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another example of Switzerland's "direct democracy" in action

Kitty Miv, Editor
19 March, 2015

Kitty's Kountry Rankings are below, with a description of how they are kompiled. This week, as every week, I give out Encomiums to countries which have done Good Things, and award Execrations for countries which according to my highly personal and partial views have done Bad Things.

Well, the constitutional situation in the UK just gets all the more confusing, doesn't it? Scottish voters rejected independence in last September's referendum, yet Scotland is to receive more powers over tax and public spending. Effectively, members of the UK Parliament in London no longer have a say over purely Scottish affairs because most of these issues are now decided by the devolved Parliament in Edinburgh. But Scotland can still elect MPs to sit in Westminster, who can vote on matters affecting the whole country. In a highly ironic twist to Britain's devolution saga, the Scottish National Party (SNP) – naturally not satisfied with the pre-referendum bribe of shiny new tax powers – is expected, following May's general election, to have a sizable contingent of MPs in Westminster, mainly at the expense of the opposition Labour Party. And they intend to use this representation to good effect. The SNP has previously promised, in something of a gentleman's agreement, not to vote on issues affecting England and not Scotland. But in a move worthy of Machiavelli, they appear to have at least partially reneged on this pledge because, argues party leader Nicola Sturgeon, the effect of major public sector reforms in England, such as the ongoing and unpopular restructuring of the National Health Service, could creep north of the border, therefore requiring the SNP's input. What's really happening here is the SNP getting ready to flex its new muscles in its, and Scotland's, interests. Once the precedent is set, it is likely that they will vote on other issues not specific to Scotland. Certainly, the SNP could be a real thorn in the side for the next government, forcing concessions out of it in return for support on crucial votes. Almost unbelievably, the SNP could actually be part of the next government, because none of the mainstream parties are expected to win an overall majority. Indeed, it is not beyond the realms of possibility that the SNP could hold the keys to Number 10 come May 8 and end up as power broker in a coalition – most likely with Labour. So from wanting to cut ties with the UK altogether, the SNP could end up helping to govern it. If you can't beat them, join them, I suppose. Still, as interesting as the election plots and sub-plots are, they're not doing Britain's prospects much good, says Sir Martin Sorrell, Chief Executive of WPP. He warned, in the company's preliminary results for 2014, that election uncertainty may "crimp" the UK economy as companies contemplate the referendum on Britain's EU membership promised by the Tories and all the uncertainty that brings, or the prospect of a Labour/SNP Government "bashing business." A "Morton's fork" of a choice, according to Sir Martin.

It was never quite clear whether an independent Scotland would have been permitted to join the EU or not. But now we turn to Greece, a country which can't seem to leave it – the monetary part of it at least – even though in the long term the "Grexit" might be in everyone's best interest, including Greece's – and Germany's long-suffering taxpayers. Whatever happens there is going to be short-term pain. But persisting with the status quo merely locks Greece into a downward recessionary cycle with no sign of light at the end of the tunnel. As far as Germany is concerned, endless austerity is the only option. This is because loosening the bonds of austerity and letting Greece do its own thing sets a dangerous precedent. Spain and Portugal are far from out of the danger zone, and Ireland has some way to go before confidence is fully restored. Italy is a constant worry also. The real elephant in the eurozone room though is France, and the fallout from the eurozone's second-largest economy falling into the same sort of trap doesn't bear thinking about. Not only this, Angela Merkel would hardly relish the prospect of explaining to Germany's taxpayers just why they have been chucking good money after bad year after year. And, of course, cutting Greece adrift from the currency union would be an effective admission of its failure, which the eurozone's leaders seem keen to avoid at all costs. If you're wondering why I'm not talking about tax, it's because where Greece is concerned, there's almost no point anymore. And that is because Syriza's tax plans almost seem insignificant in relation to the more fundamental problems it faces. It's difficult to envisage how they are going to make that much of a difference anyway. Yes, restore personal tax allowances by all means, that will put a little bit of money back into the pocket of working Greeks. And sure, tax the wealthy and their properties and their chattels. A bit of class-driven schadenfreude will certainly make people feel better. But in a country with a population of 10m, how much will these new wealth and property taxes realistically raise? A billion? Probably not even that. Yet another attempt to crack down on tax evasion, especially by the rich, was inevitable, which could bring another billion or so into the coffers. Syriza also has ambitions to slash VAT by 8 percent, which is a laudable idea, but is going to put a serious hole in tax collections unless consumer spending recovers so much that revenues actually go up. Unlikely. Besides the idea is totally unrealistic while the EU still has a say over things. The reality is that tax measures are going to have a limited impact because a quarter of the population are out of work and not paying tax (youth unemployment is 60 percent), and the economy is a third smaller than it was when the crisis began and is still shrinking. Not being a trained economist, I'm not really sure what the answer is to the Greek problem. Then again, Greece is now being run by a bunch of economists and not much has changed. But I do know that something will have to give sooner rather than later.

