A month or so ago, prompted by a Herald news article talking up a New Zealand Initiative study tour to Switzerland to learn “the secrets of their success”, I pointed out that Switzerland wasn’t such an obvious place to look for lessons on lifting New Zealand’s continuing disappointing economic performance. After all, since 1970 they were the only OECD country to have had slower productivity growth than New Zealand
and although the average productivity level in Switzerland is still much higher than that in New Zealand, it is no longer among the very best in the OECD. Denmark, Belgium, and the United States are among the countries doing much better than Switzerland, and even they don’t top the rankings.
A few days later it turned out that the author of the article, veteran journalist Fran O’Sullivan, was actually participating in the study tour, not just talking it up. At the time, I noted that it would be interesting to hear, in due course, what she learned from Switzerland, while being a little sceptical as to how detached from a New Zealand Initiative perspective she would prove able to be.
In Saturday’s Herald, O’Sullivan devoted a substantial article to reporting back on what was learned on the tour (this time with all the appropriate disclosures, including her partial sponsorship from one of the Initiative’s member companies). Much of the article is quotes from New Zealand Initiative people. And the answer it seems, at least on O’Sullivan’s summary take, is in the headline: Education key to Swiss success.
Near the start she observes of her own past trips to Switzerland
Other times I have been to Switzerland, it has been straight to Geneva to the World Trade Organisation’s HQ for trade discussions, or to observe the World Economic Forum in Davos. Not to look at what underpins Switzerland’s own resounding economic success.
I’m still quite genuinely puzzled at where she – or the Initiative – get this idea of “resounding economic success”. I’m sure there are many things to like about Switzerland but – despite a very strong starting point a few decades ago – it just isn’t one of the great economic success stories of modern times. Productivity growth has been underwhelming – to say the least – and although GDP per capita in Switzerland is higher than in, say, France or Germany, it is so mostly because the Swiss put in a lot of hours. Average productivity is higher in France and Germany, while Switzerland is like New Zealand in that total bours worked per capita are very high in both countries.
I quite like the sound of the Swiss political system – highly decentralised, lots of quite small, and competitive local authorities. It is the antithesis of something like the Auckland “supercity” put in place a few years ago by our government. But one has to wonder quite what economic gains it might have produced. The New Zealand Initiative seems dead keen on the highly decentralised system
“Private and central bankers, economists and journalists, federal and local politicians alike – in fact everyone we talked to – agreed that this was the most crucial component to the Swiss success formula,” says NZ Initiative executive director Oliver Hartwich.
But when your country has had the weakest productivity growth in the OECD over 45 years, you have to wonder whether the alleged contribution to “economic success” is not mostly one of those myths that all countries have, that don’t necessarily line up that well with the evidence. I’m sure the decentralised system is cherished, but in modern times it has seen (although not necessarily caused) Switzerland drifting backwards.
But the political system isn’t the thrust of O’Sullivan’s article. Rather, the education and vocational training systems seem to be. In fact, even Hartwich seems to agree
Concludes Hartwich: “The most important insight was the fact that a solid vocational apprenticeship is just as respected as a university degree (and sometimes leads to better salaries, too). New Zealand businesses should not only co-operate with institutions but lead the debate on the required reforms.”
And a couple of quotes to give you the flavour of the rest
It may seem ruthless to stream students at an early level into academic and vocational education training (VET) streams. But Switzerland does just that.
About 20 per cent go into the university stream and the rest into the upper secondary school vocational education training stream, where students combine school learning with skills developed in the workplace.
This system serves 70 to 80 per cent of Swiss young people, preparing them for careers ranging from high-tech jobs to health sector roles and traditional trades. Both white collar and blue collar roles are appreciated. There are about 230 vocational categories.
The upshot is that Switzerland enjoys virtually full employment, the youth unemployment rate is among the lowest in developed countries and the Swiss enjoy a very high standard of living. Those doing the VET stream are not locked out from university education, which they can do at a later stage.
Asked if they could import one feature of Switzerland to New Zealand, the consensus of the visiting business leaders was that it would be the vocational training system.
ASB chief executive Chapman says any growing economy relies on a pipeline of skilled and motivated workers for momentum, and “in that context I think there is a lot to learn from the Swiss”.
“The Swiss have an enviable record of high youth employment.
I don’t know anything specific about the Swiss vocational training programmes, so there may well be some specific aspects that New Zealand firms, or New Zealand governments, could learn from. But as I reflected on O’Sullivan’s article, the story about education etc didn’t seem terribly convincing as an explanation of Swiss “economic success”.
Overall employment rates in New Zealand and Switzerland are very similar (on OECD data 66.2 per cent in both countries last year). But on youth employment, Switzerland does appear to have had a consistently higher employment rate. Among those aged 15 to 24, 62 per cent of Swiss were employed last year, and 54 per cent of New Zealanders.
Employment among young people is a bit of an ambiguous indicator. After all, if young people are in full-time study (school or tertiary) they often won’t be in employment at all. Youth employment rates were probably higher in both countries 100 years ago.
