Switzerland as our example – again

A month or two back, the New Zealand Initiative arranged a study tour (Go Swiss) for members (and a friendly journalist), “to learn more about their success story”.

I’ve written about this a few times, mostly because I’m genuinely perplexed that the smart people who run the Initiative really seem to think that Switzerland is much of an example for us, or even these days that much of a “success story”.

Sure, Switzerland is richer and more productive than we are.  Most advanced countries are.  But productivity levels in Switzerland now lag behind those of the leading OECD countries.  And over the last 45 years or so, Switzerland has had the lowest rate of productivity growth of any of the OECD countries for which there is a full run of data.  Just a little worse even than New Zealand.

switz 70 to 15

If I were sponsoring a study tour to places that had put in really strong performances in recent times, the Czech Republic, Slovenia or Slovakia look like they might be rather stronger contenders.     They’ve been catching up quite rapidly, not drifting back in the pack.       The Slovakia picture looks particularly impressive.  Here is the Conference Board data on real GDP per hour worked for each of New Zealand, Switzerland and Slovakia, relative to the average for France, Germany, Netherlands, and the United States (four of the higher productivity large OECD countries).

slovakia

Of course, New Zealand Initiative members are free to take their holidays wherever they like.   But it becomes of somewhat wider interest when they return trying to proselytise.

A few weeks ago the Herald’s Fran O’Sullivan provided a vehicle for some of that, relaying some rather questionable stories about the Swiss labour market (which does, among other things, feature a low youth unemployment rate), while ignoring such potentially relevant features as the absence of a generalised minimum wage in Switzerland.   Somewhat surprisingly, from a bunch of leading business people, Switzerland’s much lower company tax rate also wasn’t mentioned.  Then again, neither was its poor long-term productivity growth performance.

Sometimes the Initiative has been directly purveying the material.  Their chairman, Roger Partridge, had a piece in the Initiative’s newsletter recently extolling the contrasts between Italy and the Ticino, the Italian region of Switzerland.  “The secret to Swiss success”, so we are told, is down to “can solve”, reputedly the approach adopted by Swiss officials and politicians.    Now doing better than Italy isn’t such a great boast these days, but actually as the chart above shows, over the last 45 years Switzerland has done worse than Italy –  at least on productivity.  And then there are some of the summary indicators: on the World Bank’s ease of doing business index (not, of course, a perfect indicator of the state of regulation), Switzerland beats Italy by a substantial margin.  But Switzerland comes in at number 31.  New Zealand is number 1.

But what prompted this post was the editorial in the business section of this week’s Sunday Star-Times.   It doesn’t appear to be on the Stuff website, but if you go to this link to one of Initiative director Oliver Hartwich’s tweets, you can read an image of the whole piece.

Do you fancy living your lives more like the Swiss?…..It means entering into a radical experiment which could turn this country into another Switzerland.  A country with a high wage economy that manufactures and exports quality products, welcomes thousands of immigrants without any problems and has a fast and efficient public transport system

And, once again, we are told that

the ‘big picture” answer, according to the NZI, is in Switzerland’s decentralisation, where more than 2000 local councils have their own tax-raising powers.  Their argument is that it leads to greater pro-activity in devising strategies to attract business investment and power growth.

So, again, that would be the OECD country with the worst long-term productivity growth record?

And the other strand of the answer is, it is claimed, the education system.

Education is a dual system, which sees 80 per cent of young people enter vocational training, with only the remainder going to university.  But there is no stigma in that,

Then again, this is the OECD country with the worst productivity growth record over the last 45 years.  And, as OECD data I highlighted in the earlier post showed, actually a larger proportion of Swss 25-34 year olds have completed tertiary qualifications than in (a) most OECD countries, and (b) New Zealand.

One business leader is quoting waxing lyrical

As Fraser Whineray, boss of Mercury, said:  “an aluminium welder can be earning $150000 a year and living in a village like Queenstown”

I had no idea how much aluminium welders earn here, but this website suggests about $22.75 an hour.  That’s a bit under $50000 a year and given that Swiss GDP per capita is not even double New Zealand’s you’d have to be a little sceptical about that $150000 number (and this site offers some Swiss numbers).

