Switzerland: chocolate, clocks and radical solutions to the cost of living crisis

The ‘cost of living crisis’ is not an exclusively British problem. The same economic factors that contribute to long term inflation outstripping real income growth are common to all western, industrialised, capitalist economies. And while electioneering Conservatives make light of finally rising GDP and finally rising wages, they are obscuring and ignoring the long term trends underpinning the ‘squeezed middle’ rhetoric from yesteryear.

Even Labour, the cost-of-living-party, only offer gimmicky, short-term solutions like freezing energy prices, wholeheartedly failing to address the systemic problems spanning generational and class divides.

Not so in Switzerland. Thanks to their unique system of direct, participatory democracy where a policy that attracts 100,000 signatures is automatically granted a binding referendum, radical policies that strike at the heart of late-stage capitalism have been voted on, or are due to be soon, in a fascinating display of a country deeply engaged with the balance between work and life, economics and politics.

Is this the crest of a wave of radical policymaking designed to correct fundamental inequities in free market economics? Or are they utopian dreams that would only make Switzerland uncompetitive in a global marketplace?

Executive pay ratios

Late last the year, Switzerland held two referendums on executive pay. The first successfully voted in a ban on one-off bonuses, “golden hellos” and “golden goodbyes”. The second unsuccessfully attempted to introduce a 12:1 executive pay ratio where CEOs could earn no more in a month than their lowest paid employee in a year.

In the current political climate, it’s easy to see how a cap on bonuses would get through. The executive pay ratio is a more nuanced argument with a strong pedigree. Highly influential political philosopher John Rawls argued strongly that inequality is desirable, but only to a point, implying support for a cap on pay inequality. But it’s an argument that consistently fails against the fear of losing out in attracting the best of the global talent pool.

Aside from the moral argument that inequality is desirable so long as the worst off benefit as a result, which is clearly not the current state, there is a potential economic benefit. As Thomas Piketty’s blockbuster Capital in the 21st Century argues, we have reached a point where wealth creation is feeding on itself, not trickling down. Given that poor people tend to spend a higher proportion of their income than the wealthy, the more capital accounted for by wealth, the less liquid the economy.

The most likely consequence of an executive pay ratio would be raised incomes of the lowest paid, rather than simply capping high incomes in an act of retributive justice. And that would presumably mean more money flowing into the economy, which is good for everyone.

The highest minimum wage in the world

The most recent referendum concerned the introduction of the highest minimum wage in the world. The policy was unsuccessful, but would have taken Switzerland from a country with no minimum wage at all to one with a minimum income of 22 Swiss francs an hour, equivalent to ₤32,000/annum.

A minimum wage is commonplace in Europe, so it was probably the scale of the change that defeated the policy. Opponents feared such a high minimum wage would actually harm the worst off as jobs would be lost as businesses couldn’t afford to take on new staff. Farmers in particular were concerned they would have to price themselves out of the market.

These arguments are fair. Raising low incomes is a laudable goal, but there is a fine line between ensuring a minimum standard of living and pricing the low-paid out of the labour market altogether and businesses out of a global marketplace as their supply chain becomes more expensive. Arguably an executive pay ratio would achieve more towards this goal.

Universal basic income

The most fascinating proposal on the table is the universal basic income — 2,500 Swiss francs per month for every citizen, working or not. On the face of it, it seems like an extravagant dalliance from one of the world’s wealthiest countries, particularly since the debate apparently assumes the policy is affordable. But again, there are two strong arguments for it.

Firstly, it deals with the existential reality of work. Do we work to live or live to work? With a universal basic income it becomes more of a choice. 2,500 Swiss francs wouldn’t be enough to live a particularly auspicious lifestyle, but a frugal, non-working life is possible. It takes the sting out of wage-slavery. More importantly, it makes life more affordable. Add a salary on top and Switzerland could be the first country where they really are all middle class.

Secondly, there is an argument that it may cost the state less than maintaining a means-tested welfare state if it directly supplanted the benefits system, while single-handedly solving a cost of living squeeze. This is particularly true if a touted VAT rise, essentially a tax on buying, accompanies the policy, discouraging the use of the money as disposable income.

Given the results of the less radical referendums before it, the chances of the universal income being voted in are pretty slim. But the fact that it’s being seriously considered at all is at least fascinating, at most prescient.

Are the times a-changing?

Although so far these radical policies have been shot down, it’s telling that they are being seriously considered in a traditionally conservative, business friendly country. Of course it wouldn’t be possible without the participatory system, but they’ve taken bold ideas that challenge the entrenched status quo out of academia and into the real world.

Certainly they are difficult, perhaps impossible, policies to unilaterally implement in a competitive, globalised world. They are more likely to first be adopted by a comparatively isolated, resource based state like Venezuela than in Europe. But that they attracted enough support to trigger referendums, receiving air and serious debate could be a watershed moment in bold, progressive policymaking that goes beyond the kind of short-termist tinkering we’re used to.

But probably not.

Image: https://www.flickr.com/photos/emilywaltonjones/4010048580/