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The Problems with the “Swiss Model”

The New York Times had a column by “global investor” Ruchir Sharma this weekend in which he touted the Swiss model as being preferable to the Scandinavian model promoted by Bernie Sanders and other progressives. He notes that Switzerland is considerably richer, has a smaller government role in its economy, and still manages to provide health insurance to everyone.

There are a few points worth making about Sharma’s piece. First, one of the big factors that contributed to Switzerland’s wealth is that it shielded the wealth of rich criminals from around the world. Not only did it hide this wealth from tax authorities, it is also allowed drug dealers, gun runners, and corrupt dictators to park their money in a safe haven for themselves and their families. Not every country would want to follow this path to prosperity and in any case there is a limit to the amount of illicit funds to be deposited in such havens.

One of the reasons Sharma is impressed with Switzerland is that, rather than having the government provide health care for its population, it requires its citizens to purchase private insurance. This does lead to universal coverage, although it seems to come at a substantial price. According to the OECD, Switzerland’s health care costs of $7,300 per person are considerably less than the U.S per person cost of $10,600, but 17 percent more than #3 Norway’s costs and almost 40 percent higher than Denmark’s. It’s not clear that our model for reform should be the second most costly system in the world.

The next point is that this treatment of health care is a big factor in the difference between the 50 percent government share of GDP in the Scandinavian countries compared to the one third in Switzerland. Perhaps it makes a big difference to people whether they are mandated to pay premiums to an insurance company as opposed to taxes to the government, but it is not obvious why that would be the case.

This treatment of health care is also relevant to Sharma’s point on relative wealth:

“The typical Swiss family has a net worth around $540,000, twice its Scandinavian peer.”

Middle income families have greater need for wealth in Switzerland, where they have to pay for their health insurance, than in the Scandinavian countries where it is paid for by the government. How much additional wealth is needed would depend on the timing of health care payments over people’s lifetimes.

There is an area where progressives Democrats are looking to Switzerland as a model. The country has a wealth tax on its richest people. Both Senators Warren and Sanders have proposed a comparable tax for the United States.

This article first appeared on Dean Baker’s Beat the Press blog.

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Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

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