In memory of Dr. Andreas Höfert

Still the worst form of government except all the others

Crises usually challenge existing institutions. The financial crisis of 2007/2008 is no exception; its repercussions are still being felt. Many pundits are currently stressing the weakness of democratic governments in challenging times.

A strategist colleague at a large US bank did so recently in his daily commentary, addressing the worsening situations in Spain and Italy:

It is not that political leaders lack good intentions. Rather, the concern is that voters will annihilate, through the democratic process, any politician who dares to eliminate subsidies. This situation is a recipe for long-term stagnation because those who pay for the subsidies (i.e., the productive) are the ones who in fact will be annihilated. That is how it goes in democracies. The minority is always violated by the majority. Of course, this is not a uniquely European disease.

I sent him an e-mail, asking whether his objectivist view à la Ayn Rand would imply that a “benevolent dictatorship” would be the better government system. He eluded my question by talking about the need for “real reforms,” which would imply tough decisions, and that “ultimately a government that takes unpopular decisions, in most of the cases, is unlikely to be re-elected.” So what? I personally think that it is not because the current politicians are perceived as bad and lacking leadership that the whole system has to be questioned. As for populations not understanding tough decisions, I am not so convinced there, either.

A couple of weeks ago, we Swiss were asked to vote on whether we would like to have more vacation days. Well, who wouldn’t? But we said no, to the astonishment of many of my French and German friends. The reason was not that we enjoy work so much, or that we are bored to death on holiday, but the understanding that such a measure would heavily burden the Swiss economy by increasing unit labor costs, and hence jeopardize our competitiveness.

In 1993, the newly elected Canadian government, confronted with a debt-to-GDP ratio of almost 100%, and a deficit-to-GDP ratio of almost 10%, decided to systematically reduce government expenditures. Not only did it manage a spectacular turnaround – to the extent that still now, 20 years later, Canada looks like a beacon of financial soundness – but this government got reelected for a couple of more terms.

If Germany today is considered the role model in Europe, it owes this fact to unpopular reforms initiated by former Chancellor Gerhard Schröder in 2003 and known as Agenda 2010. Those reforms led to the ousting of his government in 2005, but only by a slim margin.

Populations are far less childish than politicians sometimes assume. However, if treated childishly through populist promises, voters tend react appropriately when deceived. Hence we should not throw out the baby with the bathwater, and remember Winston Churchill’s famous words: “Democracy is the worst form of government except for all those others that have been tried.”