The growth of Switzerland's welfare state

Switzerland is one of the wealthiest countries in the world, despite having few or no natural resources to rely upon. Over the last 20 years, however, the country's economic performance has been slipping in relative terms, says Victoria Curzon Price, Professor of Economics at the University of Geneva.

Real growth of the economy has been 1.3 percent per year on average (per capita growth has been about half that), while other developed nations have managed to grow about 20 percent faster.

Government absorbed most of the real growth in the economy; as a result, ordinary people have received no gain in personal income for at least a decade.

The impetus for this change has been the creation of an extensive welfare state, over-burdensome regulation and high taxes, says Price. For example:

Social Security contributions as a percent of total taxation has risen from 29 percent in 1975 to 34 percent in 2000.

Taxes as a share of gross domestic product (GDP) have grown faster in Switzerland than anywhere else in the developed world, rising from 22 percent in 1980 to 36 percent of GDP in 2000.

Switzerland's transformation was predicted by economist Mancur Olson two decades ago, when he argued that long periods of economic prosperity will lead individuals to form institutionalised groups in order to lobby the state to redistribute wealth in their favour. He says redistribution soon takes precedence over production and entrenched interests groups become all but impossible to dislodge.

Source: Victoria Curzon Price, Switzerland: Growth of Government, Growth of Centralisation, Journal of the Institute of Economic Affairs, June 2004.

For more on Welfare in Other Countrieshttp://www.ncpa.org/iss/wel/

FMF Policy Bulletin/19 October 2004