Wealth Inequality: the 1:12 Initiative in Switzerland

[isladar]

I'm not familiar with the ins-and-outs of the Swiss political landscape, but this struck me as being really interesting. The Young Socialists party has scheduled a referendum for November 24th to vote on what is being called the 1:12 Initiative. This would couple the highest salaries in a company to the lowest salaries, meaning you could not earn more than 12 times the lowest paid employee, effectively meaning you can't earn more in a month than your lowest paid employee earns in a year.

SWISS REVUE: Major assault on executive remuneration

It is one of the most significant referenda on economic policy in recent history – on 24 November 2013, the Swiss people will vote on the 1:12 initiative proposed by the Young Socialists. This calls for the highest salary to be restricted to twelve times the lowest salary in the same company. Is this an attack on Switzerland’s model for success or an urgently needed top-down redistribution of wealth?
By Jürg Müller

It came as a real bombshell when the referendum result was announced on the afternoon of 3 March 2013. Just under 68 percent of the Swiss people had voted in favour of the fat-cat initiative, effectively declaring that they were no longer willing to accept million-franc salaries and bonuses. Business representatives in particular were deeply shocked, among them the Free Democrat National Councillor Ruedi Noser from Zurich. He painted a gloomy picture of the destruction of Switzerland’s model for success and without further ado established the association “SuccèSuisse”. This aims to protect the liberal economic system.

Noser’s alarmism is not without foundation. Left-wing parties have a whole host of far-reaching salary and tax policy initiatives in the pipeline: the 1:12 initiative from the Young Socialists (Juso) will be put to the vote on 24 November 2013. Further popular initiatives concerning the minimum wage, inheritance tax and flat-rate taxation for wealthy foreigners are also pending. This has not all happened just by chance. What lies behind it is a “strategic counter-project to the neo-liberal discourse”, as Juso puts it. National Councillor Noser describes it in different terms, accusing the left of “unadulterated class warfare”.

Heated debate over distribution of wealth

The two political camps are only in agreement on one point – a fierce debate over the distribution of wealth is taking place in Switzerland in 2013. Arguments are being formulated, underpinned by statistics, which appear diametrically opposed depending on the benchmarks used and the political background. Those on the left point to a constantly widening gap in terms of income and assets, while business federations and conservative parties claim the opposite is true. “By international standards, Switzerland is among the nations with the smallest disparities in prosperity,” indicates the liberal think-tank “Avenir Suisse” in summarising its findings.

The left-wing policy institute “Denknetz” takes a different view, claiming that top earners have reaped greater and greater rewards in recent years at the expense of the lower and middle income brackets. Thirty years ago, the earnings of a CEO were around six times that of the average Swiss salary, while the ratio had grown to 1:13 by the end of the 1990s. In 2007, the best-paid managers received 56 times the average salary. That also comes out top internationally. However, it is not just the top earners but also a broader spectrum of high-wage recipients who have benefitted from this redistribution. “The best-remunerated percentage of employees has seen salaries rise by over a third in real terms since 1994, while the average salary has only increased by around seven percent,” writes “Denknetz”.

The economy as a “self-service store”

SP National Councillor Cédric Wermuth believes that “our economy has turned into a veritable self-service store”. The former Juso leader and intellectual father of the 1:12 initiative estimates that the number of salary millionaires has more than quadrupled since 1997. Today, one percent of the Swiss population possesses greater net assets than the remaining 99 percent put together.

“Avenir Suisse” has a completely different standpoint. It argues that wealth is in fact broadly distributed in Switzerland. The nation is in the top third in terms of income by international comparison while enjoying a very high level of prosperity. And the income gap is not widening, on the contrary: “Disparities in income have actually declined in recent times. The proportion of top salaries is at the level of the 1960s while the poverty rate has fallen slightly,” writes the liberal think-tank in a brochure entitled “Distribution”. If both the level of income and the broad distribution among households are taken into account, Switzerland occupies a top position. “In no other OECD country (and probably no other country in the world) are full-time salaries distributed as equally as in Switzerland.” Patrik Schellenbauer, the author of the “Avenir Suisse” study, even suggests that inequality in Switzerland has decreased over the last three years: “What concerns me is something else – the interventions in the labour market being called for (minimum salary, 1:12) risk biting the hand that feeds us.”

