Time for the apogee of wealth. Statistically speaking, the wealthiest society in the world. Better than oil exporters, tax havens and world powers. Naturally the wealth calculated per capita, because it is a very small country. But how dignified! Principality of Liechtenstein – here we go! Wojciech Siryk presents THIS WORLD IS OURS THIS WORLD IS OURS Episode 07 Liechtenstein Richest country in the world In fact, every country has something unusual about it. In the case of Liechtenstein, almost every piece of information sounds like a little curiosity. Geographically, politically, historically, economically – every time it’s something peculiar. Well, one thing at a time. It is a very tiny, mountainous country located between Austria and Switzerland. 160 square kilometers – that’s plus or minus Katowice’s area. Nearly 40,000 people. Importantly, this is not a city-state with dense urban development – quite to the contrary -it is a land consisting of 11 municipalities. One main river – the Rhine and one main road. Very modestly. Liechtenstein is not a member of the European Union. It belongs primarily to the Schengen area and EFTA, i.e. the European Free Trade Association. EFTA consists of four countries: apart from Liechtenstein, it is Norway, Iceland and Switzerland. Importantly, EFTA countries (except for Switzerland) and European Union countries jointly form the European Economic Area, which connects all these countries economically. So they don’t belong to the European Union, but they belong to other organizations. They are not isolated in any way from the rest of Europe. Liechtenstein is primarily associated with Switzerland. Sometimes it is jokingly called the twenty-seventh canton of this country. This bond has been developing since the end of the First World War, that is, from the moment when both economies were joined together through the customs and monetary union. Switzerland is a bit like a big political brother to the Duchy. The Swiss army is committed to defending Liechtenstein, and Swiss politicians represent part of the Principality’s interests on the international stage. These relationships are generally quite loose. A dozen or so years ago, almost two hundred Swiss soldiers in the middle of the night mistakenly invaded two kilometers deep into the Principality. As one of them reported – it was just very dark. Liechtenstein authorities did not blame their neighbors. They said that such things do happen, because in the end it was not an attack by attack helicopters. However, when in the eighties a Swiss rocket caused a forest fire – the Swiss had to pay compensation. It is hence a friendly relationship and despite considerable disparities – full of respect. Is Liechtenstein an artificial state? While debating the statuses of similarly small countries, many people ask some vital questions. Were the borders of a given country simply drawn by someone on a map, for example in the name of external interests? It could be because a colony, a sphere of influence, or an economic zone was needed. And then the conclusion follows that “it cannot be a great state if it arose from someone’s whim”. Liechtenstein was not such a case. This place has a centuries-old history, and the heritage directly referenced by today’s Liechtenstein goes back to the early 18th century. During this time, they shaped their internal and foreign policy. Of course, there were all sorts of events on the way (like in Europe in general), but this is the story of true statehood. A specific, unusual, original – a real statehood nevertheless. Residents recently celebrated their country’s 300th birthday. Its formal origin dates back to 1719. It was then, under the edict of Charles VI of Habsburg, that is, the emperor of the Holy Roman Empire, that the territories of Schellenberg and Vaduz were united as the Imperial Principality of Liechtenstein. Both areas were previously bought by the Liechtenstein family. From the perspective of recent history, such a procedure seems artificial, but it should be remembered that this was the reality of the time. The Holy Roman Empire consisted of very many countries, and Liechtenstein was formed as one of them. Thanks to this, the Liechtenstein got the right to sit on the imperial council. Interestingly – Liechtenstein’s residence was Vienna, and they ruled their country from a distance. At the beginning of the nineteenth century, the principality was first within the borders of the Rhine Union and later the German Union. Then, until the outbreak of World War I, Liechtenstein voluntarily came under the protection of Austria-Hungary. It was only after the Great War that the reorientation from Austria to Switzerland took place. For formalities, I would add that during both world wars the Principality remained neutral. At the end of the 1940s, it had the courage to consistently refuse the Soviet Union the extradition of Russians, who collaborated with Germany and, after the fall of the Third Reich, took refuge in Liechtenstein. As you can see – in the international arena, even in a dispute with the giants – the Principality was able to bet on its own. There is a lot of this – and these are only a few sentences from three centuries of history. Full statehood indeed! As Liechtenstein is a principality – the monarch rules here. Formally, it is still Prince John Adam II, but in practice, for several years, some of the duties rest on his son – Prince Alojzy. At the very beginning of the 21st century, the whole world heard about the political