On the significance of direct democracy to ensure social peace (part 2)

Economic system and direct democracy

by Dr rer publ. W. Wüthrich

Part 1 of this series of articles showed how a number of referenda and popular initiatives in the difficult time of World War 1 and the years subsequently made a significant contribution to securing social peace in Switzerland and to coping with the politically and economically difficult times. Only a few years later – in the 1930s – Europe found itself again in a major crisis. The world economy was falling apart. High unemployment and social distress weighed the population down in many countries. No one knew a way out. In some places – especially in Germany – economic depression paved the ground for political upheaval.

In Switzerland, there were intense political disputes. The central question was whether the liberal economic concept of Switzerland would still have a future, or whether the economy would have to be restructured from the ground. Did the liberal economic constitution have to be thrown overboard and replaced by something that was more crisis-suitable? Highly sensitive issues like this defined political life and there was danger that the country could become unstable. Never before had the economic and regulatory differences been as large and the political conflicts as hard. Again there were numerous referendums and popular initiatives. A total of ten popular initiatives claimed to have an answer or a contribution to solving the crisis. While in other countries, the political opponents fought street battles or faced each other in civil wars, they collected signatures in Switzerland. The explosiveness of the proposals are also reflected in the number of signatures. The Social Democrats and trade unions, for example, collected 567,188 signatures for their Crisis Initiative which came to the vote in 1935 – eleven times more than required by the Constitution. The days of the liberal economic system seemed numbered.
How was it possible that in this tense situation there was no political upheaval and social peace was preserved? How was it possible that extremist parties did not have any chance? These questions are to be answered in the following.

The economic constitution of 1874

To understand the events of those years, we need to consider the development of the economic constitution in the Federal Constitution of Switzerland of 1874 as a starting point and as past history, because it was crucial to the debates and therefore repeatedly attacked or defended during the crisis by the various political camps.
The economic constitution in the Federal Constitution of 1874 was liberal. It contained three main elements as its essence:
1.    Economic freedom as freedom right of the citizen, based on natural law
2.    Economic freedom as a principle, i.e. as a guiding principle for the development of the economic system
3.    Direct democracy – as decision-making procedure, to define the legal framework and the rules for an orderly economic life. The constituent assembly was guided by the conviction that the people should decide on important key issues directly and pave the way for the development themselves. Thus social peace should be maintained and the economy thrive.
This unusual constitution has its history. It is worth to be explored.
The constitutional historian Alfred Kölz concludes in his epochal 2004 work “Neuere Schweizerische Verfassungsgeschichte” (Recent Swiss constitutional history) that according to the Federal Constitution of 1874 Switzerland was the world’s only country that had accepted economic freedom based on natural law and included it in its Constitution as a fundamental right because it belonged to human existence and was derived from the natural right of man to his individual freedom: Kölz writes, “Switzerland was and is the only country in the world that recognizes economic freedom as a freedom right.” (p. 870) Whoever is interested in the development of this exceptional legal opinion must go far back in the history books.

The Thurgau Constitution as an example in Regeneration times

In 1830, Thomas Bornhauser, pastor in the Thurgau commune of Matzingen, gathered with some colleagues from the cantonal parliament around the parsonage table. They had been commissioned by Parliament to draft a new constitution for the canton, which should revive the ideas of the Enlightenment and human rights, and they should be implemented more clearly than before. Other politicians in other cantons had similar goals. This movement was to go down in history as regeneration.
Thomas Bornhauser was very close to the people and committed himself passionately to the new movement and the canton of Thurgau. On the parsonage table in Matzingen there were entries from 130 communes and professional organizations who expressed their detailed wishes for the new constitutional documents. On top of their list were economic reforms and the guarantee of economic freedom, which simply belonged to human existence. Some elements of the then economic system in Thurgau had their roots in the Middle Ages. So there was still a feudal tax in Thurgau, which did no longer correspond to the new times. The so-called marriage liabilities were also widespread. For the construction of mills, bakeries, butcheries, blacksmiths, brick factories, pubs and other businesses a patent had to be obtained from the authorities which was subject to payment. It was only granted if a necessity existed. A rival business could thus not be opened and competition could not develop. Thomas Bornhauser considered the marriage liabilities a privilege which was no longer appropriate. Also, some of the existing craft orders – the industrial revolution had just begun – were no longer considered up to date.
The constitution that Thomas Bornhauser and his colleagues had drafted and which was adopted on 14 April 1831 by a large majority of the Thurgau people, contained, among other things, the following key points: “The population governs itself by self-elected deputies.” (Article 4) State power is divided in a legislative, executive and judicial power. (Art. 5) The whole state administration, especially court hearings, are public. (Art. 6) The State is responsible and provides for a good education. (Art. 20) The draft constitution contained an amazing and unusual catalog of human and civil rights such as equality before the law, the freedom of expression and freedom of religion. “[…] There are thus no privileges of birth, of people, of families, of resort, of office and of assets. The citizen is only subject unto the law, which is the same for everybody.”(Art. 9) The freedom of expression – in speaking and writing (Art. 11) is guaranteed, as is the freedom of religion and the freedom of conscience for Christian denominations (Art. 21). Thomas Bornhauser added economic freedom to this catalog of human rights – and in addition, the protection of private property:

