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Squeezed and angry: how to fix the middle class crisis – a look at Switzerland

One of the topics at this year’s World Economic Forum in Davos is: Squeezed and angry: how to fix the middle class crisis. As a precursor, the WEF published the 135 page  Inclusive Growth and Development Report 2017, which ranks Switzerland 3rd behind Norway and Luxembourg on inclusion, out of a group of 30 advanced economies. In addition, unlike Luxembourg, which is headed slowly backwards, both Switzerland and Norway are moving towards higher inclusion.

Switzerland lands in 5th place for education, scoring highly on quality and access but averagely for how evenly education is enjoyed. Why high quality and widespread access don’t translate to more evenly shared education, is not explained. Switzerland’s often cited strength in vocational education is mentioned.

Switzerland’s universally accessible infrastructure, both health and digital, place it 1st on this inclusion measure.

The next measure looks at corruption and rents. Rent refers to situations where certain business owners have a unfair advantage, often political, which enables them to extract an oversized share of wealth. Switzerland ranks 7th on both ethics and rents.

On employment inclusion and equality, Switzerland ranks 12th, ranking 5th on employment and 15th on pay.

Switzerland’s high aggregate score does masks a few weaknesses, however.

Figure 2 Inclusive Growth and Development Key Performance Indicators

The graph shows main criteria - Click to enlarge

While Switzerland comes 9th on financial system inclusion, the detail contains the country’s worst score. Switzerland ranks in the bottom half of nations for small business funding. Related to this Switzerland barely makes it to middle ground on small business ownership, a measure of entrepreneurship. Common advice to entrepreneurs in the UK is to never sign a personal guarantee1. If business failure means losing your house, your business judgement will be undermined, runs the the logic. In Switzerland, loans requiring personal guarantees are commonly proposed as a way to fund startups. Another difference is startup tax incentives. The UK offers startup investors tax breaks. Switzerland offers none, while imposing wealth taxes on entrepreneurs based on theoretical startup company values. Cash-strapped entrepreneurs sometimes struggle to pay these taxes.

Finally, on evening things up via tax and benefits, Switzerland ranks 6th, scoring better on social protection (8th) than taxation (11th). By comparison, the US is ranked 25th, or 6th from the bottom on social protection.

The report recommends Switzerland boost entrepreneurship by improving access to finance for small companies, address high concentrations of wealth, and increase the talent pool by making child care more affordable.

Figure 3 Inclusive Development Index (IDI) Top Performers

Switzerland is ranked on place 3 - Click to enlarge

 

 

 

More on this:
The Inclusive Growth and Development Report 2017 (in English)
1 A personal guarantee means the lender can seize your personal assets if the company they lent the money to goes under.

 

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Investec is a distinctive Specialist Bank and Asset Manager. We provide a diverse range of financial products and services to a niche client base in three principal markets, the United Kingdom, South Africa and Australia, as well as certain other geographies. Investec’s strategic goals are motivated by the desire to develop an efficient and integrated business on an international scale through the active pursuit of clearly established core competencies in the group’s principal business areas.
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