What do I mean by the ballot box? Essentially, majority rule in the political process. Many liberal thinkers have criticized unlimited majority rule, have thought of ways to defend minority rights. And as the great Enlightenment philosopher and native of Lausanne Benjamin Constant brilliantly expressed, “on those issues on which the law must not pronounce, the wish of the majority is no more legitimate than that of the smallest of minorities”.

But the short liberal argument on political democracy is that you cannot eat a piece of paper – the piece of paper being of course the ballot paper. And this is best exemplified in poor countries that are sometimes democracies, the largest of those being India, often called the world’s greatest democracy.

Well, India is a very dramatic example that you can’t eat a piece of paper. According to the World Bank, in democratic India, over two thirds of the population live in absolute or near absolute poverty.

Last month, and that’s where this picture comes from, the democratic Indian government was widely criticized for a scheme to buy votes among the poor ahead of the next elections. What did the democratic government do? It launched the world’s biggest food welfare program ever, to supply subsidized rice to about 810 million people, two thirds of the population, at a cost of about 20 billion U.S. dollars. Why? Because its popularity ratings were falling, especially among the poor.

In poor democratic countries politicians just as often come to the idea of buying votes with welfare as in rich countries, and if they don’t, people actually sell their votes for food, as it regularly happens in African democracies. So my short point here is that political democracy in itself has no value beyond the price of a vote. It is a process for collective decision-making, but it tells us nothing on the quality of the decisions or the quality of those who make the decisions. You can have democracy and be starving.

Individual liberty, the betterment of human lives, and the increase in life expectancy or the standards of living are positively correlated to a different kind of democracy, namely market democracy, where entrepreneurs, investors and consumers vote with their dollars or their francs, what we generally call economic freedom. Not surprisingly, India is one of the most repressed countries economically, ranking 111th from 152 countries in the latest Fraser economic freedom index co-published by the Institut Libéral.

Now, my dramatized statement about democracy in the instance of India might sound surprising in a country like Switzerland, which often prides itself for being the world’s most accomplished democracy. But we are no longer in a medieval debate.

The opposition today is not between democracy and absolute monarchy or single-ruler state, but between the politicization or collectivization of society through the democratic process, in other words democratic socialism, or social democracy, and individual liberty.

Switzerland was not founded as a social democracy, but as a classical liberal republic, or more precisely as a republican confederation of several sovereign territories.

The principles held at the founding of the country against the Habsburgs’ tax tyranny in 1291 were not ballot box democracy, but typical functions of limited government, namely the provision of defense against external aggression, and the administration of justice based on individual property rights and an impartial judiciary. No majority could have outvoted a minority to redistribute funds in their favor on that basis. The Confederal Pact of 1291 explicitly condemns theft, and provides that whoever deprives another confederate of his goods or causes damages to them, will have his goods confiscated by way of compensating the victim. There was no place for a democratic welfare state in that constellation.

The federal Constitution of 1848, in turn, was essentially a classical liberal Constitution strongly limiting government prerogatives. Individual freedoms such as the freedom of commerce and trade, the freedom of movement and establishment and religious freedom strengthened the ideas of the old Confederation.

In fact Switzerland’s liberals deliberately established a system of limited majority rule. The first powerful brake on political democracy was the extreme political fragmentation of the country, as the Constitution gives the sovereign cantons and the autonomous communes all competences that are not explicitly delegated to the central government. The central government has traditionally been weak and technocratic, with seven members elected by Parliament, and a rotating presidency with largely ceremonial roles, which considerably limits government activism. Many Swiss often can’t tell who the current Swiss president is, and couldn’t care less.

Even in today’s democratic welfare state environment, constitutional limits to government expansion remain comparatively robust. For example, federal tax rates and value-added tax rates are constitutionally capped, which does not allow politicians to raise them without the additional double majority of cantons and voters. A constitutional debt brake also places very effective limits on political majorities to spend other people’s money and indulge in discretionary vote-buying.

These limits on majority rule are the reasons why Switzerland today has a relatively favorable debt ratio of 35% of GDP, about three times less than the European average. And the tax burden and government spending, still far too high by our standards, are well over a quarter lower than in most of Europe.

But what can be said, then, about direct democracy, which at first sight would seem the fullest form of majority rule? Well, it is certainly a paradox, but in the Swiss experience direct democracy tends not to lead to more collective decision-making, but to less political power. It is therefore incorrect and superficial in my view to consider direct democracy merely as an extension of political majority rule. It is in fact primarily an additional check on power. It limits the scope of representative democracy and politics in general.

Direct democracy is not a majority rule problem when it gives citizens a veto right on political activity, such as new spending, regulations, or tax increases. It is simply a check on political power.

However, direct democracy can be a problem when it becomes itself a force for more political activity, as is often the case with popular initiatives seeking all kinds of new restrictions and interventions. The approval rate of such initiatives is very low. A recent example is the approval of a nationwide cap on the building of new holiday residences allegedly to preserve the landscape. In such a case, direct democracy clearly amounts to a tyranny of the majority and a violation of the property rights of a minority. In that regard Switzerland also has a majority rule problem with its direct democracy.

On the whole and over time, however, citizens use direct democracy to preserve their individual liberty and economic freedom. For constitutional matters the cantons also have a veto right, which limits political activity, given that small cantons have the same weight as the larger ones. The smallest canton has 35,000 people, the largest 1.4 million, yet they both count the same. This is an additional safeguard against majority rule.