Switzerland on the way to becoming the “North Korea of Europe”?

There is no need to go as far as FDP National Councillor Ruedi Noser, who believes Switzerland will go from being “the most liberal economy in Europe” to the “North Korea of Europe” if the initiative is adopted. However, business representatives are forming a broad front against the popular initiative. Valentin Vogt, President of the Swiss Employers’ Association, estimates that billions of Swiss francs will be lost in tax revenues and social insurance contributions each year in the event of a yes vote. Switzerland has lots of international companies in relation to its size: “If we want to continue playing in this league, we must anticipate salaries of five to eight million Swiss francs,” revealed Vogt in an interview with the “SonntagsZeitung”.

Philipp Müller, President of the FDP-Liberals, also warns that the initiative constitutes “an incursion into economic freedom that is incompatible with our principles” and would have “a detrimental impact on the nation’s standing as a business location”. In contrast, the left-wing “Denknetz” authors Beat Ringger and Hans Baumann see no risk of that happening and believe that Switzerland will remain an attractive location. Tax benefits, well-qualified staff, first-rate academic and research institutions, political stability, legal certainty, state and private services that perform well, excellent transport and communications infrastructure and proximity to the financial markets are the factors that really guarantee a high level of productivity, they say.

Hans-Jürg Fehr, former SP President and National Councillor, believes that fat-cat bonuses and top salaries are no longer based on differences in performance levels but instead on the “power of a small, exclusive network of managers from the financial industry and other multinational groups who are keeping a lid on one another’s sinecures”. This is why performance differentials are no longer given as the reason for the enormous salaries but instead competitive conditions on the international labour market are cited.

Million-franc salaries are commonplace

However, million-franc salaries are not just commonplace at major corporations, even though the public are familiar with the names of just a few fat-cats, such as the former Novartis CEO Daniel Vasella and Brady Dougan, CEO of Credit Suisse. Even “smaller” companies pay their chief executives and managers salaries in excess of a million Swiss francs (see graphic below).

But why 1:12 of all numbers? And not 1:6 or 1:24? Concepts such as social justice, fair distribution and acceptable salary levels are difficult to define. Gerhard Schwarz, Director of “Avenir Suisse”, quite rightly points out: “The crux of the matter is that there are no objective benchmarks for what is excessive or inadequate in terms of income and assets.” However, there are indicators, particularly in a system of direct democracy, as to what extent perceived or actual inequalities will be tolerated by the majority of the population. The approval of the fat-cat initiative in March of this year underlines that distribution is no longer just an issue for those on the left of politics; it is also a concern for people in mainstream society.



The Swiss remain business-friendly

However, Adrian Vatter, Professor and Director of the Institute of Political Science at the University of Berne, does not believe a paradigm shift is occurring. The approval of the fat-cat initiative “cannot be interpreted as an expression of general public criticism of business”, Vatter tells “Swiss Review”. The traditionally rather business-friendly, liberal outlook of the Swiss is not a thing of the past. The fat-cat initiative was in fact not about a state solution but essentially about strengthening shareholder rights. Furthermore, the popular initiative was not submitted by the left but by an individual campaigner from the right-wing, conservative camp, Thomas Minder, who is now Council of States member for Schaffhausen. The traditional left-right split did not therefore come into play. Vatter is “relatively certain” that the old left-right divide will come to the fore again over the 1:12 initiative, with the left supporting the proposal and the conservative majority opposing it. Viewed from this perspective, the Young Socialists’ bill has much less chance of succeeding than the fat-cat initiative.

A quick google has brought up a number of gloomy articles about the likelihood of this being passed, as well as WSJ and Bloomberg and Forbes predictably talking about how minimizing wealth inequality would DESTROY CIVILIZATION AS WE KNOW IT.