In an age of increasing voter apathy, of general disenchantment with mealy-mouthed style-over-substance politicians desperately trying to stay on-message, it was refreshing to see another example of Switzerland's "direct democracy" in action when a proposal to replace VAT with an environmental levy was rejected by the people. But can the people be given too much say on issues ranging from the mundane to the fundamental? I suppose it could be argued that democracy Swiss-style is potentially a hindrance to the political process. With Swiss voters able to demand a say at every level, from the federal right down to the communes, of which there are almost 3,000, it sounds like a recipe for legislative paralysis, a system in which proposed laws are endlessly debated and amended and never approved – isn't this what we elect politicians for in the first place? Well, it's true that it does take a long time to pass laws in Switzerland, referendum or no referendum. This is probably because lawmakers know that their actions could be scrutinized by the public, and they are therefore less inclined to take the easy way out and pass bad laws for the sake of political expedience, which often seems the case in some other countries. And this is no bad thing. In actual fact, the people's right to hold a referendum on a particular law is exercised quite sparingly (about 5 percent of the time) and a vote can only take place if 50,000 signatures in support of it are collected within 100 days of the publication of a bill. So it appears that these powers are being used quite sensibly. Direct democracy might subject the legislative framework to some degree of uncertainty, dictated as it is to a large extent by swings in public opinion. Yet, even if this is the case, it certainly hasn't harmed the Swiss economy. Switzerland is successful, prosperous and modern, and sits among the top ten wealthiest economies in terms of per capita income. In fact, you could say Switzerland works because of direct democracy; unlike those in other countries, Swiss politicians aren't given so much license to screw things up.


Kitty's Encomiums and Execrations

Methodology: each week (this is the 147th) one or more countries are given encomiums and one or more are given execrations. Those are the entries below with descriptive links. In the following week, each encomium counts as + 1 for that country, and each execration counts as – 1, being added to that country's existing score. Over time, therefore, a ranking will build up for each country, and further countries will join the listing. Germany is at minus 2, since in the second week it had an execration and in the first week it had an encomium, leaving it at neutral; then it had an execration in week four, thus dropping to – 1, and another one in week six, dropping to – 2; finally in week 13 it got something right, so it went back up to – 1; then in week 16 it gained a further star, so then it was in neutral territory until week 23 when it dropped back to minus one, but reverting to neutral territory in the following week, then dropping to minus one in week 50, and back up to plus one in week 51, then to plus two in week 52. Some weeks ago it dropped a place, but then quickly recovered one step. Etc etc.

The rankings are intended to be a proxy for business friendliness; evidently they are highly partisan, but as time goes by they are becoming useful for decision-making. For any country in negative territory, you should think carefully before starting a business there.

Kitty's Encomiums:

Switzerland people power

And Kitty's Execrations:

United Kingdom fragmenting

Greece last legs



About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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