe

The grounding of Swissair and the ensuing sad story still lingers in our minds. Deplorable as the collapse of Swissair may be, the demise of the airline was largely due to wrong decisions on the part of the management board. The trial appears to be a therapeutic rather than a didactic attempt at reappraising what went wrong in the management of the airline - and is, as such, of little practical use. In the final analysis, the market served punishment on both the business enterprise and its management.

Instead of dwelling on moot points, it would seem to make more sense to look at how politics dealt with Swiss, the successor airline to Swissair. Swiss was given anything but the Cinderella treatment. Rather, Swiss got the kid-glove treatment, with politicians pampering their pet and feeling the need to meddle with the creation of the new airline. They discovered and abundantly proclaimed the primacy of politics over economy. Politicians were eager to justify the inroads into the economy by quoting the primacy of politics. The bill amounted to several billion Swiss francs - and was paid by the Swiss taxpayer.

Let me cite a number of politicians who back then offered strong statements on the primacy of politics. Consider, for example, what social democrat and National Councilor Andrea Hämmerle from Graubünden had to say at the 2001 fall session:

“The primacy of politics must be restored at all costs.” His party colleague from the canton of Aargau, National Councilor Urs Hofmann, bestowed us with the following pearl of wisdom: “Public economic policy means to emphasize, at the proper time and if necessary, the primacy of policy and to allow for government grants.” Susanne Leutenegger, another national councilor and member of the Social Democratic Party from the canton of Basel-Land opined, “We must no longer leave this affair in the hands of the banks and the private sector of the economy. What a brilliant achievement they have made by ruining Swissair.” And here is what the social democrat and National Councilor Barbara Marty Kälin from Zurich had to say: “Who else but the federal government should act if the economy appears to be incapable?”

So much for the statements heard in fall 2001. It was the mental attitude behind these very statements that cleared the path for a government-financed airline model named Swiss - an airline left at the mercy of labor unions. These statements testify to the fact that the national economy is definitely not the Cinderella of politics. I wish it were, though!

Here is what we know in retrospect: Swiss remained airborne just as long as company capital - that is, capital sustained by injections of tax money - lasted. What else do we know? The 26/26/82 model failed to do justice to the market demand but played to the needs of the labor unions. What lesson can be learned from this airline debacle? If politics takes primacy over a private business enterprise, disaster and demise are certain.

I hardly need remind you that the Swiss government was the controlling stockholder of Swissair. You may wonder why not a single voice from politics would have criticized the Swissair management board, the Hunter Strategy, or the executive management. Here is the answer: Politics just lacks what it takes to manage a business of that caliber. Mixing up politics and economy simply violates the principle of single and unqualified responsibility.

3. The Federal Government as entrepreneur?

In a free-enterprise system the government should not be allowed to act as entrepreneur. In fact, a government is the single most inappropriate owner; especially if international, and thus high-risk business is involved. Just take Swisscom as an example. The national telecommunication enterprise, though privatized, still operates under the aegis of the federal government, as it owns a majority of stocks. So here we are with the federal government as the nation’s biggest competitor in telecommunications and, at the same time, as guardian of fair competition. What a fine mess!

The Federal Council is and remains a political organ. Federal councilors are not elected with a view to running a business. And yet, whether a capable administrator or not, the federal council is responsible for publicly owned business enterprises. There is no shunning this responsibility - be it out of incapacity, fear or sloppiness. Indeed, the Federal Council did assume responsibility by deciding to curb Swisscom’s course of expansion. It was the proper thing to do.

However, the situation remains unsatisfactory. The federal government still plays the role of the stepmother. To make a clean slate, the federal government would have to grant its stepchild independency. The same applies to any other businesses that have been partially privatized - or privatized in name only, such as Ruag; the export promotion organization Osec; Zurich Unique Airport; or Skyguide, the provider of civil and military air navigation services in Switzerland. But for political and other considerations, it will just not happen.

4. Federal funding for all and everyone

Swiss International Air Lines, or Swiss, for short, is an extreme yet concrete example to illustrate that no good can come from mingling politics and economy. There are other instances where politics could set an example of responsibility by divesting state holdings in free-market enterprises. Swisscom telecommunications could be a start.

It appears, however, that the federal government is not happy just to hold interests in businesses in the public sector - in the service public, a term borrowed from French that we have so conveniently come to refer to. It also wants the very best for its businesses; by promoting and subsidizing them, and financing incentives, you name it. And, of course, with the best of intentions.

Amazing, all the things that need government subsidizing in this country - and get it. Amazing, too, who and what gets subsidized. It is almost as if the name of the game were subsidies for free - would you care for another? And even if you do not want one, you will get one all the same. The classics among the subsidized subsidy receivers are export funding, government housing funding, tourism funding, regional funding, and cultural funding. Health care funding is the latest area to join the long list of subsidy receivers. Most funding programs serve but one purpose: to ease someone’s guilty conscience. Hardly any of these fundings has ever been of much use, however.

Let us take a look at some random examples to get an idea of how abundantly the funding jungle thrives on the hotbed of politics. Switzerland has a “Technology and Innovation Commission for the Promotion of Contact Between Science, the Economy and Small and Medium-sized Businesses.“ Now that is some name for a commission - and probably it is just as useful as a chocolate cuckoo clock.

Then there is the “Committee for Environment, Development Planning and Energy”. This honorable commission petitioned the Federal Council to draft a bill promoting the substitution of two-wheeled vehicles running on a four-stroke engine for two-wheeled vehicles running on a two-stroke engine. This goes to show the elementary important tasks the Federal Council has to deal with. How trifling the billions in national debt appear in comparison.

