Federalism is a marvelous structure, both because it allows preferences for different policies to be satisfied and because it creates competition among units of government. While federalism has been somewhat eroded in the United States, it still exists and presumably is one of the reasons why America is relatively prosperous (thanks to a less oppressive level of government). Switzerland is an even bigger success story. The central government represents less than one-third of total government (as compared to two-thirds in the US), and the concomitant competition between cantons has helped control the size of government. And as a Swiss news report indicates, this has generated big benefits for the Swiss economy:
Zurich is poised for a further influx of foreign firms and workers after the relocation of Kraft Foods’ European headquarters and the expansion of Google this year. The moves earlier this month from the two United States giants offer further evidence that the region offers prime conditions for companies, according to the Greater Zurich Area relocation service. …”The relocation of headquarters and the nice growth of Google that we have seen in the last couple of months shows that we have very good basic conditions in the region,” commented Greater Zurich Area chief executive Willi Meier. …A more controversial lure for foreign companies is the low corporate tax rates offered by many cantons in Switzerland. …The competition among cantons to set the lowest business tax was intensified at the beginning of last year when Obwalden slashed its rates to a Swiss low of just 6.6 per cent. Obwalden attracted 376 new firms in the first 11 months of 2006, three times more than in the previous year. But Meier insists the Zurich region is not afraid of the increased competition. “The tax competition among Swiss cantons makes Switzerland as a whole more competitive on an international basis. Kraft has chosen Zurich despite the fact that we don’t have the lowest tax rate in Switzerland, but on an international scale its still a very competitive rate,” he said.