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How EU and Swiss Socialism Made Immigrants a Political Problem

Politics / Immigration Mar 10, 2014 - 05:49 PM GMT

By: Frank_Hollenbeck


The Nationalistic Swiss people’s party recently succeeded in a referendum to limit Swiss immigration. The party blamed immigrants for a general lowering of incomes and for “stealing” jobs that otherwise would have gone to Swiss citizens. They also blame immigrants for a host of other minor problems such as unaffordable housing and traffic bottlenecks. The vote stipulates that Switzerland has to renegotiate its bilateral agreement with the EU on the free movement of people within three years, or revoke it altogether.

The EU’s reaction to the Swiss vote was quick. It suspended talks with Switzerland over its participation in EU Horizon’s 80 billion-dollar research and Erasmus education programs. It also informed more sanctions were likely and that the current bilateral agreement between the EU and Switzerland did not allow for selective choices in the movement of labor.

The EU’s heedless response to the Swiss vote shows that EU politicians are blind to the implications of the Swiss vote which, in reality, reflects the tip of the political iceberg.

In Switzerland we have a country with high living standards, and a very low (4.1%) unemployment rate. Yet, the majority voted to oust immigrants. We can only expect similar backlashes to be much worse in countries such as Greece and Spain where unemployment rates are at depression levels and youth unemployment is over 50%. France’s anti -immigration party, the National Front, has been doing well in local elections and is positioned to play a leading role in the near future. Unfortunately, the party’s economic platform is for even more centralized control, trade barriers, and extensive crony capitalistic protectionism.

It is unfortunate that European socialism has led to these anti-immigrant sentiments. Many of these anti-immigrant positions, after all, are based on falsehoods underlying popular misconceptions.

The first misconception is that we have a fixed amount of available jobs. If we did, then the largest populations would have the highest unemployment rates. A simple example will make this clear. Suppose we have 100 people producing 100 things. What will happen to unemployment if we add 100 people to this community? Will the new people be unemployed? Of course not, the 100 new individuals produce and consume. The new entrants will allow the community to produce and consume much more than 200 things because of gains from the specialization of labor.

Growth in an economy comes from two main sources. The first is from an increase in the capital base which increases the marginal productivity of labor. The second is from the gains from the division of labor. The addition of 100 people allowed a general increase in the standard of living of all the individuals in the community. Immigration into Switzerland has increased, not decreased, the standard of living of the average Swiss citizen. It leads to higher, not lower, real wages for all. Immigrants have allowed the average Swiss citizen to reap the gains from specialization along the lines of comparative advantage. What is true for trade between nations (both gain) is also true for trade between individuals. What would be the status of the highly successful Swiss pharmaceutical industry without the 45% non-Swiss employees that make up the industry, most of which are highly qualified scientists?

The second misconception is that immigrants are responsible for unaffordable housing. By fixing its currency at 1.2 Swiss francs to the Euro, the Swiss central bank gave up control of its money supply. Since 2007, the money supply (M1) has increased over 100%. This has led to a housing bubble and a general increase in rental costs. Furthermore, land use laws and other building impediments have created the same shortage of available housing as in France.

What about traffic congestion? Of course, it is the public and not the private sector that is responsible for the building of roads and the organization of traffic flow. The Swiss voters seem to forget that immigrants also pay taxes that are used to build traffic infrastructure.

The Swiss vote will have a greater impact on the Swiss economy than many commentators realize. Switzerland is highly dependent on a host of Multinational corporations. These corporations rarely hesitate to change their structure to be more competitive. Caterpillar established its European Headquarters in Geneva primarily because of the sweetheart corporate tax deal it negotiated with the Swiss government. This tax deal justified the significantly higher salaries Caterpillar pays its Swiss employees. It makes little sense for Caterpillar to stay in Geneva if it is limited in, or uncertain about, the number of foreigners it can hire. Caterpillar can easily move its headquarters to a European Union country that allows the free flow of labor and capital, especially if it can negotiate another judicious corporate tax deal from governments (e.g., Spain or Portugal) desperate for foreign investment.

The Swiss vote shows us that a storm is brewing, and Europe’s autocrats seem to be totally ignorant of the massive need to restructure its cradle to grave socialist model. The Greek government, for example, has clearly shown it would rather see its populace sink into poverty (44%), its nation declassified from developed to developing, and its suicide rate hit record levels, than be forced to implement serious market oriented structural reforms.

Benjamin Franklin once said “Democracy is two wolves and a lamb voting on what to have for lunch,” and the implications of this are very important in where most either work for the government or depend on the government for their livelihood. Of course, none of this would have been possible if governments could not print money so freely. Direct taxation would have made it clear to the voting population that there is no free lunch.

Swiss socialism and ties to the Euro have taken their toll on the Swiss economy, and many immigrants will pay the price. Things are likely to get much worse in the rest of Europe before they get better. (video)

Frank Hollenbeck, PhD, teaches at the International University of Geneva. See Frank Hollenbeck's article archives.

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© 2014 Copyright Frank Hollenbeck - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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