“All citizens of the Canton enjoy full freedom of labor, employment and trade. Only the abuse of that freedom is to be prevented through wise police laws. […]. “(Art. 12) “The property is sacred. No one can be forced to waive his property neither as a whole, nor in parts, except in the case of a legally recognized general need, and then only against fair compensation” (Art. 14)

This Constitution of 14 April 1831 was revolutionary for its time. The words “wise police laws” that restricted the freedom of trade express something that Thomas Bornhauser had already anticipated. It would not be easy to set limits to the economic freedom of the citizen, so that they would meet the diverse needs and interests of citizens and serve the common good. In the years after 1831 other cantons with similarly liberal constitutions followed. In urban cantons like Zurich, Schaffhausen or St. Gallen it was always about loosening the strict regime of the guilds.

Development of direct democracy in the cantons

In those years the beginnings of direct democracy could also be observed in cantons, who did not know the “Landsgemeinde” (cantonal assembly). Some introduced the so-called right to veto. (cf. René Roca, “Wenn die Volkssouveränität wirklich eine Wahrheit werden soll”, Zurich 2012, ISBN 978-3-7255-6694-5). Basically it was about giving a majority of the voters the opportunity to say No to a new act of Parliament. Hence in different cantons the referendum evolved which worked as follows: Parliament approves of a new law and submits it to the people’s judgment so that they can say yes or no. That way the people really became the sovereign – in the true sense of the word.
The 1860s were a decade of “democratic movement” which brought the breakthrough for the referendum law and the right to initiative in a number of cantons. As an example, the Canton Thurgau is again to be looked at in the following. Article 4 of the Constitution of 28.2.1869 reads:
The following […] are subject to referendum:
a)    all laws and concordats
b)    all Grand Council decisions, which result in a new one-time total spending of at least 50,000 Swiss francs, or an annual recurring use of more than 10,000 francs;[…]
    Voting is compulsory and is done by secret ballot.
The cantonal constitution of Thurgau additionally contained a right for the people to make a proposal (right to initiative) for the amendment of laws and the Constitution. – Before the vote, the voters were given the following words of conduct by the Constitutional Council, “It is now up to you, worthy citizens, to seriously and conscientiously consider whether you place enough confidence in your own strength and insight to take the reins of governance of the state in your own hands.” (Alfred Kölz, “Neuere Schweizerische Verfassungsgeschichte”, p. 186) In a polling of 80 percent the people agreed by 64 percent Yes-votes. – This and other cantonal constitutions of that time were truly revolutionary – without a single gunshot being fired.

The freedom of trade and economy must be connected to direct democracy: the principle of freedom of trade and commerce

The 1874 constitutional principle of freedom of trade and commerce is related to the political changes in the mid-19th century. The first socialist movements and parties occurred. Early socialists like Saint Simon or Charles Fourier published their ideas. They denounced the social injustices that occurred as a result of the industrial revolution in different countries as well as in Switzerland and developed counter-models for economic freedom from the perspective of the factory owners. Karl Marx and Friedrich Engels went one step further and published the Communist Manifesto in 1848 that called for class struggle, “Workers of the world unite!” was their battle cry, which was yet to shake the world. Marx went into exile in London and began to write his major work “Das Kapital”, in which he analyzed the liberal market economy and rejected it as unfit. The book was to become the basis for future, mostly violent revolutions.
The events in Paris after the February Revolution of 1848 were of particular importance for Switzerland. The Socialist Party under the leadership of Louis Blanc had won the elections and did not hesitate to put their ideas about new forms of economy into practice. They added a new human right to the constitution: the right to work. They implemented it by establishing national workshops within in a short time and in large numbers, with hundreds of thousands of new jobs. They wanted to drive back the private sector by competition from the state economy. (cf. Proudhon, “Bekenntnisse eines Revolutionärs”, p. 62) However, the economic project of national workshops claimed large parts of the taxpayers’ money that the government was lacking elsewhere, in consequence. In addition, defects soon became obvious which later were also to be observed in communist countries. As a result of faulty planning products were produced, which consumers did not favor. The political response came promptly: The Socialists lost the next elections massively and Louis Blanc had to flee to England. In Paris there was severe, political unrest with thousands of deaths.
The events of Paris made it clear that the freedom of trade and commerce and the right to work were not easy to handle in practice and contained a considerable potential for conflict. The Socialists had indeed realized their far-reaching economic experiments due to an electoral success without asking the people, whether they really wanted them. A referendum has more legitimacy than an election victory. Here it was necessary to learn.
The events of Paris had an impact on Switzerland. In 1856, the Canton of Solothurn reinforced the freedom of trade and commerce as a civil right, by granting a policy framework in the Constitution, which the constituent assembly designated as principle of economic freedom. Which means that all laws or government activities that restrict the freedom of trade and commerce in the public interest, must in principle – this was its central idea – be based on a liberal economic order. It should not be possible, neither for Parliament nor Government to push back the private sector through exaggerated policy laws or governmental activities of all kinds, such as had happened in Paris. The Solothurn people approved of the new Constitution with 78 percent Yes votes on 1 June 1856.

