The Partisan Politics of Gold: Switzerland and the Sale of Gold

West European Politics

ISSN: 0140-2382 (Print) 1743-9655 (Online) Journal homepage: http://www.tandfonline.com/loi/fwep20

The partisan politics of gold: Switzerland and the sale of gold

Mark E. Duckenfield

To cite this article: Mark E. Duckenfield (2006) The partisan politics of gold: Switzerland and the sale of gold, West European Politics, 29:1, 113-133, DOI: 10.1080/01402380500389315 To link to this article: https://doi.org/10.1080/01402380500389315

Published online: 20 Aug 2006.

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Full Terms & Conditions of access and use can be found at http://www.tandfonline.com/action/journalInformation?journalCode=fwep20 West European Politics, Vol. 29, No. 1, 113 – 133, January 2006

The Partisan Politics of Gold: Switzerland and the Sale of Gold

MARK E. DUCKENFIELD m.e.duckenﬁ[email protected]

This paper explores the relative strength of social, economic and political factors in determining public attitudes towards the sale of a portion of Switzerland’s gold reserves and how the money realised from these sales should be used. Partisan political allegiance and generational economic interest are the major factors in determining attitudes towards gold sales in Switzerland in the early 2000s. Cantons and individuals that had supported the Swiss People’s Party were more inclined to support its Gold Initiative than supporters of the Swiss Social Democratic Party and other parties of the left which actively campaigned against it. This pattern suggests that, contrary to the suggestions of previous studies, Swiss political parties can play a substantial role in framing political options in referendum campaigns.

The Partisan Politics of Gold For over a century, political parties in Western Europe have played a central role in most aspects of political affairs – competing for public office, aggregating interests, integrating citizens into the political system, encoura- ging civic participation, framing political debates and educating voters on complex issues of public policy. However, over the past several decades, concerns have grown among politicians and scholars that political parties are losing their traditional salience (Dalton et al. 1984; Inglehart 1984). Nevertheless, some scholars argue that concerns about partisan dealignment are overdrawn and that partisan loyalties are resilient long-term bonds between voters and political parties (Bartolini and Mair 1990: 287). The academic discussion about ‘when parties matter’ in economic policy- making has paralleled these concerns about partisan alignment. Even if partisan attachments linger, do parties make a difference in policy outcomes? Manfred Schmidt argues that while the partisan composition of governments matter for policy formulation, a country’s particular institutional arrangements heavily circumscribe the political opportunities available to parties.

Correspondence Address: m.e.duckenﬁ[email protected]

ISSN 0140-2382 Print/1743-9655 Online ª 2006 Taylor & Francis DOI: 10.1080/01402380500389315 114 M. E. Duckenﬁeld

In countries with majoritarian electoral systems and strong central governing institutions, parties matter a great deal and can make decisive policy changes. In contrast, the role of parties is more limited in ‘semi-sovereign’ countries that have numerous veto players, strong counter-majoritarian constitutional arrangements and even co-governance between the nominal ruling parties and the opposition. These societies tend to experience policy inertia regardless of the party-political composition of the government (Scharpf 1988; Schmidt 2002). Other scholars have found support for variations on these partisan and institutional arguments in relation to government fiscal, unemployment, pension and general welfare state policies (Garrett and Lange 1991; Huber et al. 1993; Schmidt 1996; Garrett 1998; Swank 2002). Most of these debates have focused on parties as competitors in legislative elections, an area where the role of political parties is at its strongest. Referendums complicate policy-making by adding an additional veto player, the general electorate, to the political system in a manner which undermines the role of political parties as the aggregators of political interest and the government as policy-maker (Tsebelis 1995; Barducci 1998: 116; Tsebelis and Hug 2002). Studies that have looked at the role of Swiss parties in referendum campaigns, an area where single issue campaigning is at its most prominent, have tended to downplay the role of the major parties or to stress the limitations that referendums place on them (Kerr 1987: 135–6; Strøm 2000). These studies support the contention that political parties have less influence over outcomes compared with organised interest groups (Kobach 1993, 1994: 122–34; Linder 1994). There is some evidence that social movements and small, non-governing parties do make use of referendums to put pressure on the government to change its agenda; however, the influence of the governing parties is still seen as weak (Kriesi and Wisler 1996; Sela¨ la¨ 1999). Alexander Treschel and Pascal Sciarini pose a modest dissent from the prevailing position that referendums empower ‘the people’ at the expense of elites and the Swiss parliament by arguing that elite consensus in the national legislature can be a powerful influence in favour of the Swiss government’s position during a referendum campaign (Treschel and Sciarini 1998). In this article, I challenge the view that referendums ‘usurp’ Swiss parties of their role in articulating political preferences, thus rendering them redundant in referendum campaigns (Kobach 1994: 123). Using an analysis of voting patterns and public opinion polls, I argue that political parties in Switzerland can initiate referendums to raise their public profile and draw attention to differences between themselves and their rivals. In the case study presented here – a referendum in support of using the proceeds of Swiss gold sales to benefit the state pension system – the Swiss People’s Party (SVP) used the special interest appeal of a referendum to target older voters in an attempt to expand the party’s appeal beyond its own traditional supporters to a particular demographic subset of the population. The SVP’s role in successfully framing the issue is also apparent in the attitudes of its The Partisan Politics of Gold in Switzerland 115 younger members who were substantially more likely to back their party’s referendum than supporters of other political parties.

