Wealthy country with stable democracy; flexible labor market with high employment rates
In the current assessment period, governance in Switzerland has sustained considerable continuity with recent SGI assessments. By implication, the country’s strengths and shortcomings have fundamentally remained unchanged. These strengths include a stable and robust democracy, the efficient rule of law, an excellent system of public education and research, and a competent system of public transportation. The country has high levels of GDP per capita (one of the highest in the OECD) and accumulated wealth, and the natural environment remains ecologically sound. Social and economic policies are pragmatic, solution-oriented and heterodox. In general, compared with citizens in other OECD countries, Swiss citizens support national democracy, show high levels of trust in their government and parliament and are very satisfied with their life and how national democratic and economic institutions operate. The Swiss government can be commended for maintaining a highly competitive economy, sustainable fiscal position, comparatively sustainable and generous welfare state, and moderate and stagnant income inequality. The flexible labor market has maintained full employment, with high employment rates for both men and women. Youth and long-term unemployment remain very low. These outcomes have resulted in an absence of deep social divisions and marginalization (among Swiss citizens).
Notwithstanding these successes, shortcomings and challenges have persisted (see also “Key Challenges”):
Relationship with EU still unclarified; delaying EU issue until after elections
(1) Most dramatic in this regard are developments in the relationship with the European Union. With 52% of exports going to and 70% of imports coming from the EU (2018) as well as a strong inflow of highly qualified labor from the EU, Switzerland is far more dependent on the EU than the EU is on Switzerland. This relationship is based on bilateral treaties, many of which are conditional on each other. Since 2008, the EU has requested an institutional framework agreement. Such an agreement would allow for a smooth revision of existing treaties and court-based adjudication of conflicts between the two trade partners. By the end of 2018, a draft of an agreement was produced by the chief negotiators. However, it became immediately clear that this draft would meet with opposition from the populist right party as a matter of principle as well as from the left – in particular the trade unions – who fear the liberalizing effect of the EU and its Court of Justice, as well as some other actors who feared the abolishment of state aid to cantonal institutions such as cantonal banks. The government responded by procrastinating and muddled through efforts to build sufficient majorities, which has proven thus far to be in vain. Given the basic attitudes of Swiss citizens toward European integration, most politicians can only lose in terms of support and votes if they take a clear position on European issues. Therefore, little discussion took place in the run-up to the general election in October 2019. Furthermore, most politicians decided to not complicate things further and wait for the outcome of the referendum scheduled for May 2020 on whether to limit the movement of EU citizens into Switzerland and thus effectively terminate a major bilateral agreement with the EU (on which Switzerland is economically dependent). However, the EU, which is grappling with internal problems and centrifugal developments is not willing to accommodate the Swiss desire for renegotiations and has already introduced some penalties. Thus, in order to get Swiss trade unions on board with the draft agreement, they will likely require generous compensation. Meanwhile, the Swiss economy will suffer serious damage as a result of halted negotiations with the EU on various points, including an agreement on integration into the European electricity market or on technical standards for medical products.
Consensus-based political system weakening
(2) Closely connected to the issue of Europeanization (and globalization) is the polarization of Swiss politics and the concomitant weakening of the system of consensus democracy and social partnership. This applies not only to institutional and behavioral indicators of consensus democracy, but also to deep-seated cultural patterns and indispensable elements of elite socialization of the past, such as the willingness to compromise and interact respectfully with political opponents. The political system of Switzerland is converging toward the continental pattern of non-majoritarian politics. The results of the recent general election of October 2019 suggest a shift in power toward environmental parties, a major loss for the strongest party (in terms of votes) of the country, the right-wing populist Swiss People’s party as well as a considerable loss of votes for the second major party, the Social Democrats. The results of this general election might be interpreted as marking the limits of right-wing populists’ power and polarization. It may also indicate that environmental issues have become relevant topics in political discourse.
Shortcomings in direct-democracy system
(3) As in previous years, the system of direct democracy succeeds in giving citizens the feeling that they have a say in government policies. This system is one of the major reasons why Swiss citizens are far more satisfied with the way democracy works in their country than their European neighbors. The system of direct democracy, however, also demonstrates serious shortcomings. Among them is the likelihood that voters approve constitutional amendments which cannot be implemented on legal or economic grounds.
Pragmatic deal to save foreign-firm tax arrangements
(4) In the past, Swiss cantons have offered generous tax deals to foreign firms who are located in Switzerland but do most of their business abroad. This has provoked criticism from the OECD and EU. The first reform proposal to address these criticisms without frightening these foreign companies that contribute substantially to the public revenues of local and canton authorities, has failed. Following this initial failure, the federal government has been very successful in designing a solution that allows for the acceptance of crucial parts of the first attempt at tax reform, but includes items pursued by parties on the left in the area of pension policy. This was an extremely pragmatic strategy that combined policy fields with concessions that have nothing to do with each other. The case demonstrates the ability to govern, albeit at the cost of any clear policy doctrine apart from muddling through and crafting majorities.
Pension-reform ambitions scaled back
(5) Although the welfare state is sustainable and generous, the pension system must cope with demographic challenges. While increasing the age of retirement beyond 65 is unachievable given the constraints imposed by direct democracy, there were possibilities for reforming the three-pillar pension system (basic pension, occupational pension and tax-deductible savings for retirement). After a major reform was rejected in a popular vote in September 2017, legislators drafted a policy package that combines tax – requested by the EU (see above) – and pension reforms that are much less encompassing than the previous reform. Likewise, employers and trade unions have found a compromise (for which a majority in parliament still needs to be achieved) that mitigates immediate problems in the second (and most important) pillar of pensions. However, this is a short-term solution which also arguably shift costs to future generations.
can be overcome
can be overcome
(6) Despite the considerable continued successes of agricultural interests, which represent only 3% of the labor force, the power of vested economic interests remains limited, as demonstrated by a summer 2018 conflict. The arms industry pressured the government to facilitate arms exports to countries with internal violent conflicts. Pragmatically, the government argued that Switzerland needs a strong arms industry for the Swiss military and thus a diverse market for the industry. While the first chamber of the parliament did not oppose this ethically problematic argument, the other house and civil society opposed the effort and the project failed. In summer 2019, the required number of signatures were collected for a popular vote on a constitutional article banning the export of weapons to countries that systematically and seriously violate human rights. Strong support for this initiative was expressed during the signature-collecting phase.
Popular support for
(7) Projects supporting ecological and humanitarian concerns are currently strongly supported by the population. An initiative demands a constitutional amendment on the responsibility of Swiss firms for violation of humanitarian or ecological norms in foreign countries. At the time of writing, parliament is debating how to react to this initiative, which will be otherwise decided upon in a popular vote. In November 2019, sufficient signatures had been collected for an initiative regarding a constitutional amendment requiring a dramatic decrease of CO2-emmissions and a ban on fossil fuels (with some minor exceptions) by 2050. These developments, together with the results of the recent general election, point to the increasing salience and acceptance of ecological and humanitarian projects in Swiss politics.