But, picturesque as Switzerland is, what about the housing situation?

According to the New Zealand Initiative, as channelled by the Sunday Star-Times

Swiss house prices haven’t changed for three decades (inflation included) –  houses are still affordable compared to salaries.

The first part of that sentence is quite correct.    Real house prices (having had various ups and downs) haven’t changed much in 30 years.    But they were eye-wateringly expensive 30 years ago, and they still are today.   At the level of anecdote, I recall doing a course at the Swiss National Bank in 1990 and being told by our guides that prices in the capital Berne were so high that only senior managers at the central bank owned their own houses.

Good statistical data appears to be harder to come by: Switzerland is not, for example, in Demographia’s annual collection of house prices to median income data.   I stumbled across one website that offers data (of what quality I”m not sure) on rents and house prices in all sorts of cities.   Here is what they suggested for price to income ratios in various Swiss cities.

Zurich                                         9.5

Basle                                            9.2

Geneva                                       10.5

Lucerne                                      9.0

Berne                                        12.3

Whole country                       10.4

From what I could see, actual house prices don’t look any more “affordable” than those here (although, of course, interest rates are lower).  And, consistent with that, residential mortgage debt as a share of GDP is materially higher than that in New Zealand, in fact one of the highest ratios anywhere.

Oh, and how about home ownership rates?  Ours have been slipping, something that makes a lot of people uncomfortable (except a few –  economists mostly? –  who seem to have a vision that we’d be somehow better off if even more of us rented).  This chart is a subset of a table I found.  I’m sure not all the numbers are strictly comparable, and they are all for slightly different years, but I think most people will take New Zealand’s poor outcome over Switzerland’s any day.

home ownership

And, of course, none of this New Zealand Initiative material ever mentions the rather considerable advantages of location Switzerland enjoys –  at the heart of one of the wealthiest and most productive regions on earth, in an age when proximity and location seem to matter more than ever.    Or that, when international agencies look at Switzerland, one of the things they highlight most is the need for reforms to lift productivity growth.  The latest OECD report on Switzerland highlighted how relatively poor Switzerland’s productivity growth had been.  The press release for that report was headed “Focus on lifting productivity to guarantee future prosperity”, and part of the text read

The main objective has to be raising productivity, which will remain the key to boosting growth and maintaining a high quality of life and well-being.  The Survey suggests that Switzerland launch a new reform agenda to boost productivity, including renewed efforts to add flexibility to labour and product markets, improve public-sector efficiency, education and the business environment, and boost competition.  Increasing competition in the telecoms and energy sectors, including the privatisation of Swisscom, will be critical.

As I’ve said repeatedly, in many respects it would be nice to enjoy the material living standards the Swiss do, but……they are slipping backwards, and there is little sign that there is anything very systematic about how Switzerland does things that offers positive lessons for us, whether in beginning to reverse our dreadful productivity performance, or reverse our housing market disaster.

The mystery is why the New Zealand Initiative thinks otherwise.

But on a lighter note, I did find something from Switzerland that New Zealand could emulate.    I know Eric Crampton was one of those a bit upset about the loss of the rugby sevens tournament from Wellington.  Well, how about replacing it with office chair racing?  We spotted this on the BBC news the other night, and there is video footage here.  As the New Zealand capital of office workers, what better place than Wellington for a New Zealand leg of this sport.   Bowen Street looks as though it would offer a nice gradient, ending right in front of Parliament perhaps.  Think of the promotional opportunities.   It probably wouldn’t even take $5m of public money to get it going.

 

14 thoughts on “Switzerland as our example – again

  1. Thanks for exposing once again the, shall we say, “muddled” thinking of the New Zealand Initiative which is uncritically trumpeted in the media by friendly journalists. Another public service by this excellent column.