But what about youth unemployment: people who want a job, are looking for a job, but can’t find a job? Here, Switzerland seems unambiguously to do better than New Zealand.
And what are some of the things that affects the ability of young people to get into work? Minimum wage laws are likely to be one of them. I recall the New Zealand Initiative’s Eric Crampton, when he was at Canterbury University, making some very useful contributions (eg here) to the debate about the impact of the much more stringent minimum wage provisions, especially as they affect young people, that were put in place here about 10 years ago.
Readers may recall that, relatively low as New Zealand wages are, our minimum wage relative to median wages – the sort of metric relevant when thinking about whether minimum wage provisions exclude some people from employment – are very high by OECD standards (fourth highest in fact).
And what about Switzerland? Well, in Switzerland there is no minimum wage law at all. And not that long ago, Swiss voters overwhelmingly rejected an attempt to establish one. Perhaps in the course of the Initiative’s study tour no one thought to ask the question about minimum wages. But whatever the reason, it looks as though it could be a rather important omission. It isn’t the really skilled young people who typically have difficulty getting jobs, but the less skilled and more troubled ones. Our systems works against them getting established in the labour force, while the Swiss one seems not to. As the ASB chief executive put it:
“You can’t underestimate the power this has on the optimism and confidence of their youth as they look to their own future.”
But I was also a little puzzled about the story that seemed to downplay the role of universities in Switzerland. I’m as willing as next person (including New Zealand Initiative members) to think that perhaps New Zealand went through a phase where too many people went to university. And a good builder or plumber will certainly earn more than many of the occupations our more-marginal university students end up in.
But what did the data show? As it happens, the OECD Economic Survey on New Zealand came out on Thursday, and they had a whole chapter on the labour market, skills etc. So I flicked through it looking for relevant charts. Like this one.
Switzerland is “CHE”. Relative to New Zealand – and to the OECD as a whole – Swiss young workers (25 to 34 year olds) now have a far higher rate of completed tertiary qualifications than New Zealand ones do.
And there was also this chart
Whether for younger people or older ones, Switzerland is ahead of New Zealand, particularly in the proportions with masters or doctorates.
Tertiary Education Commissioner Sir Christopher Mace says, “to be highly qualified technically rather than academically was totally acceptable in Switzerland.”
No doubt that is true – or rather I have no reason to doubt it. But a huge proportion of Swiss young people are getting strong academic qualifications.
Oh, and the OECD also makes much in their reports of the adult skills data I’ve written about here previously. Switzerland didn’t participate in that survey, but New Zealand workers came up with some of the very highest skills (notably problem-solving skills) of any of the many countries that did participate.
Still flicking through the OECD chapter, I found another interesting chart on employment. Ideally it would be a chart of all sole parents, not just mothers, but it was part of another chart focused on maternal employment.
Switzerland is at the far right end of the chart.
Which is by way of leading into another difference between Switzerland and New Zealand – the overall size of government is a bit smaller there. Here is the OECD data on current government receipts (mostly taxes) as a per cent of GDP.
The Swiss tax take is smaller than ours, as a share of GDP, but (a) the gap seems to have been closing, and (b) at least as much of that is coming from the Swiss raising average taxes as from us lowering them. Again, if one is concerned about productivity, it isn’t obvious that the Swiss experience has a great deal that is positive to teach us, even if the reasons for their weak productivity growth might well be different from the reasons for our own.
The Swiss track record with weak productivity growth isn’t something new that no one had noticed before – the OECD, for example, has been offering thoughts on it for some time (eg here). So it is still a bit of a mystery why the New Zealand Initiative is touting Switzerland as a success story to emulate, or why a senior journalist is channelling those lines. Perhaps it would have offended New Zealand business leaders’ sense of amour propre to have gone further east, but if there are many lesssons to be learned for us in Europe about lifting overall economic performance, it seems more likely they might be found in countries like Slovakia or Slovenia, Estonia or Latvia (all now fellow members of the OECD) where productivity is fast catching up (in some cases already has) average levels in New Zealand – and that in countries that for the whole of modern New Zealand history (ie since say 1840) have been much much poorer and less productive than New Zealand.
Travel generally broadens the mind, and almost any country can probably offers some experiences (good and bad) that visitors could learn from. I’ve no doubt Switzerland does too (eg about minimum wages and company tax rates perhaps) . But Switzerland’s overall economic growth performance has been poor for decades, and that even with the advantages that come from being a relatively-small government place in the heart of one of the most prosperous places on the planet (northern Europe). It seems unlikely there is very much to learn from them, at least in a positive sense, about how to markedly lift the performance of another struggling country almost as far from anywhere (and from suppliers, markets, clusters of knowledge) as it is possible to be.
One could wonder whether this group of leading business people, (having gone off to learn from Switzerland, where they would have found a system with no minimum wages and much lower company tax rates, but nonetheless want to tell a story about training and education as the secrets of what they see as Swiss success) are not perhaps preparing against the chance of a change of government later in the year. All that talk in the article would, no doubt, have seemed like music to Grant Robertson’s ears. Perhaps not, but I’m struggling to formulate a better hypothesis. Because the data don’t really seem to fit their story.