The price of market protection.

Author:Constable, Lynne
Position:ECONOMY
 
FREE EXCERPT

Switzerland's reputation as the land of protected market sectors, subsidies and cartels goes back a long way. During a tour of Europe in 1912, Lenin noted: "Peasant dairy cartels are best of all organised in Switzerland--and the price of milk is the highest of all ... the power of these cartels being greatest of all. The general consumers' association finds its hands completely bound in [the] face of the price policy of the producers' cartel."

This perception of the country is hard to erase, especially among expats, many of whom believe they live in one of the most expensive countries on earth. But is it a fair assessment? According to an AC Nielsen Euro-Barometer study conducted in 2005, yes it is. The survey showed Switzerland is one of the most expensive countries in Europe, after Norway, Denmark and Finland, with particularly high prices for food, including meat, cooking oil, fish and vegetables.

The Swiss economy is well integrated with the rest of the world; it has an open trade regime for industrial products, and tariffs on manufactured goods are generally low. But a number of sectors suffer from informal barriers that can be attributed to a history of weak anti-cartel legislation, technical regulations, investment restrictions and intellectual property legislation.

As the International Monetary Fund (IMF) noted in 2004, protected market sectors and poorly performing domestic markets hinder economic growth, and also keep prices and operating costs high in the economy as a whole.

Farm and food subsidies

The cost of food--particularly meat--and lack of choice in the supermarket are perhaps the first impressions a newcomer gains of Switzerland. However, it is hard to overestimate the importance of agriculture in Swiss life: even though it plays a relatively small part in the economy, its role is enshrined in the country's constitution. It exists not only to produce food, but also to preserve the countryside and ensure very rural regions remain inhabited.

Swiss farmers are among the most highly protected and subsidised groups of producers in the world--some receive support equivalent to almost 70 per cent of the value of production. High import tariffs--ranging from 28.6 per cent to 36 per cent--plus the extensive subsidies, encourage domestic production. Currently, the country produces about 65 per cent of its food requirements.

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Without any import tariffs, the price of food would settle to that of the cheapest...

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