What more do we have? Well, there is the drafting committee of some constitutional council. They push for “Measures for Promoting Equal Opportunities in the Appointment and Promotion of Committee Staff.” The equal-opportunity issue has been with us for some decades already.

And then, believe it or not, we have the Committee for Economic Affairs and Taxes that stands up for the “promotion of diversity of beer style and flavors by relieving small breweries.” Here’s looking at you!

We have a Youth Promotion Act, a commission for the promotion of cultural life, a commission for integration and promotion of intercultural exchange. There is the promotion of mutual respect and tolerance among citizens, promotion of research competence, and on and on and on it goes. Promotions galore.

But wait, we even have a National Commission for the Preservation of Fungi. This commission is deep into issues of the well-being and promotion of wild-growing funguses in Switzerland. A fine thing.

Admittedly, all these efforts may be undertaken with the best of intentions. But being well-meaning is not the issue. The issue is, Is all this really necessary? Do we need it? Or, perhaps, is this project-funding mania rather a sign of inconsistency? The inconsistency being that government regulation and restriction make subvention necessary in the first place.

Talking about subvention invariably brings to mind the farmers and agriculture, the traditional scapegoats of the government overfunding craze. In fact, it is no use blaming the farmers or agriculture. Let me remind you what I have been saying for years: agriculture expenditure could be cut by one billion Swiss francs without farmers getting one cent less. It could be done just by stopping money from being pumped into what is someone’s - mostly ecological - political pet project. It could be done by streamlining agrobureaucracy and giving wholesalers more freedom to regulate the various standards by themselves. After all, we have plenty of laws and regulations on food and animal protection.

A recent study into agriculture funding in 2002 revealed that of 4.1 billion Swiss francs earmarked for farm subsidies, 900 million Swiss francs never made it directly to the farmers. Instead, substantial sums, 608 million, were funneled into nonagricultural business, 107 million was devoured by administration, 54 million went to producer associations, 18 million was transformed into consultancy fees, and 153 million found its way into research. That is about the size of it. Politicians must spend millions and millions to make up for the expensive blunders they have made. Consider this: would it not be in the very best interest of the economy to simply leave it alone?

5. Well-intended is often poorly done

Economic science knows the concept of the “Cobra Effect”, so termed after an anecdote from India, where some lands were at the mercy of a particularly rampant plague of snakes, cobras to be exact. The ruler of these lands posted a reward for each cobra killed. And what happened? People made a living by breeding cobras on a massive scale just to kill them and be rewarded. This goes to show how a well-intentioned state measure backfired, causing much undesired consequences.

This effect can be seen, for instance, if you try to regulate the labor market down to the very last detail. The talk - from left-wingers especially - is about minimum wages, maximum wages, protection against unfair dismissal, works councils, fewer working hours, limiting store opening hours. And on it goes. With the best of intentions, of course.

Consider this: The left wants to stop unemployment by expanding the protection against dismissal. By applying their logic, strong protection against dismissal protects people from unemployment. And that is even true - but only for people who already have employment. All the others, whether they are seeking a new job, are new to the labor market, or young people, will be utterly disadvantaged, because potential employers will think it over three times whether to employ someone they can hardly ever get rid of again. Employers who seek short-term laborers for, say, from three to four months, will not be willing to bind themselves for a longer period of time. They will rather do without.

Take our neighbor to the north, for instance. The effects of Germany's dismissal protection legislation are a deterrent example in point. The stringency of German legislation grants strong dismissal protection. But just look at the high hard-core unemployment rate they have! Now take a look at the flexible Swiss model, which allegedly is so inhumane. Are we so much worse off by comparison? So much for the Cobra Effect and the best of intentions.

6. Laissez faire is the best policy

This brings us to the end of this speech - and to the conclusions we may draw from these considerations.

  1. The economy does not ail from neglect by the government. Rather, the problem that the economy faces is an excess of federal regulation, intervention, and taxes.
  2. Entrepreneurs are no angels: if presented with the opportunity of securing public funding, they will jump at it, unabashedly. Entrepreneurs are only human.
  3. It is, at best, the less competitive, disadvantaged competitors who call for a market system that is as free as possible; they moan until they have an edge over irksome competitors. Such wheeling and dealing is largely absent in a liberal economic system.
  4. The federal government does definitely not make a good entrepreneur. Interdependence with economic business enterprises results in the distortion of competition and entails risks at the expense of the tax payer.
  5. The reasons politics interferes everywhere may be meritorious; however, more bad than good comes of it most of the time. Well-intended is often poorly done.
  6. We are striving for a liberal market economy. The free-market system appears to be brutal - but only to amateurs. History teaches us better: only the free-market economy has the capacity for creating affluence for so many people. Only in a free-market economy can true skill and ability win through, regardless of one’s race, religion, or descent.

Politics, politicians that is, has a long history of trying to tamper with the free market. There have been untiring efforts to mold and mother this market; and we are made to believe that such interfering is very social-minded. In fact, this is nothing but pseudosocial blathering.

It is the task of our time to reconsider the great value of the free-market system and acknowledge the fundamental benefits this system provides for the well-being of people. With all the well-intended, social-minded ideological gab, it is easily overlooked how very much social the free-market system truly is. This is the only system that reliably supplies people with goods. In the absence of this system, entire states and peoples went bankrupt. It is, so to speak, our social duty and the task of our time to maintain the free market and keep it going. A liberal as possible economic system is an indispensable element.

Unrestrained competition is the fairest kind of competition. All who take part in it are faced with the same conditions. Politics is well-advised to respect the maxim: as little obstruction and government interference as possible. The market is self-regulating. Let quality and price decide. Let the customer decide. Leave it up to the consumer. Those competing can take it or leave it. May the best, price-worthiest, and most competitive win!

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