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  • Michael Hilb

The Swiss Elite Model under Siege - Daring More Daedalus Mentality to Prevent Another Icarus Moment

Loosely based on Joseph de Maistre (1753-1821), every country has the elites it deserves. The Swiss elite system is shaken in 2023 by the demise of Credit Suisse, a national institution with a proud history. This is the third such shock in the last 25 years, starting with the bankruptcy of Swissair, the national airline, and continuing with the government intervention to rescue Union Bank of Switzerland (UBS) in 2008. Not only do the three affected companies share the word "Switzerland" in their brand names, but the crises demonstrated to everyone that unbridled growth and hubris ultimately lead to demise, commonly known as the Icarus syndrome. Does this mean that the Swiss elite model, which is characterized by a close interconnection of political, economic, and intellectual elites and, at the same time, distributed and participatory decision-making powers, has failed?


Although it may appear so at first glance, the fact that the system allowed them to fail and absorbed these shocks with impressive resilience can also be interpreted as a strength of the system. The question, then, is not so much why the Swiss elite model failed, but rather why a system that proved resilient overall allowed these disasters to occur, and whether such shocks should and can be prevented in the future? Or to put it in the words of Greek mythology: How can elites help foster the Daedalus mentality to prevent another Icarus moment?



The Resilience of the Swiss Elite Model


And indeed, the acceptance of the failure of institutions or, in Schumpeter's words, their "creative destruction" can be taken as a sign of a system's strength, regardless of whether the failure is intentional or unintentional, which is usually the case in Switzerland. This can be explained by the pronounced decentralized and distributed political, administrative as well as economic power structures in Switzerland. In such participatory systems, decisions are based on compromises and take into account deeply rooted beliefs such as autonomy, freedom, or fairness. As a result, participatory solutions are usually sought among themselves, such as the takeover of a failed company by another instead of nationalization, which would be the outcome in many other countries.


The decentralized structure also increases the resilience of the system in another way. It makes it impossible for the failure of one part to lead to the demise of the entire system. Rather, the decentralized structure spreads the risk and makes the overall system less vulnerable, enabling its rapid recovery.


Finally, the strong sense of personal responsibility is linked to a strict regime of social control and punishment: Individuals and institutions are granted a high degree of autonomy by society as long as they act responsibly. In return, they are quickly and harshly sanctioned by society when this is no longer the case in society's perception. This self-correcting mechanism proves to be effective and efficient in normal times, as it is able to reduce transaction costs such as control or legal costs.


The Vulnerabilities of the Swiss Elite Model


However, this points to a central weakness of the Swiss elite system: The apparent lack of preventive power, i.e. the inability or unwillingness to intervene in time to avoid disasters.


First of all, it can be argued that the system works well in an economic world dominated by small and medium-sized enterprises, but reaches its limits when globally oriented large companies are involved that are significantly influenced by investors, managers, or customers from other elite systems. This was the case in all three of the above examples. In each case, the problems were due, among other things, to uncontrolled international expansion.


However, it would be too simplistic to attribute the vulnerabilities of the Swiss elite model to external influencing factors. The strengths of the Swiss elite system outlined above, especially the high degree of decentralization, autonomy and freedom granted to each actor result in a system that is closely interconnected. The political, economic, and intellectual elites must interact freely and constantly to keep the system running and to find compromises that are acceptable to all. In many cases, this leads to desirable outcomes in the interest of all concerned.

The close links and mutual dependencies require a high degree of tolerance and mutual understanding, which can easily result in a lack of discourse and conflict and a false tolerance for unjustified behavior. To stay in the language of Greek mythology: The voice of Daedalus can easily be overheard, ignored, and even discredited in such a system. How can these weaknesses be addressed without compromising the resilience of the overall system? How can the voice of Daedalus be made more heard?


Serving Well a System that Serves Well


While it is worthwhile to preserve and even promote the proven structural elements of the Swiss elite model, especially its decentralized architecture, low power distance, pragmatic problem-solving mechanisms, and citizen involvement, at the same time the actors in the elite system must question their decision-making behavior.


In particular, plurality of opinion should be demanded and encouraged at all levels. This is the only way to achieve results that do justice to the strengths of the model and promote the resilience of the system. Collective value creation requires less politically correct compromise and more critical consensus.


Every system is confronted with failures from time to time in order to constantly improve. However, the more failures are proactively debated and do not have to be lived through, the less damage is done to the system and its credibility. This requires all actors within an elite system to have humility, a willingness to learn, and a willingness to question their own behavior rather than criticize the system, which can serve everyone if elites who deserve it know how to serve it.

 

This is an abridged version of a chapter in the 2023 Elite Quality Report.

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