system of this country. Well, Prince Jan Adam II wanted to increase his powers for years. A constitutional referendum was organized in the principality in 2003, which the Western media described as “an attempt to establish an absolute monarchy”. The new constitution was to allow monarchs, inter alia, to: veto any law, dismiss a government or any minister, and appoint judges. A very bold attempt, full of controversy, but the prince knew how to approach it. During the campaign, he made it clear to his subjects that if this did not pass, he would leave the country and his wealth would follow him. And it was voted through. What’s even more interesting – a few years later a referendum was organized on the possibility of having an abortion up to the 12th week of pregnancy. The prince joined the debate on this idea, who announced that even if it passed, he would veto it anyway. It did not pass – the inhabitants rejected the idea with a minimal majority, but some of these announcements were not well-received by the public opinion. On the one hand there is initiative, and on the other it is immediately obvious that none of this. Therefore, a year later another referendum was organized. This time the inhabitants were asked “should the prince’s veto right be restricted”. The monarch again reminded that he really does not have to live here. And again he won. The citizens again supported his enormous powers. That is, in just a few years, the monarchy won the approval of the vast majority of society here twice. This last referendum related to the prince’s veto right took place 2012. Its initiators conducted a campaign under the slogan “so that your voice counts”. At the same time, they accused Hans-Adam II that the threat of moving to Austria was an emotional blackmail. Supporters of the monarch responded with the campaign “for God, Prince and homeland”. The turnout was over eighty percent. As many as seventy-six percent of the population rejected the attempt to limit the monarch’s power. It is difficult to determine how many subjects generally support the monarchy, but the great affection for the princely family means, that most see no obstacles for this system to function here. Thus, the Principality of Liechtenstein still remains almost absolute monarchy. “Almost”, because, first of all, it is formally a constitutional monarchy and, secondly, it is not fully absolute. If the citizens of any commune vote for independence, the prince has no right to veto it. But no commune wants to disconnect from the principality. In addition, the constitution allows a change of the system through a referendum. Again, there is no one willing to organize it. External voices taken over by the state of democracy in Europe have repeatedly criticized Liechtenstein’s political system. Among others, the Council of Europe reacted negatively. The princely family was not impressed. Welfare in Liechtenstein. A very interesting issue, because it is not that this society has always been so rich. Quite the opposite – here, as in other European countries, in the mid-20th century the was more poverty then wealth. Even the Liechtenstein family had financial problems, and they were forced to sell part of their property. However, it took only a few decades for this relatively poor, and certainly not outstanding society, to become the richest or one of the richest in the world. No oil and no sea trade route – no access to the sea at all. How is this possible? In this case, it is worth analyzing two main threads related to this development. First – the wealth they created in the country; second – the wealth or capital that flowed in because of the low tax rates. Generally, when assessing the standard of living in a given country, such a division is not made. After all, capitalism consists, among other things, of the principle that the economy is open. Take large countries, such as Poland, for example: nobody accuses them that all their development results from some suspicious transfers and foreign investments. But when the state is small – like Liechtenstein and still has low taxes – again, like Liechtenstein, then, in the common opinion, it gets wealthy only because of the fact that it is a tax haven. Therefore, let us make this mentioned division. First, the “domestic” economy. 40 percent of the workforce works here in the industrial sector. In this tiny society, a few really big native companies have grown up. Production of precision tools, electronic devices related to sound and acoustics, and food processing. One of the local companies has a global reach and employs almost 30,000 employees worldwide. Thus, downplaying the economic success of this nation just because the state is small and the economy is thought to be a tax haven is unfair to the people of Liechtenstein. A poor mountainous land in which, before the Second World War, every third person worked in agriculture within a few decades transformed into an economy focused on export-oriented industrial production. In the mid-twentieth century, economic migration of the Liechtenstein was a widespread phenomenon. There are currently more jobs in the principality than residents. Over two-thirds of employees are foreigners. About half of the workforce comes here daily from Austria, Germany and Switzerland. Looking at this development from a distance, it is worth noting that there were no reasons for this economy not to develop. Like all of Western Europe – Liechtenstein operated in the capitalist system, so like the entire West – it moved forward leaving the eastern part of the continent behind. In addition to industry, perhaps not a very large, but important sector is tourism. Several hundred thousand people visit the Principality on a day trip during the year. And now the second part of the Liechtenstein economy, i.e. the money that flows into the country from outside. The local banks have been attracting rich clients from all over the world for years, not only due to low tax rates in the principality, but also due to strong banking secrecy. It looked like this: the open secret was that, for example, very rich Germans had accounts in the local banks. The German Tax Office could suspect what kind of money this was and who perhaps hid some money here. Anyway – sometimes it was the case, for example, that the German officials saw something was not adding up. But here they could not find out anything, because they always received the answer, that in Liechtenstein bank secrecy applies and no matter who asks – no information will be provided. But beware! This situation has changed a bit in recent years. Due to agreements first with the United States and later with European Union countries, banking secrecy has been partially restricted here. Liechtenstein is no longer listed on the gray or black lists of tax havens. What is important – despite the fact that Liechtenstein constantly adapts to various external requirements and limits its advantages, this banking tradition itself – simply attracts foreign clients. This place has earned a reputation as a safe financial haven. When it comes to companies that move here from other countries or are founded by foreigners here, they are primarily attracted by low income tax. CIT is twelve and a half percent. Of course, the principality has benefited and is still benefiting from the provision of financial and banking services for clients from around the world and at companies, that choose Liechtenstein at the expense of their native economies. Without this, economic statistics probably would not look so spectacular and very likely that they would reach a level similar to neighboring regions. It’s just that Liechtensteiners can earn big money without it. Economic system. This is really an interesting issue, because sometimes the Principality is thought of as an libertarian oasis. This whole conservative narrative associated with the monarchy, low taxes and tax haven necessarily bring to mind a free market land. Are these claims legitimate? Relative to other modern countries – to some extent, yes. Setting up a business is simple, the market is not excessively regulated, there is no corruption, the judiciary works well and trade barriers are minimal. Plus low taxes and a lot of companies from abroad. Also, the macroeconomic environment really works in the spirit of a healthy, very liberal economy. It’s just that the mundane level, i.e. the economic relationship of the citizen with the government is in fact a typical European model. Maybe not as regulated and extensive as in the welfare states, but the government is watching over standard areas such as education, health care or the pension system. Social security in the form of unemployment or disability benefits – also exists. Although it is difficult to talk about the large size of this care, when unemployment is two percent and everyone works, but a certain social system still exists. For this indirect involvement of the state in sport or culture. On the other hand – there is no debt, on the contrary – there are budget surpluses, so somewhere this money will necessarily be spent. Apart from the scale of government involvement and its justification – it is simply not nineteenth-century capitalism. Finally, simply speaking – how is life in Liechtenstein? It is not difficult to guess that it is very comfortable. After all, hardly anyone has the opportunity to live in a country where the Swiss come to work in. However, as you know – money is not everything. Let’s take a look at the other statistics. It is very safe and very peaceful. There is virtually no crime, but there is of course prison and jail with at most several people imprisoned. Residents attach great importance to culture. For example, they boast music lessons with five times as many people as in Switzerland and twice as many as in Germany. Naturally, in the percentage terms. In addition, sport – each of the eleven municipalities has its own clubs and sports facilities. In short: there is money, there is security, access to mental and physical culture – as well. A paradise on earth? If someone values peace above all in life, it’s probably harder for a better place. But is this a paradise for the bold? No probably not. Too calm – sometimes … boring! Because life in Liechtenstein goes soooo calmly. There is prosperity, there is work, it is nice, it is clean, there is a school, it is expensive, there is a pavement, and even if there is a lack of something, because in the end not everything will fit here, it is in Switzerland or in Austria. So what are you chasing after? What is there to fight for? Sure, you have to go to work, you have to try, think about your future – well, life, like anywhere else. But it is that if someone has to do it – he will; and if this pressure is not there, then maybe they will do it, maybe they will not do it – calm down. Nobody will push their elbows out to earn thirty percent more than the Swiss instead of twenty percent more than the Swiss. Let’s allow the poor Swiss to earn some extra money!