Domestic Background In 1998, the Chairman of the Swiss National Bank (SNB), Hans Meyer, and the Federal President, Arnold Koller, announced a plan to sell one-third of Switzerland’s gold reserves in order to rationalise the SNB’s foreign reserves and provide an endowment for a Solidarity Association (Solidaritatstiftung) for victims of humanitarian disasters (Swiss Finance Ministry 1997). The plan met with widespread popular resistance as many Swiss citizens were reluctant to part with a major portion of their national gold reserves while many also resented the linkage between the Solidarity Association and accusations of Swiss complicity in the Holocaust. With support from three of Switzerland’s four major parties, the Swiss government pushed ahead with its plans, changed the Swiss constitution, won a referendum on its constitutional changes, and then re-wrote both the Swiss National Bank and currency statutes. Under the new legislation the SNB embarked on its plan to sell 1,300 tonnes of gold over several years, beginning in 2000. However, while the SNB has gone forward steadily with monthly gold sales, it has failed to distribute the proceeds of these sales for any purpose, retaining the monetary sales in a separately-managed account that will be distributed once the government decides what to do with the funds. Political parties of the left and right have proposed various uses for these funds, but none of them has reached fruition. Two popular initiatives, one involving support for the Swiss public pension system and the other a division of the gold sale profits between the federal government and the cantons, have been rejected in national referendums, leaving the final status of the $16 billion raised through gold sales uncertain. This paper explores the relative influence of social, economic and political factors in determining public attitudes towards the sale of a portion of Switzerland’s gold reserves and how the money realised from these sales should be used.

International Background For thousands of years, gold has been money. Over the millennia, it has served as the central measure of value for financial systems as diverse as those of the Phoenician, Venetian and British empires. The international gold standard of the late nineteenth and early twentieth centuries exported what was then the British standard to the rest of the developed and much of the developing world. The traditional gold standard provided one of the bases for the first age of globalisation and helped provide monetary stability during a period of unprecedented trade and economic expansion. Beginning in 1873, Switzerland allowed full convertibility of the Swiss franc into gold. During the 1930s, Switzerland along with the rest of the world, suspended 116 M. E. Duckenfield gold convertibility. After the Second World War, Switzerland participated in the Bretton Woods system that established a dollar–gold exchange standard. Switzerland’s large trade surplus and Zurich’s attractive position as an international financial centre allowed Switzerland to steadily accumulate gold throughout the 1950s and 1960s. With the collapse of the Bretton Woods system in 1971, gold lost its place of primacy in the international monetary system. Since 1975, members of the International Monetary Fund (IMF) wrote gold out of the international monetary system and the IMF’s members were forbidden to link their currencies to gold (Ware 1998). For the past quarter-century this has effectively frozen central bank gold holdings. Central banks control around 23 per cent of the 100,000 tonnes of gold that exist in the world. This gold is not distributed evenly amongst the world’s central banks. Of the approximately 24,000 tonnes in central bank vaults, 85 per cent is in the possession of only 15 national central banks, with the United States holding the lion’s share. Germany, Switzerland, France and Italy are the next largest national holders while two international institutions, the IMF and European Central Bank (ECB), also control substantial quantities of the precious metal. On a per capita basis, Switzerland is by far the largest gold holder in the world with gold reserves amounting to 8.9 per cent of GDP (Table 1). In the 1990s, the freeze on official sector gold sales began to thaw. Holders of gold such as Canada, Australia, Argentina, Belgium and Austria began to diversify their national monetary reserves through the sale of some of the gold bullion held in their vaults. While gold has long served as a store of value, it had begun to lose its traditional allure in the 1990s. After being written out of the IMF articles in 1975, gold’s utility as a monetary asset decreased. The deepening and increasing sophistication of financial markets diminished gold’s role as a safe haven in times of trouble. At the same time, tight monetary policies in the world’s leading central banks provided price stability and undermined gold’s role as a hedge against inflation.