The three pillars of the Economic Constitution of 1874

In 1874, all three of the above-described elements that previously had all been tested in numerous cantonal constitutions, were included in the 1874 Constitution. They are:
1.    The freedom of trade and commerce as a fundamental right of the citizen
2.    The principle of economic freedom as a guiding principle and framework for the development of the economic system and
3.    Direct democracy as a decision-making procedure by which the people give the freedom of trade and industry a concrete regulatory framework; they do so in two respects:
a)    All the “wise police laws” (to keep to Thomas Bornhauser’s formulation) that make up the regulatory framework and serve the public interest, are subject to an optional referendum. That means with 30,000 signatures a referendum can be brought about.
b)    If a political foray, however, differs from the constitutional principle of economic freedom, i.e. if it does not fit in a liberal economic system, there is a mandatory constitutional vote. In other words, regulations that deviate from the principle of freedom of trade and commerce are permitted – but only with the consent of the people and the cantons. Thus national workshops, as the Socialists had established in France, would have been possible in Switzerland – but only with the consent of the people and the cantons. Only in this way could social peace be secured, was the view of the constitutional drafters – truly a “wise” solution that Thomas Bornhauser would have liked. – Furthermore, the following applied: The initiative for a constitutional amendment in Switzerland can be submitted by Parliament or even directly by the people, if interested citizens (then) collected 50,000 signatures and submitted either a formulated proposal or a suggestion for a complete revision of the Constitution.
This unique concept of an economic constitution allows the people today to directly shape and develop the regulatory framework for the economy and continuously adapt it to current needs. Of the more than 600 total Swiss referendums that have been held since 1874 until today (of which approximately 200 were triggered by popular initiatives), about a hundred were concerned with issues of economy and economic order. It was about the employment relationship, health protection, maximum weekly working hours, holidays, participation, pension funds, accident insurance, minimum wage, vocational training, management salaries and many more. There were a variety of submissions for agriculture. People voted on issues of crisis management and the fight against unemployment, protection of tenants’ rights, economic policy and the promotion of individual sectors. The population also voted on foreign economic issues such as, for example, about the 1972 free trade agreement with the EC. They also repeatedly voted on issues of taxes, the money, the gold reserves and the monetary constitution. – It is noteworthy that neither the federal government nor the cantons can implement new taxes or their increase without mandatory referendum.
One thing must still be added: The referendums in the 2,600 communes and the 26 cantons included such, in which the voters could decide, for example, on the income and property taxes, trade regulations and shop closing laws; there are probably thousands of referendums that shaped and developed the regulatory framework for the economy in Switzerland both on the large and small scale. No one has ever counted them.

Many economic votes in the 1930s – a true test for direct democracy

In the history of the Confederation, there was a period in which lots of votes on industrial issues occured, which are worth to be considered in more detail. In the 1930s the world economy was falling apart. Many procedures did no longer work. Big countries like the US or Germany had an unemployment rate of 20 percent or more. Hitler succeeded in taking advantage of this situation and seized the power. In Switzerland, the economic difficulties and social deprivation were enormous, as well.
It is well understood that the citizens in this crisis were asking themselves, whether the economy should not be fundamentally reorganized and the liberal economic constitution should better be abandoned. As mentioned above, the political differences had never before been so great and the economic and regulatory ideas of the various political camps from the right to the left been so different. Liberals, conservatives, social democrats, unions, Liberal Democrtas, Catholic conservatives, commoners, laborers and entrepreneurs, Communists, Frontists, etc. – in those years, ten very different popular initiatives came from these circles, many of which wanted to turn economic life upside down and put the economic constitution on a new basis. Two initiatives were dealing with the human right “right to work”, another wanted to allow government job-creation programs, another wanted to fight the crisis with a state-run economy, another one persecuted corporative state objectives and wanted to install an economic council next to the Parliament, which would govern the affairs of the economy, and another initiative wanted to restructure the economy according to socialist and more cooperative principles, some wanted to strengthen direct democracy in the economic sphere, for others it was a discontinued model, etc. – Can we still govern such a country, the Federal Council must have asked themselves then. – Yes – you can. While in the surrounding countries, the political opponents were involved in street battles and in some places totalitarian regimes were established, signatures were collected in Switzerland – across the political spectrum – and how well! There were many referendums that were a real test for direct democracy and for the liberal economic system.
Would Switzerland pass this test in the tense situation and find back to a common line? Would the cohesion and social peace be maintained? More on this in Part 3 of this series of articles.     •