Economic historians also agree that it was Switzerland’s liberal, not democratic institutions that led to its comparatively higher prosperity. In the so-called liberal window of the 1800s, following up on the industrial revolution, a relatively large number of pioneering entrepreneurs, some of whom were immigrants from neighboring countries, founded companies that are still successfully in operation today on a global scale, such as Credit Suisse, Swiss Life, Swiss Re, or Nestlé.

But with subsequent constitutional revisions, this spirit of enterprise was necessarily weakened by centralist and democratic tendencies. I quote the economic historian Joseph Jung from a remarkable book published this year on Switzerland’s economic success: “The pioneer spirit weakened as the new imperatives of democracy made major achievements more difficult.” This in my view is a correct interpretation, and the pioneer spirit has been weakened further with the post-war growth of the welfare state, even if this country still tops many economic freedom or competitiveness rankings.

If political democracy is not relevant for prosperity, the question remains as to the kind of institutional framework that is the most favorable to entrepreneurial flourishing and individual liberty, beyond a liberal political culture. The experience of Europe, as well as that of Switzerland, is very clear in that regard. It is above all political fragmentation, namely the diversity and competition of different legal and tax systems that explains why some countries and continents have been more successful than others.

The great historical example of this truth is of course Europe. The competition between political systems and the absence of centralization after the fall of Rome were decisive factors for the Renaissance, the Enlightenment, the Industrial Revolution and the great prosperity that followed. Europe’s political fragmentation allowed productive individuals to “vote with their feet”, taking their capital with them and moving to friendlier environments. It also allowed political dissent to develop, leading to the emergence of free merchant cities and parliaments, curtailing predatory taxation, and bringing similar progress elsewhere by emulation.

In the words of historian David Landes, “Fragmentation gave rise to competition, and competition favored good care of good subjects.” It is even believed that if “Europe” as a unified political realm had succeeded, Europe would have remained a pre-industrial society.

Unfortunately, the dream of political unity and authority in Europe has persisted to this day. Fragmentation is usually presented as a recipe for conflict, and according to this view, today the European Union and its centralization process are supposed to be the answer to the wars of the past. Yet fragmentation was actually the strongest brake on political oppression; political rivalry to attract good residents and those residents’ right of exit made all the difference in Europe.

As Rosenberg and Birdzell observed in their book “How the West Grew Rich”, “It may be that a prerequisite for sustained economic growth is an economy trading across a geographical area divided among a number of rival states, each too small to dream of imperial wars and too fearful of the economic competition of other states to impose massive exactions on its own economic sphere”.

What led to the wars in Europe in past centuries and especially last century was not fragmentation, but on the contrary, centralization and the dream of European unity. The best illustration of this is of course Germany, whose politics caused so much mayhem on the continent last century. Germany was for a long time one of the most fragmented empires in Europe. From 1648 until the Napoleonic wars, it consisted of some 234 countries, 51 free cities, and about 1,500 independent knighthoods. After the Vienna Congress of 1815, the number of independent political territories still amounted to thirty-nine. Yet politicians continued to push for more centralization and unification.

Goethe warned in very vivid terms against these trends. He wrote: ““Just assume that for centuries only the two capitals of Vienna and Berlin had existed in Germany, or even only a single one. Then, I am wondering, what would have happened to the German culture and the widespread prosperity that goes hand in hand with culture.”

Goethe’s warning against German centralization underlines the error of thinking that Europe today should be unified as a bureaucratic superstate to avoid conflicts. The experience tells us that the opposite is true.

So how does voting with the feet apply to Switzerland? Well, in a very powerful fashion, since it is by far Europe’s most fragmented country, with 26 cantons or half-cantons and 2,500 communes for only about 8 million residents. That’s the reason why I often say that Switzerland is in essence too European to become a member of the European Union, whose centralizing tendencies are a betrayal of the European idea and the conditions that led to Europe’s ascendency.

To sum up, the practical implications of institutional diversity and fragmentation: The most obvious consequence of competition is its beneficial impact on prosperity, since a more favorable environment encourages capital accumulation. This in turn leads to more investment, more jobs and more economic well-being. Diversity and competition enable the implementation of new practices and innovative institutional ideas. The debt brake, for example, was first tried and implemented in several cantons. Eventually the idea reached the central government.

Generally, the closer political decisions are taken, and the easier it is for residents to move to another jurisdiction near their current location, the more public policies will match the residents’ actual needs and preferences. Fragmentation promotes more responsible policies because everybody knows where the mayor lives.

Diversity is also an essential condition for individual liberty. It tends to restrict the predatory potential of the territorial monopoly on the use of coercion that defines government. In the case of so-called public services financed by taxes, where there is no freedom of choice and no inherent incentive to improve the relationship between their cost and their quality, the existence of small, open and competing jurisdictions is often the best guarantee of restricting a government’s capacity to be wasteful and just plain incompetent.

To quote our friend Benjamin Constant again: “For morality, justice, peace, a certain kind of happiness, and all natural affections, small States are preferable to large ones. It is by sacrificing everything to exaggerated ideas of uniformity that large States have become a scourge for humanity. Their size requires an activism and force at the heart of government which is difficult to contain and degenerates into despotism.”

Pierre Bessard (22 aout 2013)

Ceci est la transcription de la conférence présentée  en anglais par Pierre Bessard lors de la réunion "Lausanne 2013 Liberty Conference" organisée par Christian Michel et l'ISIL (International Society for Individual Liberty), avec l'active coopération du Mouvement pour la liberté (association de jeunes libéraux suisses).