TABLE 1 OFFICIAL SECTOR GOLD HOLDINGS, 2000

Gold Reserves Valuea Golda Golda Country (tonnes) (US$ billions) (% of Reserves) (% GDP) USA 8139 78.5 56.1% 0.9% Germany 3469 33.5 35.6 1.6 IMF 3217 31.0 n/a n/a France 3025 29.2 42.1 2.0 Switzerland 2590 25.0 43.3 8.9 Italy 2451 23.6 51.5 1.7 Netherlands 912 8.8 47.5 2.5 ECB 747 7.2 15.0 n/a Britain 615 5.9 16.7 0.5 aGold valued at US$300/ounce (32,150 troy ounces per tonne). Source: World Gold Council 2000. The Partisan Politics of Gold in Switzerland 117

Government bonds also gave investors moderate rates of interest, something that gold as a non-interest-bearing asset could not provide. As stock markets around the world boomed and the price of gold slid from over $500/ounce in 1987 to $300/ounce in the late 1990s, gold came to be seen as an increasingly unattractive store of value in the internet age. Even economists at the US Federal Reserve Board, the largest institutional holder of gold in the world, speculated that selling gold would be better than retaining it (Henderson et al. 1997). In the Alpine redoubts of Switzerland, these developments did not go unnoticed. By most measures, the Swiss National Bank is one of the world’s most independent central banks (Cukierman 1992; Alesina and Summers 1993). As the twentieth century drew to a close, the Swiss government sought to determine whether the nineteenth century banking rules and regulations which governed the SNB were appropriate in a modern system of financial management. The Swiss federal government created two Expert Groups to evaluate both the role of Switzerland’s central bank and the optimal level of Switzerland’s monetary reserves. The Expert Groups recommended that Switzerland amend its constitution and modernise the relationship between the SNB, the government and the Swiss currency (Swiss National Bank and Swiss Finance Ministry 1996; Swiss Finance Ministry 1997). The most important proposed alterations to the constitution and the currency laws involved the elimination of the statutory connection between the Swiss franc and gold. The SNB’s obligation to provide a 40 per cent cover in gold for all the Swiss francs in circulation was replaced with a general obligation to maintain monetary reserves sufficient to preserve the stability of the Swiss franc. By 2001, all legal impediments to Swiss gold sales had been removed and Switzerland began implementing its plan to sell 1,300 tonnes of gold with a timeframe of four to five years. However, Switzerland was not the only central bank interested in selling gold. At least six other major gold holders (Argentina, Australia, Austria, Belgium, Canada and the Netherlands) had sold or announced plans to sell over 100 tonnes of gold each during the previous five years (National Accounting Office 2001: 46–7). When the United Kingdom announced its intention to sell 345 tonnes in addition to the Swiss sales, the gold price dropped precipitously to around $275/oz. In such circumstances, official sector gold sellers were unlikely to achieve the major profits they had intended and central banks holding gold were forced to watch the value of one of their major reserve assets steadily diminish. To provide some stability to the gold market and allow for a coordinated sell-off of gold, the major gold holding central banks reached an agreement on future gold sales at the annual IMF meeting in Washington in September 1999. Gold sales among the signatories to the Washington Agreement on Gold (WAG)1 were restricted to those that had already been announced and would be achieved in a coordinated fashion over five years (see Table 2). The signatories further agreed that sales would not exceed 400 tonnes per 118 M. E. Duckenfield

TABLE 2 GOLD SALES UNDER THE WASHINGTON AGREEMENT ON GOLD, 1999–2004

Country Sales under WAG Switzerland 1170 tonnes UK 345 Netherlands 235 Portugal 125 Austria 90 Germany* 35 Total 2000

*German sales consisted of an issue of commemorative coins and their sales appear to be a part of Switzerland’s quota. (Interview with Franco Bettin, Chief of Department ‘Euro-Finances, Monetary Policy and Central Bank’, and Dirk Kranen, Director of Department ‘Euro- Finances, Monetary Policy and Central Bank’, Ministry of Finance, Berlin, 4 Sept. 2003.) annum and would total 2,000 tonnes over five years (European Central Bank 1999; Duckenfield 2004: 521–2). The gold markets responded positively to the specific annual quotas established under the WAG. Without the fear of further large, but unspecified future sales, the price of gold rebounded and stabilised around $300/ounce. Gold traded around this level until the 11 September 2001 terrorist attacks when it began a steady increase to around $400/ounce during the Second Persian Gulf War (World Gold Council 2004). As the WAG proved a successful market stabiliser and other central banks desired to sell gold after the expiration of the WAG, the agreement on gold was renewed for another five years (through 2009) at a rate of 500 tonnes per annum (European Central Bank 2004). Switzerland will sell approximately 130 tonnes of gold during the first year of the agreement, thus completing its programme of gold sales (Swiss National Bank 2003).

