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The Economic View from the Alps

LONDON – I recently took a trip to Switzerland – a remarkable country that I have been fortunate to visit many times over the past 40 years. In addition to having a good time, I found a Swiss perspective useful to reflect on the state of the world and its economic vitality.

Aside from its wealth – or perhaps because of it – Switzerland has always struck me as a happy country. While spending some time in Zurich in 1994, I first experienced the joy of swimming in the city’s river and lake. And nowadays, it is common to see people doing this in many other urban areas, including Basel, where contented souls enjoy the mighty Rhine.

I recently overheard two Swiss speakers teasing each other about whether the swimming is better in Zurich, Basel, or the capital, Bern, with its fast-flowing white waters. Where else in the developed world can one enjoy such accessible pleasures? I used to find it amusing that so many Germans regard Switzerland as their ideal country; as I have grown older, I have come to understand what they mean.

Another reason to admire Switzerland is its astonishing railway system, which crisscrosses every nook and cranny of the country. On this occasion, we traveled by train to the Bernese Highlands (Berner Oberland), just as I had done nearly 40 years ago. As we made our precisely timed connections with ease, I wondered why so many other Western governments have deemed the public sector to be incapable of running an efficient railway system. The Swiss system is a testament to how public expenditures and administration can benefit all of a country’s citizens.

As someone who was deeply involved in the British government’s “northern powerhouse” project, I take the Swiss example to heart. It further bolsters my belief that the United Kingdom should make state-of-the-art railways a priority, especially in the north, to connect Manchester, Leeds, Liverpool, Sheffield, Newcastle, and their surrounding areas.

Of course, in other ways, Swiss and British economic experience is nothing alike. In recent years, the Swiss franc has appreciated significantly against almost every other currency. For Britons, there are better ways to pass the time than to calculate the pittance that a pound now buys in Switzerland, and I was not surprised to see so few others on my trip.

I did, however, see plenty of visitors from Asian countries at some of the Alps’ most beautiful sites. This reminded me of my very first trip to Switzerland, as a student traveling on an Interrail card, when I saw Japanese tourists lined up to board the mountain train at Kleine Scheidegg. They were making the exciting climb up to the Jungfrau and the highest mountain station in Europe, and I seem to remember that they had their own carriage, perhaps to aid with translation.

Back then, Japan was supposedly about to overtake the United States to become the world’s largest economy. But within a decade, its asset-price bubble had burst, and its economy had essentially flat-lined in nominal terms. These days, it is China that will supposedly overtake the US; and, as it happens, that same Kleine Scheidegg station platform now has a carriage reserved for Chinese tourists.

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And yet there are still plenty of Japanese tourists in Switzerland, too; and in Grindelwald, one of the Bernese Highlands’s many picturesque villages, there is even a Japanese-language information center. This reveals a less-appreciated side of the Japanese economic story. Adjusting for Japan’s declining workforce shows that in terms of per capita GDP, Japan has actually performed just as well as many other advanced economies in recent years.

Moreover, recent data indicate that Japan may be embarking on a strong, domestically driven economic expansion. In the second quarter of this year, its growth rate was among the best in the G7. Given these trends, I suspect that Switzerland will continue to host plenty of Japanese tourists in the coming years.

And if China, with its population of 1.4 billion people, maintains its economic trajectory of the last 20 years, the Swiss will probably have to build a new, much larger station at Kleine Scheidegg. Of course, China could also fall short of its aspirations, as its persistently bearish skeptics have predicted. But while in Switzerland, I couldn’t help but think that the constant talk of China exaggerating its official economic data has become a farce. To appreciate China’s rise, one need only look at all the Chinese tourists in the Bernese Highlands and many other places.

To be sure, the Chinese economic miracle will end at some point. But that time has not yet come. On the contrary, my trip provided ample anecdotal evidence in support of the data showing a strong global recovery in 2017. That recovery is real, and it will most likely continue to broaden and include more countries – at least for now.

Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK Treasury Minister, is Honorary Professor of Economics at Manchester University and former Chairman of the British government’s Review on Antimicrobial Resistance.

By Jim O’Neill

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