This line in particular stood out stood out to me: "Today, one percent of the Swiss population possesses greater net assets than the remaining 99 percent put together." Considering we face extreme wealth inequality in the United States, I think it is at least the start of something good that these questions are being raised.

[AidenCarby]

If only.

[Tajin]

Came in expecting poor schmucks crying about rich schmucks. This is far from it, will be interesting to see what happens if it passes. The amount of rustled jimmies is already over 9000 I figure.

[isladar]

I don't want to start an Occupy Wallstreet derail (oh god let's not let's not), but as much as people want to say that it failed, I think that it succeeded absolutely in bringing questions of social/wealth inequality into the national conversation, which is a HUGE fucking boon. Previous to that, at least in the States, it's been considered sacred to maintain that THERE ARE NO CLASSES, WE ARE A CLASSLESS SOCIETY, and now people are starting to consider the possibility that there are classes, and the people at the bottom are fucked.

[Drex]

if wealth is the issue (and it's only a symptom but I'll accept the premise) then why target income? why all the conflation between wealth and income at all? isn't jacking up income taxes just entrenching the people who already have money?

and I hate to be cynical but this depends heavily on the definition on income

[zoobernut]

Will this hit stock options and bonuses? I feel like CEO's and executives making huge salaries would just find loopholes and ways around this type of thing. It might work though.

[isladar]

@Drex: I can't vouch for the academic quality of that article, so I don't know if they're using (or fuck, if I'm using!) "wealth" or "income" entirely correctly.

@zoobernut: Considering this is referendum is happening in Switzerland, they don't even have to put "swiss" in front of the phrase "bank accounts"

[Ashmada]

This idea floats around from time to time on the continent, it never really gets attempted.
Nice to see the Swiss are willing to give it a shot; I just wish our socialist party had the balls to do the same (socialist PM yet full on austerity measures...)


In anyway, I just can't understand the rich whiners. I hate using that word, but fuck, when you complain about only earning as much as 12 people, that's a fucking temper tantrum.
There has to be a point where you're making so much money you can't even enjoy it all, so why always want more more more while people around you are struggling to make ends meet?

[hey]

I don't really understand this. Why does someone running a small company that hires exclusively highly skilled workers (who get paid a lot) deserve to be paid more than someone runs the exact same company, but also needed to hire a janitor? What sense does it make to then pay that janitor 3x what they could make at literally any other job, just to avoid them dragging down others' max salary?

[Blubbartron]

Janitors and other menial labor generally aren't salaried positions. But even still, those people deserve living wages, and aren't just disposable scum that you should shit on. If the average programmer gets paid twice what a janitor makes, the CEO could still get paid 6x more than the programmer. More than enough disparity to make them feel special.

[Mojo]

Use a cleaning company. No reason a janitor needs to be on salary in the same company. In regards to highly paid CEOs etc. They don't deserve it unless they built the company themselves entirely. Nobody is entitled to ride on the shoulders of their coworkers.

[Ksandra]

I've actually been one to mention this from time to time. I always have hated the distribution on income in companies sometimes.

I am really curious to see if it ends up working.

[isladar]

I just read a biography of Dorothy Day this past weekend so I've been feeling rather extra socialist as of late. But yeah, would be very interesting to see if this gets legs.

Advertisement from those supporting the measure:


Advertisement for those opposing (obviously, corporate industry and finance):

[hey]

Use a cleaning company. No reason a janitor needs to be on salary in the same company. In regards to highly paid CEOs etc. They don't deserve it unless they built the company themselves entirely. Nobody is entitled to ride on the shoulders of their coworkers.

If they can just pay another company to provide workers, what is the point of this?

[Cantih]

Well, if the company providing the janitors/workers has it's own owner/CEO who's paycheck is limited by their worker's pay, the issue persists there as well.

[synistar]

In regards to highly paid CEOs etc. They don't deserve it unless they built the company themselves entirely. Nobody is entitled to ride on the shoulders of their coworkers.