Domestic Political Background The original proposal to sell gold had been linked with the government’s plan, primarily championed by elements in the Christian Democratic People’s Party (CVP) and the Swiss Social Democratic Party (SPS), to fund the Solidarity Foundation. The Solidarity Foundation proved to be unpopular as it was closely linked to the public controversy over Switzerland’s role in the Second World War and possible complicity in the Holocaust. Opposition to the Soli- darity Foundation was particularly strong among the so-called ‘Active Service Generation’, those who had lived through the dangerous and austere times that surrounded Switzerland’s neutrality during the Second World War, who saw the Foundation as an implicit disparagement of their sacrifices (Interview with Klaus Sto¨ hlker, Sto¨ hlker Public Affairs AG, May 1998, Zurich).2 An August 1998 survey revealed that Swiss opinion was strongly against funding the Solidarity Foundation with gold sales. While 40 per cent of respondents agreed (12 per cent ‘strongly agreed’, 28 per cent ‘agreed’) with The Partisan Politics of Gold in Switzerland 119 the government’s proposal, 46 per cent disagreed (24 per cent ‘strongly disagreed’, 22 per cent ‘disagreed’) with it. In the same poll 59 per cent of respondents said they believed the level of gold held by the SNB was ‘adequate’; only 25 per cent said they believed the country’s gold holdings to be ‘excessive’. A further 3 per cent said they found the level of Swiss reserves to be ‘insufficient’. These figures indicated that public opinion was more inclined to favour politicians arguing against selling gold reserves for public purposes than it was to support those who advocate such action (Longchamp and Kraut 1997; Duckenfield 1998: 19). The SVP sought to take advantage of both the popular resentment about the implied responsibility of Switzerland for the Holocaust and of popular economic anxieties over the proposed gold sales. In addition, the SVP linked the gold debate to another ‘hot button’ issue of economic policy, the reform of Switzerland’s state pension system, the Alters- und Hinterlassenenversi- cherung (AHV). The SVP’s leader, Christoph Blocher, proposed reserving all of the proceeds of any gold sales for the support of the AHV, effectively precluding using profits from gold as a source of funding for the Solidarity Foundation. The AHV had been operating at a small loss since 1970; however, by the late 1990s the combination of Switzerland’s ageing population and low birth rates promised to make a deficit that had been a few hundred million Swiss francs per annum into an extremely large recurring deficit of more than SwFr10 billion by 2019 (AHV 2002; Queisser and Vittas 2000) (see Figure 1).

FIGURE 1 GAP BETWEEN AHV’S FUTURE BENEFITS AND CONTRIBUTIONS, 2000–19

Source: AHV 2002. 120 M. E. Duckenﬁeld

The leading proposal for reforming the AHV consisted of a series of tax increases over the upcoming decades. The initial, modest shortfalls in the AHV had been covered by increasing the national Value Added Tax by 1 per cent in 1999. Additional VAT increases of 0.5 per cent in 2008 and one of a further 1 per cent in 2012 were proposed as major sources of funding. Additional gaps between revenue and promised benefits would be met from the general budget of the Swiss confederation. Even with these reforms, the system would return to deficit in 2018 without further support from the public coffers. With only minor benefits cuts and contribution increases (both 0.5 per cent) being considered, the public pillar of the state social pension system appeared destined for collapse (Swiss Federal Parliament, 2000; Brechbu¨ hl 2000). The Swiss People’s Party, the party furthest to the right of Switzerland’s four major political parties, launched a public initiative to support a referendum on using the proceeds from Switzerland’s gold sales to support the AHV. The SVP’s so-called ‘Gold Initiative’ was designed to appeal to older voters who resented tax increases and desired to see the social security system return to solvency. Even under the most optimistic assumptions, the proceeds from gold sales could only delay the AHV’s insolvency by three to five years (AHV 2002; Swiss National Bank 2004: 47). Nevertheless, the SVP gathered over 100,000 signatures and was able to place the Gold Initiative on the ballot for a national referendum. Having failed to stop the SNB’s plans for selling gold, the SVP sought to guarantee that the funds generated from the sale would not be used to finance the Solidarity Foundation. Christoph Blocher (SVP), a Zurich industrialist who on the occasion of the fiftieth anniversary of the founding of his company, EMS-Chemie, gave bonuses to his workers in gold, argued that the SNB’s gold reserves were an accumulation of national wealth that should be used for the benefit of the people of Switzerland. This strategy fit in with the SVP’s opposition to further immigration into Switzerland, tax increases, and entry into the European Union as well as their support for more restrictive asylum rules, tough law enforcement measures and reducing the size of the welfare state. This strategy had paid electoral dividends for the SVP and the Gold Initiative fit comfortably into the SVP’s populist programme. The SVP has had dramatic success at the polls in the past decade, moving from the fourth-largest party in Switzerland with 10 per cent of the vote between 1950 and 1991 to the largest party with 27 per cent of the vote in October 2003 (Figure 2). In Switzerland, where party vote shares are traditionally quite stable, this has been a dramatic change; indeed, in the aftermath of the 2003 elections it led to a revision of Switzerland’s so-called ‘magic formula’ for cabinet seats, a ratio that had been static since 1959. Between 1959 and 2003, the SVP was clearly the junior member of the Swiss government, with only one ministry in the seven-member executive. This system came under increasing pressure in the late 1990s as the SVP steadily The Partisan Politics of Gold in Switzerland 121 increased its vote share and became the second-largest party in Switzerland after the Socialists (Ladner 2001: 123–44). After becoming the largest party in Switzerland (Figure 3) and after contesting elections in French-speaking cantons, the SVP threatened to go into opposition if it was not given a second seat in the Swiss cabinet. Breaking with 40 years of political stability, the other parties relented and the SVP obtained a second cabinet seat at the expense of the Christian People’s Party (CVP), a centre-right party that had slid to fourth place in the Swiss parliament (Church 2004). In the run-up to the 2003 election, Swiss political parties sought to position themselves during Switzerland’s quarterly referendums on a range

FIGURE 2 SWISS ELECTION RESULTS, 1991–2003

Source: Swiss Federal Parliament 2003.

