The Swiss Recipe: Conservative Policies Ain't Enough!

Abstract

The Swiss case Jean-Pierre Danthine and Jean-Christian Lambelet The success of the Swiss economy relies on a blend of conservative policies, cooperative labour relations and a geographically diversified economic structure. The lesson that Switzerland offers other countries is a microeconomic, supply-side one, with little evidence for any particular macroeconomic recipe. Is the Swiss experience really an economic success? In terms of growth, the Swiss record may look poor but inflation is very low. The unemployment rate is, and has always been, at very low levels, but there was a massive reduction of the foreign labour force in the early 1970s. While the ‘guest-worker story’ is part of the explanation, there is much more to it. Three key factors characterize Switzerland. First, macroeconomic policies are not actively used. Fiscal policy focuses more on balancing the budget than on counteracting business cycles. Monetary policy is preoccupied with a stable growth path for its chosen target, although short-run policy is pragmatic rather than rigid. Second, the labour market is best described as a vast number of bilateral monopolies, mostly at the firm level. Bargaining is therefore cooperative, and this is reinforced by the legal threat of binding arbitration. Finally, the industrial structure is geographically well diversified. This makes job search and mobility relatively costless. It also means that local or regional pressures for subsidies or macroeconomic support are weak, with little temptation to deviate from the principle of non-intervention.