I remember when my company was private. The owner was making bank, and sold the company for nearly $1 billion. But he took care of his employees by holding bling holiday parties, a 3-day cruise to cabo for everyone and their families for the company's 20th anniversary, a 2-night stay at the Disney Grand Californian hotel with a huge private party inside California Adventures for the 25th anniversary for nearly 300 or so families which probably cost him at least a million, and a stupid ridiculous health insurance plan that made Blue Cross employees jealous in addition to other back end benefits and bonuses; all because we kept his dream going when no one in the medical field thought he had a chance to make it.
He wanted to keep the company but his old age was the main factor in selling, not money. Hell, he's probably funneling out a large chunk of his wealth to UCLA for more research grants and to the community at large because what the hell are you going to do with a billion dollars at 85.

Now that my company got bought out and is publicly traded, raises don't even cover inflation anymore, everyone is doubtful on year-end bonuses, health insurance is just like any other insurance, and budgets being cut for more profits. And the CEO is of course making crazy bank, and our division GM is flaunting her money by driving a tricked out Tesla to work.

Private owners tend to take care of their workers, which probably can ignore the 1:12 rule. Publicly traded companies suck when our quarterly meetings is all about maximizing that almighty EBITA percentage while feeding your peons peanuts in terms of salary.

Sorry for the rant, just sharing my experience between private owner and publicly traded CEO. Not all rich owners are evil. Just the ones that are puppets to stockholders that see their employees as resources rather than people.

[Aevis]

Funny to see this poping up here. Anyway, it won't stand a chance. There have been some non-representative surveys recently and less than 30% said yes. From a political parties view, only left-winged Socialist and Green party supporters are mostly behind it and that's still shaky. Been a hot topic here, most of my friends are against it too and no, non of them is a CEO.

The problem with this whole Initiative is, that it's looking at the wrong end. Instead of cutting the top and loosing millions of tax revenue / people just moving abroad, raise the minimum wage. As much as I have to scold the Initiators for another unrealistic approach to an important issue, some of the oppositions reasoning is even worse, like: "We can't just pay football player xy 100k less because of our janitors salary!"

[Kanriel]

I remember when my company was private. The owner was making bank, and sold the company for nearly $1 billion. But he took care of his employees by holding bling holiday parties, a 3-day cruise to cabo for everyone and their families for the company's 20th anniversary, a 2-night stay at the Disney Grand Californian hotel with a huge private party inside California Adventures for the 25th anniversary for nearly 300 or so families which probably cost him at least a million, and a stupid ridiculous health insurance plan that made Blue Cross employees jealous in addition to other back end benefits and bonuses; all because we kept his dream going when no one in the medical field thought he had a chance to make it.
He wanted to keep the company but his old age was the main factor in selling, not money. Hell, he's probably funneling out a large chunk of his wealth to UCLA for more research grants and to the community at large because what the hell are you going to do with a billion dollars at 85.

Now that my company got bought out and is publicly traded, raises don't even cover inflation anymore, everyone is doubtful on year-end bonuses, health insurance is just like any other insurance, and budgets being cut for more profits. And the CEO is of course making crazy bank, and our division GM is flaunting her money by driving a tricked out Tesla to work.

Private owners tend to take care of their workers, which probably can ignore the 1:12 rule. Publicly traded companies suck when our quarterly meetings is all about maximizing that almighty EBITA percentage while feeding your peons peanuts in terms of salary.

Sorry for the rant, just sharing my experience between private owner and publicly traded CEO. Not all rich owners are evil. Just the ones that are puppets to stockholders that see their employees as resources rather than people.

This is my viewpoint almost to a T. The original CEO's are more often than not good people and take care of their people. Once it's just suits in charge...you're just a number to them.

[Churchill]

Sounds more like 70% of the people there don't want it

[Draginhikari]

This is my viewpoint almost to a T. The original CEO's are more often than not good people and take care of their people. Once it's just suits in charge...you're just a number to them.

There is generally a good reason for this, most founders don't get to start at the top of the food chain and do generally have to work with their staff on a more direct level in order to grow a company giving them a different standard then the ones that are generally hired at the top of the chain where they have little or no connection or attachment to anything below themselves.