FIGURE 3 COMPOSITION OF THE SWISS PARLIAMENT, 2003

Source: Swiss Federal Parliament 2003. 122 M. E. Duckenfield of issues. In the September 2002 referendum campaign, the biggest issue was the SVP’s Gold Initiative and the government’s counter-proposal. While the SVP sought to reserve gold proceeds for the AHV, the government, with the tacit backing of the Swiss National Bank, had recommended that the population reject the Gold Initiative and support a proposal that would have provided for distributing the proceeds evenly between the AHV, the Solidarity Foundation and the cantons (Swiss Federal Parliament 2001). The SPS, then Switzerland’s largest party, was the most active supporter of the government’s counter-proposal. The leaders of the SPS anticipated that dividing the proceeds of the gold sales over a variety of programmes ranging from the pension system at the national level to whatever spending initiative local cantons could come up with that would prove popular with the electorate when contrasted with the limited appeal of the Gold Initiative. The SVP, on the other hand, expected that a proposal to shore up the pension system would appeal to older voters who had no desire to see their benefits reduced or their taxes increased. After the parliament passed the government’s counter-proposal, the SVP also hoped the unpopularity of the proposed Solidarity Foundation would attract voters to their scheme. Ultimately, the Swiss electorate delivered an ambiguous verdict, rejecting both the Gold Initiative and the government-backed alternative (Table 3). Probably due to the efforts of the SVP and SPS, both initiatives were favoured by approximately 48 per cent of the voters, just short of the absolute majority necessary to be ratified. However, 16.5 out of 23 cantons rejected the Gold Initiative and 15 of 23 rejected the government’s proposal. With a majority of the electorate and the cantons opposed, Switzerland’s gold policy remained unresolved.

Data and Hypotheses The discussion over gold sales in Switzerland developed into a debate that reﬂected pre-existing political divisions in Swiss society. The most prominent of these divisions is the partisan division between diﬀerent political parties. However, the alternative proposals of the SVP and the SPS also appealed to divisions in Swiss society based along generational and

TABLE 3 REFERENDUM RESULTS, 22 SEPTEMBER 2002

Gold Initiative Counter-proposal Yes 984,058 (47.6%) 984,537 (48.2%) No 1,085,072 (52.4%) 1,057,398 (51.8%) Cantons in support 6 ½ cantons 8 cantons Cantons opposed 16 ½ cantons 15 cantons Turnout 43.6% 43.0%

Source: Swiss Federal Parliament 2002. The Partisan Politics of Gold in Switzerland 123 economic lines. Each of these potential cleavages can be tested to ascertain how salient they were in determining individual political preferences over the distribution of the profits from Switzerland’s sale of gold. In order to test my hypotheses, I used a survey conducted by IPSO in 2000 on behalf of the World Gold Council that focused on many of the variables that are of interest to this study. Importantly, IPSO asked a range of Swiss voters their opinions about gold sales, the use of proceeds from the gold to support the pension system (the Gold Initiative) and a range of demographic and political questions. In addition, because the survey took place two years before the referendum, it enabled me to observe the pre-existing distribution of partisan political loyalty prior to the influence of a targeted election campaign. In other words, using a survey prior to the referendum campaign itself allowed me to observe citizen attitudes – especially among older voters – towards political parties and the Gold Initiative prior to any partisan conversion or recruitment that might have occurred during the referendum campaign. As such recruitment was one of the reasons the SVP promoted the Gold Initiative, using the 2000 IPSO survey has decided methodological advantages over the VOX post-election surveys. Of those surveyed, 53.2 per cent did not support transferring the profits from gold sales to the AHV. This figure is broadly in line with the 52.4 per cent of voters who opposed the Gold Initiative in the 2002 referendum and is also in line with the post-election VOX survey both in terms of the aggregate results and the relevant demographic and political sub-groups (Mahnig and Milic 2002).

Generational Hypothesis As one major political party, the Swiss People’s Party, suggested using the gold reserves to bolster the state pension system, it would seem likely that older voters would find such a proposal attractive. If this appeal had resonance among older Swiss voters, it would be more likely that they would favour the SVP’s Gold Initiative, as such a policy made cuts in pensions less likely and would also reduce the need for additional tax increases. The Gold Initiative promised long-term stability to the finances of the system without the need for hefty tax increases or reductions in government support. Younger residents of Switzerland would, under the assumptions of this hypothesis, be more divided on the Gold Initiative as they would benefit only in the distant future. Respondents to the IPSO survey reported their ages in a range between 18 and 90 with a mean of 47.1 (IPSO 2000) and this variable is used in the analysis.

