Opinion from a Libertarian ViewPoint

Why Liechtenstein Works: Self-Determination and Market Governance | Mises Wire

Posted by M. C. on December 30, 2018

Before we jump in, let’s have a show of hands. How many of you have ever been told that your conception of liberty sounds good in theory, on paper, but could never work in practice? How many of you have ever been called utopians? Good, I see this is most of you.

Well I am here to dispel this notion and to show all of you that you are nothing if not realists. After all the word utopia comes from the Greek words Ou and Topos. Ou means Not and Topos means Place. Utopia therefore literally means, “not a place.” In other words, those who call us utopians believe that our ideas have not been and cannot be implemented in any physical space in the real world.

I am about to tell you about a place where fundamental libertarian pillars of self-ownership and private property are never violated, a place of almost absolute, maximum individual liberty. A place where state coercion is nonexistent, or actually, as I will later argue, a place where there might be no state at all…

Liechtenstein is a country of about 38,000 people; at 160 square kilometers it is not very densely populated. For comparison, Monaco has around the same population and is 80 times smaller. The principality boasts among the highest GDP per capita and average salary in the world, but contrary to popular belief, the financial sector only contributes a total of 24 percent to Liechtenstein’s GDP and 16 percent of the workforce. 27 percent of the GDP is in non-financial services, 8 percent is agriculture, and 37 percent is industrial, as Liechtenstein is a popular spot for highly specialized and niche manufacturing. Some notable examples include Hilti, one of the global leaders in the production of power tools, Ivoclar, one of the biggest producers of dental goods, through which Liechtenstein has actually become the world’s biggest exporter of false teeth, and the well-known jewelry manufacturer Swarovski also has significant operations within the country.

Liechtenstein is one of the last functional monarchies in Europe, with the Princely House being able to exercise almost complete power through the Sovereign Prince, currently Prince Hans-Adam II, and unlike most monarchies, power is transferred from father to son not at the time of the father’s death, but some time before, in order to allow the successor to learn from his predecessor while on the job. The current regent is Prince Alois, who is now effectively ruling the country, although his father still has the power to step in and overrule him.

However, despite the Princely Family’s constitutional power, Liechtenstein is also a democracy. In the words of Prince Hans-Adam:

We in the Princely House are convinced that the Liechtenstein monarchy is a partnership between the people and the Princely House, a partnership that should be voluntary and based on mutual respect.

There is a parliament with 25 seats. Currently 10 seats belong to a party called the Progressive Citizens Party, or FBP, which is the only party that explicitly supports the princely family and has the best relationship with them. Eight seats belong to the Christian and conservative Patriotic Union, four seats belong to independents, and three to the Free List, which is the equivalent of the Green Party.

In practice, it would seem that the parliament and the princely house are more or less equal in power. But actually the princely house has the rarely-exercised power to veto or dissolve the parliament, which makes it slightly more powerful.

All of this exists within the context of direct democracy, so any disagreement between the parliament and the princely house can be resolved by popular vote. You only need 1,000 signatures in order to start a national referendum, or 1,500 if your proposal includes a change to the constitution.

The Prince can actually veto any national referendum, unless they are one of two specific types of referendum: The first is a referendum to dismiss the Prince, in which case the Princely House must elect a new Prince, and the second is a referendum to get rid of the entire Princely House altogether and abolish the monarchy. If the people start one of these two referendums, then the Prince’s power of veto is void.

Then Liechtenstein has 11 municipalities, often referred to as villages or communes, with populations of roughly between 400 and 6,000. These villages have a fairly high degree of autonomy, and are able to pass a great deal of their own laws, and levy their own taxes (for reference, the national income tax is 1.2 percent, but the average income tax level is about 17.8 percent if you include village income tax).

Now here comes the really interesting part: Each of these villages have their own system of direct democracy, with referendums usually requiring the signatures of 5 percent of local eligible voters to initiate. Since the constitutional reform of 2003, the villages have had the right to secede. Even tiny Planken with its 280 voters could have its independence recognized following a local vote.

