How not to solve inequality

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By Global Public Square staff

If there's one country in the world that looks like a utopia, its name must be Switzerland. This is a country that has it all. The average income is $82,000 a year – 65 percent more than the average American income. Everyone has great healthcare, childcare, and education. The unemployment rate is 3 percent. There is almost no corruption. According to the OECD, of 34 developed countries surveyed, the Swiss have the greatest degree of trust in their government. And, of course, it is a spectacular country with great traditions of skiing, cheese, chocolate, and wine.

What could possibly go wrong? Well, quite a lot, actually.

The Swiss are furious about income inequality. The story is a familiar one. According to Reuters, in 1984 top earners in Swiss firms made 6 times as much as the bottom earners. Today, they make 43-times what bottom earners make. At some banks and firms, CEOs make 200-times the salary of the lowest-paid employee.

Now, before you assume things about Europe and European attitudes towards capitalism, remember that Switzerland is one of the most business-friendly countries in the world. The conservative Heritage Foundation has an "Index of Economic Freedom." Switzerland ranks 5th in the world, well ahead of the United States of America.

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But in the aftermath of the financial crisis, the Swiss have become far more concerned about the nature of today's free market system. So, some Swiss political groups came up with a plan. It's called the 1 is to 12 initiative. The highest-paid company executive should make a maximum of 12 times what the lowest-paid employee makes. In other words, no one should earn more in one month than someone else makes in a year.

The proposal was put to a national referendum last week. It would have been disastrous if it passed. Thankfully, better sense prevailed.

You see, it's a worthy notion to tackle income inequality. But by capping CEO salaries or those of senior executives to a fraction of what the market sets, you could be sure of a massive exodus of top talent, and indeed top companies. According to the World Economic Forum, Switzerland ranks 1st in the world for attracting workers, and 3rd for retaining them. Those rankings obviously would have plummeted. Right or wrong, top earners would have moved somewhere else or companies would have played legal games.

This was only the latest referendum. In March, a majority of Swiss voted to end what we call "golden-handshakes" for top business leaders. In other words, no more giant exit packages for CEOs. Another vote is in the works: the Swiss are debating a proposal to give every citizen a minimum cash stipend of $2,800 a month…for doing nothing at all. Basically, free money that arrives in your checking account every 30 days.

All of these proposals – in capitalist and business friendly Switzerland no less – reveal a larger, global anxiety about inequality. No country is immune, not even Switzerland, which is actually more equal as a society than many European countries and of course much more equal than the United States. In fact, one reason why these votes are taking place is because Swiss law enshrines people power through referenda.

There is an important lesson for all of us to learn from the Swiss example. We, as societies, need to deal with concerns about income inequality. If we don't come up with a sensible solution, or a series of sensible solutions, then it is only a matter of time before populism and demagoguery take over…with phony solutions that will only makes things worse. And at that point, any sensible measure will seem too little too late.