Class Hypothesis Individuals with greater economic resources and familiarity with a wide range of financial products might be expected to have less of an appreciation 124 M. E. Duckenfield for traditional stores of value such as gold. With greater experience with stocks, bonds, and other more exotic financial vehicles, these citizens would feel more comfortable diversifying their own portfolios and will conse- quently be less attached to a traditional asset such as gold. In particular, professionals would be more inclined to support gold sales as they are the ones who are most likely to own stocks and work in the occupations associated with the Swiss financial sector which was very much in favour of selling gold and investing in paper assets (Interviews with portfolio managers at UBS, Zurich, May 1998; interview with a director of the Swiss National Bank, May 1998). Working class voters would be less inclined to support a sale as manufacturing industries would be unlikely to benefit from this re-investment and they would tend to prefer the ‘safety’ of gold as a store of value as opposed to the risks entailed in investing in paper assets. The IPSO survey has a measure of household income in nine categories that range in increments of approximately SwFr2,000 from those making below SwFr3,000 per month to those with a monthly income in excess of SwFr20,000. The median monthly income was in the category between SwFr4,500 and SwFr6,000, which roughly corresponds to the Swiss government’s measure of average monthly incomes of SwFr5,500 in 2000 (Swiss Federal Office of Statistics 2000). Income is only one measure of social class and other metrics are possible.3 The post-referendum VOX surveys tend to use education; however, with the expansion of higher education beginning in the 1960s, education is also highly correlated with age, one of the primary socio-economic variables in this study. To avoid issues of multicollinearity and inflated error terms in the analysis (Greene 1993: 267, 270; King et al. 1994: 123), household income was used to measure an individual’s social class.

Partisan Political Hypothesis Political parties help to deﬁne policy issues for voters and structure the way in which the public perceives an issue. As aggregators and organisers of otherwise diverse interests, political parties play an important role in mediating political debates (Schattschneider 1942; Bawn 1999; Boix 2000). It appears that the debate over what to do with Switzerland’s gold reserves was driven in large measure by parties seeking electoral advantage over one another rather than a concern for the interests of diﬀerent generational, class or economic interests. It is not so clear whether the population was responsive to such partisan machinations. If the electorate was driven by partisan political motivations, rather than by underlying socio-economic factors then support for various parties should be strongly correlated with political action. It would be expected that supporters of the Swiss People’s Party, the sponsor the Gold Initiative, and other conservative parties would be more inclined to favour using the proceeds from gold to bolster the pension system than supporters of parties of the centre and the left. The Partisan Politics of Gold in Switzerland 125

In contrast, voters supporting the Social Democrats, which led the opposition to the Gold Initiative, would be more inclined to support the government’s alternative to the SVP’s proposal. An examination of voting results and referendum returns at the canton level reveals there is a strong correlation between support for the SVP and support for the SVP-backed gold initiative (Figure 4). Indeed, nearly one- half the variation in support for the Gold Initiative between cantons can be explained by variations in the level of support for the Swiss People’s Party in the 2003 National Council elections; similar results are obtained with data from the 1999 elections. Increasing the SVP’s vote share in a canton from one-quarter (25 per cent) to one-third (33 per cent) leads to an increase in the predicted level of support for the Gold Initiative from 44.5 per cent to 50.7 per cent, enough to pass the referendum in a given canton. However, aggregate-level data can be misleading when used to infer attributes to individuals (Robinson 1990). These results are an indicator that partisan support might be a powerful influence on support for the Gold Initiative. However, drawing an individual-level measure of the relevant variable, party support, increases our leverage on this issue (King et al. 1994: 30). The IPSO survey includes party identification as a variable and for the purposes of this analysis that variable was recoded into a three-part categorical variable to distinguish between the SVP and parties of the centre and left. Backers of the SVP were given their own code while supporters of the SPS, Greens, and ‘left’ parties were scored as leftist supporters. Unaffiliated voters, supporters of other conservative parties, the FDP, CVP, unidentified ‘centre’ parties and all those listing ‘other’ in response to party affiliation were given an intermediate party category code.

