December 2nd, 2013
10:50 AM ET

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.

More from GPS: When gender inequality is good economics

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.

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Topics: Economy • Inequality • What in the World?

soundoff (156 Responses)
  1. Jeanvaljean

    Good. The 1% should be loaded onto boxcars and shipped out. I need a new lampshade on the end table....

    December 6, 2013 at 10:25 am |
  2. lela

    massive exodus of top talent: hahahahahahahaha

    Wow, they really do take themselves seriously

    December 7, 2013 at 12:02 am |
  3. Sandra

    Where is Pearl Harbor? Haven't heard one word about Dec7,1941. What happened to this Nation? Has the news decided this isn't important anymore?

    December 7, 2013 at 1:24 pm |
  4. Silence DoGood

    Some ideas on tax and wealth reform, for those who are interested. Feedback would be much appreciated. Let us know what you think.

    December 7, 2013 at 6:06 pm |
  5. Mark Bulmer

    There are plenty of examples where communism doesn't work and there are plenty of examples where extreme income inequality doesn't work. At the end of the day you want a country that's healthy and growing. Taxing the wealthy at a greater rate for income over a certain level would not really deter them because at a certain point (10 billion....15 billion) it's not about the money it's about the name and what they created. There should be minimum living standards guaranteed and plenty of opportunity for people to get wealthy.

    December 8, 2013 at 1:17 am |
  6. Austin

    Some clarification is needed here. The article basically says very little except how swell it is to live in Switzerland, and we already know that. Is he endorsing that ridiculous Swiss plan to give everyone "free" money?

    December 8, 2013 at 9:08 am |
    • NameForToday

      Well, did you read the whole article or watch the entire video? It's more focused on a prevalent anxiety about inequality than it is about Switzerland itself. The idea being that: even a pretty equal state like Switzerland, where citizens have it pretty well, is not immune from this growing anxiety. And no, judging by his reaction, i do not think he endorses the idea of giving away "free money".

      December 10, 2013 at 10:10 pm |
  7. krehator

    Don't expect elitists to grow a conscious. The reality is the moral values of people change with money. Make a poor man rich and he will become an elitist too. human nature is a biya7ch.

    December 8, 2013 at 11:40 am |
  8. campbejouc

    coming here to listen as heard part of same on cruise ship. However whenevr anything concerning equity came up the signal went out. Durring commercials signal was good. So bad signal or was cruise line RC editing the feed?

    December 13, 2013 at 2:10 pm |
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