That’s a daft question, but it is suggested by what became conventional political wisdom in the aftermath of the financial crisis. Finance was vilified and financial activity widely described as socially useless, a term coined by British regulator Adair Turner. Yet the developed economy that has boomed in post-crisis years is Switzerland, a world financial hub.
Here is Paul Krugman in 2009: “there’s broad agreement – I’m tempted to say, agreement on the part of almost everyone not on the financial industry’s payroll – with Mr. Turner’s assertion that a lot of what Wall Street and the City do is socially useless.” One could find many other quotes to similar effect from Mr. Krugman and hordes of pundits.
This notion of social uselessness harks back to the Marxian idea of unproductive labor. Planners in the old Soviet Union gave short shrift to services, in particular trade and finance. They devoted resources to making things like cement and steel, believed to be the basis of a strong national economy.
The Swiss, notably, have not subscribed to that view. About 20% of their national income comes from the financial industry. The percentage is smaller for gross national product and employment, but still significant—-banking and insurance account for 5% of all employees.
Swiss banks have their problems, of course. But right now the country’s main economic issue is that its currency has gone up too much, making its exports expensive. Seen as a safe haven by investors, the Swiss franc has been on the rise against the euro and other currencies since the crisis. While every other politician and his cousin loudly declaimed against the evils of finance, a long-time financial center quietly continued its business.
Despite the threat to exports from the highly valued franc, a recent survey by the Swiss Institute of Business Research predicts robust growth. The Swiss unemployment rate is enviably low, around 3% compared to 9% in theUnited States. Government debt as a percentage of GDP is also low and has been steady or declining, in contrast to the explosive growth inUS government borrowing.
You may not likeSwitzerland’s neutral stance and generally hands-off approach to the wealthy of the world who move their money to the country. But there’s no question that the Swiss enjoy great affluence and freedom. The relatively large financial sector is one reason – not the only one, certainly – for the affluence. Zurich’s Bahnhofstrasse and Geneva’s financial district are very useful forSwitzerland.
The joke is on those who subscribe to the counter view once put into practice by Soviet planners, with consequences that should be a lesson for everybody but are apparently forgotten by many.
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