If you ran your family like a multinational company, where should you be based? We know global corporations look for low taxes to put up at least a mailbox and name it their headquarters, but what would you look for? Low violence, long lifespans, transparent governments, and a view of the ocean? Thankfully, The Economist did the work and answered that question for you, and though it doesn't have much beachfront, the answer is Switzerland. Don't pack up and head for the Alps just yet, though, because although entertaining, the ranking illustrates many issues with these types of subjective studies.
More than just a tax and clock haven
How was Switzerland chosen, while the USA tied with Germany for a middling 16th place? The survey was based on life satisfaction scores that included GDP per capita, life expectancy, and job security, as well as divorce rates, temperature, rainfall, and number of female government representatives. Obviously, this survey makes judgements that some may not agree with -- for instance, that divorce, rain, and hot weather are bad. However, any survey attempting to measure something subjective has to make these type of calls, which highlights how meaningless these types of polls just might be, depending on what a person values.
Additionally, this study takes into account forecasts for expected economic growth. And even though many economists try to accurately pinpoint future numbers, it's incredibly difficult to foresee what will happen a year from now, let alone 20 years from now.
For an example of how difficult it is to predict what even the near future will look like, take these gross-national-product estimates, published in early 1988 by the Congressional Budget Office for the years 1988 to 1993, compared with that actually happened:
|Estimated GNP Growth||5.8%||6.8%||6.8%||6.8%||6.9%||6.9%|
|Actual GNP Growth||7.8%||7.5%||5.9%||3.2%||5.8%||5.1%|
This report couldn't even forecast GNP at the end of that year, let alone the economic slowdown a few years down the road. So take any economic forecast -- or survey based on an economic forecast -- with a hefty grain of salt.
Even analysts can't forecast the future
So, when Switzerland is noted for its potentially well-off future, remember that over the past 25 years, analysts drastically overestimated earnings growth for the S&P 500 (SNPINDEX: ^GSPC ) . According to a 2010 McKinsey & Company study, while average growth estimates ranged between 10% to 12%, actual earnings growth came in at 6%. While analysts may expect flying cars next year, chances are they'll still be on the ground.
Take Apple's (NASDAQ: AAPL ) latest quarter, where analysts forecast earnings of $8.75 per share. Its earnings came in at $8.67 per share -- still a healthy 24% growth rate but low enough for Apple to continue sliding down from highs of about $700 per share to its current price of about $510 per share.
Or consider Microsoft's (NASDAQ: MSFT ) latest quarter, where analysts forecast earnings of $0.56 per share. Earnings came in about 5% lower at $0.53 per share, and Microsoft shares have since fallen from $29 per share to their current price of about $27 per share.
Betting on the right factors
With accurate forecasts so difficult to perfect, the best we can do is look at how a country or company is currently positioned to handle what might come.
While America has lost some of the demographic steam that could keep it humming, it is gaining the ability to become energy-independent through domestic natural gas. This, along with a recovering housing market and the end of debt-shedding for consumers, could place America in a prime position for spectacular growth in the near term.
Switzerland, on the other hand, has to contend with the surrounding euro crisis. Additionally, as global governments crack down on companies dodging taxes through tax havens, new regulations and treaties may make Switzerland less attractive than it has been for businesses and the financial sector. For example, look at Starbucks' (NASDAQ: SBUX ) recent tax spat with the U.K. over, among other things, transfer pricing between its Swiss coffee-purchaser. This will end with Starbucks paying taxes and altering its accounting methods for the next few years, potentially eliminating any benefit from purchasing coffee from its Swiss subsidiary.
Of course, this may also be nothing more than a sign of my own home-country bias. But there are plenty of American companies that are great avenues for investing in other countries, giving you exposure to both American and global growth.