    Like

  2. “The Switzerland of Asia! Singapore’s private banks currently manage about $1.63 trillion, a 22% increase in just the last year. To put that amount in perspective, the total amount of all the wealth in Swiss private accounts is $2.99 trillion. While Singapore is in second place for now, I expect it to overtake Switzerland by 2015 and become the world’s No. 1 private banking center.

    FACT: Credit Suisse recently moved its world private banking headquarters from Zurich to Singapore.

    It sure doesn’t hurt that Singapore is close to India and China, the two fastest-growing economies in Asia. However, the real attraction for investors is that Singapore levies NO TAXES on capital gains!

    Singapore’s privacy laws are also very strict. Divulging private financial information is punishable by a fine of up to $78,000 and a prison sentence of three years.”

    https://www.uncommonwisdomdaily.com/singapore-how-to-profit-from-this-switzerland-of-asia-16928

    “Due to the National Governments increasing awareness and commitment to the international financial industry (and NZ Prime Minister John Key’s – former Merrill Lynch senior executive – expertise in this field) New Zealand has introduced a new regime from April 2011 called the “Look Through Company regime “. The Look-Through Company joins the Foreign Trust, Limited Partnership and Financial Services Provider regime as being an elite group of sophisticated and highly flexible asset protection and wealth acceleration products that are rapidly giving New Zealand the reputation of being the Switzerland of the South Pacific.”

    http://www.escapeartist.com/assetprotection/new-zealand-new-switzerland/

    I think you would have to look at John Key and his background in Singapore for New Zealand’s Financial Services direction.

    Like

  3. Don’t send your CV to NZ Initiative – wouldn’t fancy your chances. But a contrary view is useful.

    Your graph of Real GDP per hour worked rather looks like a graph of how under developed a country was in 1970. Alternatively it reflects an increase in the number of women in paid employment and I’m frequently told how much more productive they are than men. I suspect Slovakia in 1970 was barely recognisable as the country it is today. Where can we find the same graph starting in say 2000.

    ‘Swiss 25-34 year olds have completed tertiary qualifications’ – this may prove my contention that going to university without a few years of work (bring back conscription??) under your belt is an unwise partial time waster. But it depends on what is considered a ‘tertiary qualification’ – for example from yesterday’s Herald front page – lecturers doing the student’s work – are those diplomas included?.

    You assert that the Swiss are conveniently located for their exports. I have vague memories that Switzerland has exceptionally high exports to China ,in excess of the UK’s exports to China. Maybe unimportant if both figures are insignificant but the ability to export to China, Japan, India and the USA is proof of both success and also that location doesn’t matter.

    Like

    • I consciously turned down an approach back when they were setting up, mostly because when all is boiled down, and supporter of a market economy as I am, I’m not a libertarian.

      Re Slovakia, yes they aren’t in the chart from 1970, as there isn’t data. Czechoslovakia tho wasn’t one of the poorest least productive eastern bloc countries by any means, You can see how they have done since 2000 on the second chart – far faster productivity growth than any of the other six countries represented on the chart. Low flat taxes help, location helps, and catch-up helps.

      I haven’t looked at exports to indiv countries, but the ability of places far away to export to China (say) proves nothing. We sell a lot to China (and we are about as distant from them as the UK is). Shipping costs of finished goods aren’t these days usually a very material consideration. What matters is more about factors that determine location of production, and increasingly really high value production (of things not natural resource based) is concentrating in a handful of global regions – cities in northern europe, in the US and periphery (eg value chains that encompass canada and mexico) and east Asia. Location matters a great deal – within countries, and between countries.

      Like

      • You keep saying the same thing about location. And your conviction and the quality of your argument is reluctantly beginning to persuade me. Just give me time and maybe in a month or so there will then be two people in the entire nation believing it.
        It is easier for a politician to push ‘think big – make NZ great again’ than ‘be happy – maybe none of the big bullies will notice us’.