FIGURE 4 GOLD INITIATIVE AND SVP SUPPORT BY CANTON 126 M. E. Duckenﬁeld

Control Variable: German Ethnicity Switzerland has three official language groups: Germans, French, and Italians. A small minority also speak Romanche and other languages and there are long-standing political differences among the different population groups. Some political parties are more active in some areas than others. For example, prior to the 2003 elections, the SVP was active almost exclusively in German-speaking cantons while the SPS has a national presence. If high levels of support for the SVP’s referendum initiative are, in fact, merely reflections of unobserved social characteristics of the German- speaking cantons where the SVP traditionally competes rather than due to the political influence of the SVP, then the specifications of the model will be biased. In order to control for the potential confounding influence of German ethnicity on support for the SVP, residence in a German-speaking canton is included as a control variable. The IPSO survey had equivalent sample sizes for German and French regions and over-represented Italian regions in order to achieve statistically significant results for the sub-samples (Personal correspondence with Petra Huth, GfS-Forschungsinstitut, 1999). Because of the nature of the model, no weighting is necessary; however, it is worth noting that the under-representation of the German population in the sample diminishes the number of German (and hence of SVP-supporting) respondents, leading to a potential increase in their error terms and making tests of their statistical significance more difficult.

The Model The dependent variable, favouring the use of proceeds from gold sales to support the pension system, is dichotomous. To test my three hypotheses, I used a logistical regression (logit) to determine the probability that a respondent would support the Gold Initiative. For any given respondent X, we would expect the following equation to yield the probability that they would support using the proceeds of gold sales to ﬁnance the AHV:

PRðGold ¼ 1Þ expðB þ B Party þ B Income þ B Age þ B German Þ ¼ 0 Party x Income x Age x German x 1 þ expðB0 þ BPartyPartyx þ BIncomeIncomex þ AAgeAgex þ BGermanGermanxÞ Table 4 indicates the different predicted values for the beta-coefficients for the three explanatory variables that would be predicted by each of our three hypotheses. A second model with the control variable was also specified. Model 2 adds a variable for German ethnicity in order to control for the fact that the SVP predominantly competed in German-speaking areas of Switzerland. This variable ensures that the regression takes into account any unobserved social, economic and political effects in German-speaking cantons that might be highly correlated with support for the SVP. The Partisan Politics of Gold in Switzerland 127

Estimation Results The regressions reported in Table 5 test the three hypotheses. This analysis of the data supports the proposition that both partisan political factors and generational economic interests were major factors in determining an individual’s support for using gold sales to finance the AHV. Class or economic interest, as measured by household income, are not significant variables. Intriguingly, the more parsimonious Model 1 was superior to the more inclusive Model 2 in terms of accurately predicting whether or not a respondent would support the Gold Initiative. While including controls for German ethnicity did improve the overall fit, it actually decreased the likelihood of making correct predictions. The coefficients for age and party were only slightly affected by inclusion of the German dummy variable, an indication of their robustness. The class hypothesis is rejected because the coefficients for its proxy variable, income, are statistically insignificant. Further evidence that its coefficients are not significantly different from zero can be inferred from the change in signs the coefficient undergoes in Model 2

TABLE 4 HYPOTHESES

Partisan Class Generational

Predicted Values BParty 4 0 BParty insignificant BParty insignificant BIncome insignificant BIncome50 BIncome insignificant BAge insignificant BAge insignificant BAge 4 0

TABLE 5 REGRESSION RESULTS, SUPPORT FOR GOLD INITIATIVE

Model 1 Model 2 Beta (standard error) Beta (standard error) Constant 71.722* 71.945* (0.289) (0.300) Age 0.030* 0.031* (0.005) (0.005) Party 0.349* 0.327* (0.111) (0.112) Income 0.004 70.010 (0.042) (0.042) German 0.501* (0.151) Number of observations 796 796 % Correct 62.9% 60.9% 72 Log likelihood 1029.840 1018.787 Nagelkerke R2 0.095 0.112

*Significant at the 0.01 level or better. 128 M. E. Duckenfield when the German dummy variable is included as opposed to Model 1 that did not include the extra variable. Clearly, the influence of income is of limited value in predicting individual attitudes towards the Gold Initiative. The regression results strongly support both the partisan hypothesis and generational hypothesis. Support for the SVP was, as expected, positively correlated with support for selling gold to fund the AHV. Even when controlling for the potential influence of residence in a German canton, the SVP’s positive influence on individual attitudes towards the referendum is statistically significant. In contrast, supporters of the SPS and other left-of- centre parties were extremely unlikely to support the Gold Initiative. The age of the respondent was also strongly correlated with support for the referendum. The older the respondent, the more likely they were to favour propping up the state pension system with gold sales. The results for both age and partisanship are not simply statistically significant, they are quite substantial in real terms. Because the results of logit regressions are expressions of probable outcomes, precisely how variations in one variable affect the probable outcomes are dependent on the value of other variables. For instance, depending on their age, supporters of the Social Democrats were 5–25 per cent less likely to support the Swiss People’s Party’s initiative than a supporter of the SVP, ceteris paribus. Figure 5 illustrates how changes in partisanship and age lead to different probabilities of support for the Gold Initiative. Using 95 per cent confidence intervals, we can compare the probability of an SVP voter supporting the Gold Initiative with that of supporters of parties of the left across ages ranging between 18 and 90. For the purposes of this illustration, which uses coefficients from Model 1, income is held at its median position. When a respondent was at the minimum age (18), they had the lowest probability of supporting the pension bail-out regardless of party affiliation. However, there are clear differences between backers of different political

