Preventing the Retrenchment of the Welfare State: Switzerland's Competitiveness in the World Market for Protection

Abstract

Most welfare state typologies still characterize Switzerland as a liberal welfare regime. However, recent research shows that its welfare state did not retrench but instead moved towards the conservative type. Nevertheless, higher social expenditure has not been accompanied by increases in taxation. Moreover, Switzerland managed to overcome the so-called trilemma of the service economy. After analyzing the shift of the Swiss welfare state from a liberal to a conservative welfare regime, we argue that the Swiss economic success story of the twentieth century is based on a favourable policy mix (tax system, labour market, financial sector) used to compete successfully in the world market for protection. We conclude that, as a political entrepreneur, Switzerland has the capability to receive taxes and investments from foreign individuals and enterprises, wealthy residents and high-skilled and well-paid immigrants to finance the welfare state and to overcome the trilemma of the service economy.