        Like

      • Actually, I think most people who think about the issues at all recognise that location matters. They are often the same people who stress the importance of cities, of Auckland etc. Where there is much more reluctance is to confront the possibility that it matters at the level of countries too. But the OECD – on good days – recognise that; they did modelling a few years ago suggesting that for both NZ and Aus a big part of why GDP pc doesn’t match that in Europe was about distance (we typically have at least as good policies as Belgium, but are quite a bit poorer and less productive). For the OECD, the tension is between believing in distance mattering, and yet also believing (always and everywhere in immigration). The talk is of overcoming distance, but take us to 12m in the next 20 years and we’d still be a tiny dot facing Antartica. It is then an empirical question as to whether those city-based industries can successfully develop and go on here. If it were so, great. So far, decades on, there is no evidence of it happening to any great extent.

        Like

      • It is not about distance. It is about volume. NZ is one of the most competitive business environments due to the numerous multinational companies competing with their products. Clearly all these overseas businesses deliver product to our doorstep very competitively. We are not able to manufacture here because our domestic market is very small. There is no economies of scale.

        In a market of 1 million. I need to sell 1 million products at a net margin of $10 to make $10 million dollars. In a market of 10 million people , I need to sell 10 million products at $1 to make the same $10 million. With that volume they can leverage the supply chain to deliver at a lower cost.

        Therefore it is wrong to suggest distance is the issue because all the best companies from around the world do send their products a long distance to compete in the NZ market.

        Like

      • If you think of Auckland as serving much the same purpose as many of the large cities in the USA then I can see trouble ahead. See https://en.wikipedia.org/wiki/List_of_shrinking_cities_in_the_United_States I was stunned by some of these figures – I lived in the USA for two years about 1980 and did some traveling for work. OK some like Detroit and New Orleans were obvious but as my local council says a ‘big vibrant city’ can only get bigger – well Chicago and Philadelphia were vibrant and had academic and cultural activities. I remember my first flight from the UK to the USA went to Cleveland and it seemed so big and now it is sub-North Shore. It must have some meaning but I’m not sure what.

        Like

  4. remember that the numbers on the list are for a specific local authority area – the inner city. Cleveland MSA (greater cleveland) is still over 2m. for detroit the difference is even more marked – something like 4.5m in the metropolitan statistical area.

    Liked by 1 person

  5. Distance is important ask Pumpkin Patch, Nuplex, Xero Michael Hill, Warehouse and many other coporate names who have ventured offshore. It’s a big tough world out there best we play the games we have the greatest compete advantage in with the highest gross margin and revenue potential this would tend to be agriculture related software and biotechnology. This is where the futures lies these industries produce high gross margin businesses and very high paying jobs everything to like.

    Liked by 1 person

    • In the very unlikely event of my wanting to make money running my own business I would do the opposite of “getgreatstuff” and open it in Port Moresby. OK high risk but big margins and few customers and almost impossible for a competitor to spring a surprise on you. The secret is local knowledge – only employ women and never ever give credit. Not the best place to start a new Samsung but then neither is Auckland.

      Like

    • Not so sure that distance is all that important

      It’s more to do with smarts

      Try Bruce Judge and Ariadne, Allan Hawkins and Equity Corp, Ron Brierly and Industrial Equity

      Then try Fletcher Building who went into Hong Kong and China and failed, then they tried Australia and didn’t do too good there either

      Then there was Fletcher Paper’s venture into Canada
      Fletcher’s overseas ventures eventually killed the outfit

      Apart from Fonterra, nearly every NZ venture overseas founders

      Like

      • Yes an argument could be made our companies are to use to playing ball in the minor leagues and struggle in the global leagues mind you the mulitnationals have huge scale and multi country regulatory knowledge advantages built up overtime which are hard to beat.

        Like

    • It is tough for us to venture offshore because we have a small domestic market which means our cost of production is not able to compete against companies that operate from large domestic markets as their cost of production has economies of scale.

      It is difficult to scale up agriculture as it is limited by the amount of land available. Anyway we have already reached peak milk production volumes. Our land is already stressed with dirty waterways and damaged coastal oceans and decimated fishing stocks from nitrate leaching and nitrate rainfall runoff.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s