August 2007

Switzerland

A Small State between a Liberal and a Coordinated

Market System

August 2007

Thesis:

Switzerland has an Economic System which tends more toward the Liberal Market Anglo-Saxon

Model than towards the Coordinated Market Continental European Model

August 2007

Content:

• Liberal and Coordinated economies

• Labor Market, Welfare State, Performances

• Recent Trends and Conclusion

August 2007

Liberal and Coordinated Economies:

Liberal market Economy (LME):

• Coordination through market

Coordinated market Economy (CME):

• Coordination through formal or informal networks

August 2007

Labor Market: Liberal market Economy

(LME):

• Labor Force unionized to a minor degree

• Weak peak labor and business organizations

• No strong involvement of the state in the bargaining process

Coordinated market economy (CME):

• Labor Force unionized to a high degree

• Strong peak labor and business organizations

• Involvement of the state in the bargaining process

August 2007

Labor Market: Labor Union Density (1985 - 1992) - Source: Hall/Soskice

10%

50%

100%

15%

32% 34% 37%

95%

Ø

57%

Ø

29%

► Tendency towards Liberal Market Economy

August 2007

Welfare State: Liberal market Economy

(LME):

• Only partial developed Welfare state

• Social benefits mainly contributed by private investment

• Decommodification low

•Taxes Low

Coordinated market economy (CME):

• Fully developed Welfare state

• Social benefits mainly contributed by employer or state

• Decommodification medium – high

• Taxes High

August 2007

Welfare State: Decommodification Index (2000) – Source: Scruggs/Allan

10

2016

20

2527

3740

22

30

40

► Tendency towards Liberal Market Economy

August 2007

Welfare State: Tax Burden (2000) - Source: OECD

10%

20%

30,632,2 32,1

5450,1

38,6

30

30%

40%

50%

► Tendency towards Liberal Market Economy

August 2007

Performance: Liberal market Economy

(LME):

• More Globalized economies

• Recent lower unemployment rates

Coordinated market economy (CME):

• Less globalized economies

• Recent higher unemployment rates

August 2007

Performance: Unemployment rate (2004 – March 2007) - Source: OECD

2%

4%

5.4 – 4.8

6%

8%

10%

5.5 – 4.4 4.8 – 5.4 4.5 – 3.7

9.4 - 6.9

7.3 - 6.2

4.6 – 2.7

► Tendency towards Liberal Market Economy

August 2007

1990 – 2004

Total Government Expenditure / per year : + 3,5%

Expenditure Social Welfare / per year: + 5,1%

→ 2004, 52% of government expenditure in favor of social welfare

Recent Trends in Switzerland:

► Tendency towards Coordinated Market Economy

August 2007

1990 – 2005

Development Tax Burden: + 4%

(EU 1,2%, US – 0,5%)

Recent Trends in Switzerland:

► Tendency towards Coordinated Market Economy

August 2007

Recent Trends in Switzerland:

2000 – 2004

Growth rates: 2000: 3,6%

2001: 1%

2002: 0,3%

2003: - 0,2%

2004: 2%

► Tendency towards Coordinated Market Economy

August 2007

Thesis:

Switzerland has an Economic System which tends more toward the Liberal Market Anglo-Saxon

Model than towards the Coordinated Market Continental European Model

however, recent developments indicate a slight turnaround

August 2007

Growth Measures Swiss Federal Council (2005):

1. More competition in the domestic market

2. More integration in the world market

3. Limitation of government expenditures

4. Maintain a high labor force participation rate

5. Maintain a competitive education system

6. Economic law should facilitate economic growth

August 2007

Economie Suisse, Media Conference 2007, http://www.economiesuisse.ch/web/de/PDF% (accessed August 13 2007)

Esping-Andersen Gosta, The Three Worlds of Welfare Capitalism, Cambridge: Polity Press, 1990

Hall, Peter A, David Soskice, Varieties of Capitalism, New York: Oxford University Press, 2001

Katzenstein, Peter J, Small States in World Market, London: Ithaca, 1985.

OECD, Growth figueres, http://stats.oecd.org/WBOS/default.aspx?DatasetCode=CSP6 (accessed August 12 2007)

OECD, Tax Burden 2000, http://www.oecd.org/dataoecd/44/0/1942482.xls (accessed August 12 2007)

OECD, Unemployment Rate 2003 – 2007, http://stats.oecd.org/WBOS/Default.aspx?QueryName=251&QueryType=View (accessed August 12 2007)

Phelps Edmund S, Dynamic Capitalism, New York: Wall Street Journal, Oct 10 2006.

Rosser, J. Barkley, Marina V. Rosser, Comparative Economics in a Transforming World Economy, Cambridge: MIT Press, 2004

Scharpf, Fritz W, Vivien A. Schmidt, Welfare and Work in the Open Economy. From Vulnerability to Competitiveness. Volume 1 Oxford: Oxford University Press, 2000.

Scruggs Lyle A, James P. Allan, Trends in Welfare State Decommodification in Eighteen Advanced Industrial Democracies 1972-2000, Paper for annual meeting of the American Political Schience Association, Philadelphia, PA, August 27/31, 2003, http://www.sp.uconn.edu/~scruggs/apsa03a (accessed August 14 2007)

Switzerland, Federal Council, Das Wachstumspaket des Bundesrates: Stand der Umsetzungen Ende 2005, http://www.seco.admin.ch/themen/00374/00459/00460/index.html?lang=de (accessed August 11 2007)

Wolf Martin, European corporatism needs to embrace market-led change, London: Financial Times, Jan 24 2007

Literature