Tuesday, June 12, 2018

Politics: Switzerland - A Laboratory For Democracy

(Drivebycuriosity) - It seems that Switzerland is a laboratory for democracy. Important political questions are decided by referendums (polls), not by the government. That gives the Swiss the possibility to evaluate radical ideas in a democratic way.

Last Sunday the Swiss had a referendum about a radical change of the Swiss banking system and monetary policy (reuters). The proposers wanted the introduction of sovereign money. Today Swiss banks create money by giving loans in Swiss Franks. When these Franks appear on the customer´s accounts they could be used for payments and will become money. US banks do they same with dollar loans (Germans banks with Euro and so on). This way the banks create money and not the central bank, which only indirectly influences the money supply by changing her interest rates and using other tools. The initiators of yesterday`s poll wanted to deny the bank the ability to create money. According to them banks should only loan central bank money, which is cash (banknotes & coins issued by the government) or deposits at the central bank. So the banks would need loans from the central bank to acquire the needed central bank money.

The proposal would have created a very rigid system. The current monetary system is flexible because the banks are responding to the demand of their customers and create money (by giving loans) whenever the money is needed in the  - usually growing - economy. Some banks may create too much money, but others could create too little fresh money. On average the mistakes may compensate each other, the advantage of decentralized money creation by the banks. The proposal would give the central bank a monopoly and the full control of the Swiss money supply (called sovereign money). But this institution is less close to the economy than the banks and would have to guess how much money would be appropriate and her mistakes would do more harm, the disadvantage of a monopolistic money creation by the central bank. Today Switzerland has a low inflation and a smooth running economic, so a radical change is not necessary and could be harmful.

Fortunately a clear majority rejected the idea yesterday. It was a clear decision. More than three quarters rejected the so-called Sovereign Money initiative (reuters). All of the country’s self-governing cantons also voted against in the poll, which needed a majority from Switzerland’s 26 cantons as well as a simple majority of voters to succeed.



                                        A Basic Income For Every Citizen?

I think yesterday´s poll result is another proof that the Swiss type of democracy is functioning and prevents the country from damaging mistakes. The Swiss had decided about other important topics before. In March a majority of 72% rejected the abolition of radio and television fees that provides the majority of funding for the Swiss Broadcasting Corporation (wikipedia). In 2013 they rejected the proposal of an universal basic income (businessinsider). The proposers wanted that every citizen should get 2,500 Swiss francs (then $2,800) per month from the state. This would have made $33,600 per capita and year and would have cost the government in Bern around $270 billion per year, around a third of the whole Gross National Product (GNP). The activists suggested, that around 70 billion Swiss Franc could be taken out of the cash boxes of the social security (nzz). This would have been a gigantic theft, the largest robbery since the Russian revolution, because the extracted money would have reduced the benefits (health insurance, pensions) for the insured drastically who had trusted the social security system. The proposers recommended that the rest - about 130 billion Swiss Franc  - should be financed by raising consumer tax and other royalties. This would of have caused a price jump and damage the Swiss consumer industry, including retail. No wonder that the Swiss voters disapproved.



                                                  A Cap On CEO Earnings?

Also in 2013 the Swiss rejected the proposal to cap the salaries of top executives at 12 times that of a company’s lowest wage (reuters). Swiss companies would have lost talented managers to competitors in the USA and European Union, big corporations like Nestlés which cater global markets might have moved their head quarters to foreign countries.

But the Swiss aren`t naysayers who deny everything. They often accepted proposals which were less challenging for the Swiss economy. Last year majorities voted for "an easier naturalization of third-generation immigrants" & for the proposal "to create a fund for national roads and urban infrastructure" (wikipedia).

It seems that Switzerland comes close to an ideal democracy. Many issues are decided by the people, not by the politicians. The Swiss system allows voting about radical ideas but it did not not lead into chaos so far. And it pays for the Swiss, they enjoy a lot liberty and wealth (per capita income $61,400, US 59,500, Germany $50,200  cia.gov). I think the US and other countries could learn a lot from the Swiss democratic system.


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