All of this was initiated by His Serene Highness, who personally went down into the streets of Liechtenstein to collect signatures in order to start a constitutional referendum. The 2003 constitutional reform also gave the people of Liechtenstein the aforementioned right to dismiss the prince or the princely house, by the way. Such was his belief in liberty that he actually worked to convince a people over whom he had complete dominion to take hold of their rights and demand more freedom. In his own words:

The State should treat its citizens like an enterprise treats its customers. For this to work, the State also needs competition. We therefore support the right of self-determination at the municipal level, in order to end the monopoly of the State over its territory…

In effect, Liechtenstein is the only modern example of leadership without tyranny. The Princely family have been able to gain the love and loyalty of their people by giving them something they never even realized they wanted.

Now you might wonder, if there really is no state in Liechtenstein, how come there is only one government? Why aren’t there multiple competing governments?

Well to understand this it is fundamental to grasp the difference between what I call a de facto monopoly and a de jure monopoly. In a de facto monopoly there are no competitors because there is no demand or practical use for competitors. Barriers to entry are merely social and market-based, not legal or regulatory. A de jure monopoly is a monopoly enforced by threat of coercion. Competitors are in demand, but face “legal” persecution from the established providers.

In other words, under a de facto monopoly, the potential for competition always exists and always keep the so-called monopoly in check, although the price and quality of the goods or services provided are so good, that no competitor could currently stand a chance.

As a side note, I’d like to note that in the case of government, the quality of the services is not entirely tangible or objective; governments, particularly democratic ones, are usually seen as an expression of the national identity and there is therefore a highly emotional factor to be considered. I would therefore say that serving and reinforcing patriotism is part of what we may consider the services that a government provides and should compete for.

A possible objection one may raise is whether Liechtenstein is really a country with a non-state government, as I claim, if the right of secession is at the village rather than the individual level. The answer is quite arguable. At first thought I would say no, the village governments basically act as states if they do not recognize individual secession, but then, if we think about it thoroughly, is this starting to become a bit too pedantic?

I have personally surveyed many Liechtensteiners and so far have not found a single one of them who would have exercised individual secession if they had that right.

Try to imagine seceding individually. What an unviable nightmare that would be. Your neighbors could very easily blockade you within your property, you would become a sovereign household in a world of sovereign states unwilling to cooperate with you.

So let’s be realistic, if we had the individual right of secession and wished to exercise it, we would need to at least convince our neighbors, our community, and the people we deal with on a day to day basis. In Liechtenstein, this more or less corresponds to a village, so I would say that in practice, it is as if every individual had the right of secession…

But I have a fairly unique theory to add to all. You see, Liechtenstein lies on the banks of the Rhine, and historically, before the construction of dams, the river used to periodically overflow, thereby flooding everything in the valley and causing massive destruction. Being right below alpine peaks, Liechtenstein also suffered from regular avalanches, delivering destruction from above. These two constant occurrences meant that Liechtensteiners have had to develop their culture in a context of ever-repeating cycles of reconstruction and destruction which required high rates of savings. Add to that the fact that until very recently, Liechtenstein was an exclusively agricultural, mountain farming community. Liechtenstein is not an extremely fertile place, and mountain farming is a very demanding, and not particularly efficient practice.

Such a lifestyle requires a lot of forward-thinking preparation to survive, and it is my belief that it has resulted in a systematically low, culturally-imbued time preference. Time preference, for those who are not aware, refers to how much you prefer a present good over a future good. A high time preference means that you prefer short term satisfaction even at high future costs, while a low time preference generally means that you prefer long term (perhaps even cross-generational) satisfaction even at high present costs.

Low time preference in society is obviously more likely to lead to conservative and libertarian governance, while high time preference favors more destructive ideologies and lifestyles such as communism and hedonism. And allow me to say, in all of my travels, I have never met a lower time preference society than Liechtenstein’s.

However, as I said at the beginning, I don’t think you should, or can move to Liechtenstein. You may still get involved with the Principality in other ways, though. The princely family runs an Austrian Economics Think Tank called the ECAEF, and every year they hold an essay contest called the Vernon Smith Prize for the Advancement of Austrian Economics, two and a half years ago at the age of 19 they gave me third prize, this year you have until the 11th of November to participate. They also hold a conference in Liechtenstein called the Gottfried von Haberler conference during the last week of May, and I would love to see some of you there.

A version of this speech was given at the Corax Conference, July 28-30, 2017. Originally published at Jacobite Magazine.

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