One government that’s doing a lot of things right

June 3, 2010
Washington, DC

As a permanent traveler with no fixed home, I’m fortunate to be largely insulated from the incompetence and negative consequences of most governments. Through the proper use of internationalization techniques, I’m able to reduce my tax burdens, increase my privacy, protect my assets, take advantage of more opportunities, and substantially reduce my exposure to thieving bureaucrats.

Consequently, I generally try to avoid complaining too much about governments in this letter (though I don’t always succeed). I’d say it’s a given that just about every government is perversely inefficient… we all know it, so there’s need to waste time speaking out about it. Internationalization is a much more powerful statement.

Today, though, I thought I’d take a different approach and highlight a government that is doing a lot of things right.

Switzerland is one example, and it should come as no surprise. At a time when other governments are keen to pillage and plunder their citizens and private industries through increased taxes, Switzerland is actually cutting taxes in order to attract businesses.

They’re able to do this because of the way the system in Switzerland is designed– flat, simple, and as efficient as possible. Real political power and decision making in Switzerland occurs at the local level because each of the 26 cantons (like provinces or states) is effectively sovereign and autonomous.

To put it more clearly, an individual canton like Schaffhausen (population 76,000) has the constitutional authority to negotiate its own trade relations, set tax rates, and anything else that is not specifically reserved for the Swiss federal government.

Sound familiar?

With this authority, Swiss cantons are competing with each other, cutting their tax rates in order to attract companies and wealthy individuals. The end result is more jobs in Switzerland, more capital deployed within the country, and greater economic prosperity for everyone.

Meanwhile, western European governments are busy cannibalizing their domestic industries with high tax rates (like the Portuguese ‘crisis tax’) and unpopular austerity packages. Even Australia has quite disappointingly passed a special tax on resource companies, singling out its most profitable industry for income redistribution.

It appears that they could all take a page from Switzerland’s book.

You might think I’m crazy for lauding the Swiss government at a time when their banking privacy is in critical condition. It’s true, the federal parliament is backing a deal to disclose the names and transaction details of 4,450 UBS clients to US tax authorities.

They originally agreed to the deal in August 2009, though a Swiss court blocked the entire process in January 2010 on the grounds that it would violate Swiss law. Now it appears that the deal is once again going forward… except for one hitch.

Built into the Swiss system is a direct democracy platform that provides a mechanism for both cantons and private citizens to reverse parliamentary decisions.

If a group of citizens can gather 50,000 signatures against a law, a national vote must be scheduled whereby a simple majority determines if the law in dispute will stand or be overturned.

Thus, while the Swiss parliament will likely vote to approve the transfer of banking information to US authorities, it is even more likely that the vote will be called to referendum. The Swiss Bankers Association alone has over 1/3 of the necessary signatures to call for a referendum.

As Churchill once said, ‘democracy is the worst form of government, except for all the others…’ Yet as democracies go, one could argue that Switzerland is one of the best.

Power is concentrated at the lowest, least bureaucratic level possible, and responsible citizens have multiple mechanisms to countermand any idiotic decisions made by their politicians. Even for a self-avowed anarchist like me, I can live with that.

It is precisely this flatness and efficiency that makes the free market work so well in Switzerland, and why the economic downturn has mostly bypassed the country.

Going forward, I’m convinced that it will be these small governments that thrive while the old, established, mammoth governments collapse under their own weight. That puts places like Switzerland high up on the list of places to consider for residency and eventual citizenship.

More to follow on this topic.

About the author

James Hickman (aka Simon Black) is an international investor, entrepreneur, and founder of Sovereign Man. His free daily e-letter Notes from the Field is about using the experiences from his life and travels to help you achieve more freedom, make more money, keep more of it, and protect it all from bankrupt governments.

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