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.
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).
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.
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.
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.