FIGURE 5 PROBABILITY OF SUPPORT FOR GOLD INITIATIVE The Partisan Politics of Gold in Switzerland 129 parties. A supporter of the SVP had a 52.1 per cent probability of backing the Gold Initiative. In comparison, someone who backed the Green Party had only a 28 per cent chance, a difference of over 24 per cent. Increasing a leftist party backer’s age from 18 to 41 would bring their probability of supporting the Gold Initiative up to 51.9 per cent. Put another way, a teenage supporter of the SVP is more likely than a 40-year-old leftist to favour using gold for the pension system. A similar increase in age for a teenage backer of the SVP (from 18 to 41) would result in a likelihood of 64 per cent that they would back the Gold Initiative, a level that a backer of the SPS would not achieve until they reached the retirement age of 65. With income and age held at their median values, Social Democrats were 10 per cent less likely to support the Gold Initiative than supporters of the SVP. Across the age spectrum, there is a statistically significant difference at the 95 per cent confidence level between the SVP and left-wing parties in their support for the Gold Initiative. The difference does erode once an individual reaches retirement age, but even at those extreme values, the differences remain significant. In contrast, income was insignificant statistically and substantially. Increasing income from its minimum to its maximum yields at best a 2 per cent increase in support for the Gold Initiative regardless of age or level of party support. This provides strong evidence in support of both the generational and partisan political theories and disconfirming evidence of the income-based hypothesis.

Conclusion Switzerland’s decision to sell a large proportion of its gold reserves created a large potential source of funding for a variety of political programmes. Within this context, different parties promoted various proposals in attempts to garner popular support. In an attempt to distinguish itself from its rivals and attract voters, the conservative SVP launched a popular initiative to require the federal government to use the profits from selling Switzerland’s gold reserves to stabilise the finances of the state pension system. I theorised that partisan political, generational and class-based motivations could sway voters in how they responded to the Gold Initiative. Older voters should look favourably on any proposal that promised to repair the AHV. Supporters of the SVP should be inclined to support their party’s popular initiative out of party loyalty. Wealthier voters who are more sophisticated financially would be less reliant on state pensions in their retirement and would prefer that the proceeds of gold sales be used for other purposes more to their benefit. In the case of support for the SVP and support for the Gold Initiative, election returns from the Swiss cantons reveal that the Gold Initiative did best in cantons where the SVP had the most electoral success. This certainly suggests a linkage between party identification and support for the Gold Initiative. An individual-level analysis based on a national survey was even more revealing. Supporters of the SVP were substantially more likely to support the gold Initiative than parties of the left. This held true across all 130 M. E. Duckenfield ages and income levels. In addition, age proved to be a highly significant and influential variable, providing support for the generational hypothesis. Income-based measures proved inconclusive. The findings presented here support the proposition that political parties help to structure political debate in a society as they seek electoral advantage over their rivals. However, in line with the existing literature, their ability to frame the debate does not erase existing societal interests. In this case, the interests of older Swiss citizens in a stable pension system made them attractive potential constituents for the SVP in its attempts to use populist messages to expand its political base. Whether the SVP can translate its own parliamentary electoral success into favourable pension policies in spite of the failure of the Gold Initiative is another question.

Acknowledgments I owe particular thanks to Gabriela Gomez-Carcamo, Robert Pringle, Hugh Williams, Henry Harington, Dick Ware, Gary Meade, and Petra Huth for input and assistance over the course of this project. I would also like to thank Peter Mair and an anonymous referee for their helpful suggestions. The dataset used in this paper is derived from a survey that IPSO conducted on behalf of the World Gold Council. The World Gold Council kindly provided me with access to their polling data for my research. The conclusions I draw from the data are my own and do not represent the opinions of the World Gold Council or IPSO.

Notes 1. Originally the agreement was commonly referred to as the Washington Agreement on Gold (WAG); however, in the early 2000s, observers increasingly came to refer to it as the Central Bank Agreement on Gold (CBAG). This was probably in anticipation of a new agreement that could be called the Second Central Bank Agreement on Gold. This agreement was not expected to be reached in Washington; indeed, it was ultimately reached in Basel, Switzerland under the auspices of the Bank of International Settlements (BIS) in March 2004 (European Central Bank 2004; Duckenﬁeld 2004: 523–4). 2. The proposed ‘Solidarity Foundation’, which would be funded by the Swiss government and has not yet (August 2005) come into existence, should not be confused with the privately- funded ‘Swiss Fund for Needy Victims of the Holocaust/Shoah’ which began operations in September 1997. The ‘Swiss Fund’ is sponsored by Swiss banks, insurance companies and the Swiss National Bank acting in a private capacity. In public debates, the two organisations are often confused, but they are separate and distinct organisations. 3. I am indebted to the anonymous referee for this point.

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