Taking Economic Advice from Monaco

Once upon a time money problems were the rule rather than the exception in the Principality of Monaco. The Grimaldis seemed to be constantly cash-strapped and one of the things that had to be considered when marriage discussions were going on was usually how big a dowry the lady in question could provide. However, all of that began to change during the reign of HSH Prince Charles III, though it was not the events of his time which would bring really lasting success. Financial problems mostly became a thing of the past under Charles III because of the gaming industry, done in grand style in Monte Carlo at a time when gambling was illegal almost everywhere else. That, obviously, gave Monaco a considerable advantage when it came to attracting big-spending tourists. The gaming industry put Monaco on solid financial ground but it could not depend on such an industry forever. During the reign of HSH Prince Albert I more countries legalized gambling which cut into Monegasque profits and there was World War One which caused tourism to dry up and also cut down on the traditional customer base of Monte Carlo (royals and aristocrats). However, from that time on, particularly under Albert's successors Louis II and Rainier III, Monaco adopted the policies that would lead to lasting economic success. Could other countries learn from her example?

The first thing to do: get yourself a monarchy if you have the misfortune to be without one. Honestly, most people in the world would not even know Monaco exists were it not for the Princely Family. How many people have heard of San Marino? Even Andorra, although a monarchy, has no resident Princely Family of their own and is often overlooked. The Grimaldis are the greatest ambassadors Monaco could have, attracting tourists and highlighting the best aspects of the country. They also provide 'charitable leadership' which we will get more into in a minute. The most significant thing about the economy of Monaco is that the Monegasque have purposely pursued a very low-tax and pro-growth strategy. They have fostered a very pro-business and pro-investment environment by imposing no income taxes and respecting the privacy and private property rights of people in Monaco. The Principality has made no secret of the fact that they try to encourage wealthy people to come to Monaco. What happens when lots of very wealthy people come to a country? They spend a great deal of money, they buy things, they employ people and bring businesses to the country that employ more people, giving those people money to spend that goes back into the economy.

Some may be wondering, 'what about the poor?' because, of course, not everyone can be rich. Well, first of all, (and funny thing this for all those who think that the rich make people poor) there are no poor people in Monaco. No one lives below the poverty line, no one is starving and no one is begging in the street. Why? Because the business and investment-friendly environment means that there are always new jobs opening up and there is no unemployment in Monaco (and that's no joke, the unemployment rate is 0%). However, this is also where we get back to the monarchy and "charitable leadership". The Princely Family makes charity and charitable causes fashionable and when so many people have so much, they can afford to give much more to those who need assistance. The high-society life that goes with the wealthy is channeled by the monarchy to good causes, in the country itself and all around the world. Since there is little need in Monaco itself, the Principality is home to a multitude of non-profit organizations that help people in almost every corner of the globe and, particularly since the accession of HSH Prince Albert II, also to causes which benefit wildlife and the environment. Of course, the economic crisis in which the world currently finds itself has been felt in Monaco, but compared to others, the Principality has remained mostly untouched and prosperous, a place with no income tax yet where the government takes in more revenue than it spends. The Princes of Monaco have developed a formula for success that other countries would do well to take a second look at.

Monaco and Economic Success

There are many liberals who love Monaco (and God bless them -I do hope I do not dissuade them) and those who do, in my experience, tend to be those who focus on results rather than on forms and styles. They do not know or (less often) do not care that, even with the most recent changes in the Monegasque constitution, the country is still, in fact if not in name, an absolute, hereditary monarchy. It is also an officially Roman Catholic absolute monarchy. However, I have seen some American liberals actually sigh in admiration at the power wielded by HSH Prince Albert II when he acts on environmental issues that they agree with him on. I have heard them sound rather envious that, when a certain Mediterranean fish came under threat, Prince Albert was simply able to decree it illegal to catch that type of fish in Monaco’s extensive territorial waters or to sell or consume that fish in the Principality without having to go through any long political argument over the subject. Most, however, are not that well informed. They are not ignorant in this regard, they simply have other priorities than the constitutional situation of a microstate on the French Riviera. What they do know is that Prince Albert II is a sincere and committed environmentalist, they know that Princess Caroline does immense good for orphans and poor children in Africa and elsewhere and that Princess Stephanie is a champion for AIDS victims and those with HIV. They help causes most liberals support and that is enough.

I am very grateful for that and I can salute such liberalism for their sincerity in their devotion to these causes. However, the story of the success of Monaco is largely (but not entirely) a success story of capitalism. Furthermore, the Princely Family would not be able to champion so many worthy causes were it not for the economic independence that came with the House of Grimaldi becoming a very wealthy family, roughly since the establishment of the gaming industry, which had certainly not always been the case in the more than seven centuries of Grimaldi rule over Monaco. Before capitalists get too excited, it must be said that a large part of the economic history of Monaco has been one of government controls in certain areas and extensive use of monopolies. However, in other ways, the economic policies which have made Monaco such a haven of prosperity are policies which many capitalists would support and only wish they could emulate in their own countries around the world. Capitalists would not agree with everything but I think they would be more happy than the socialists if more countries looked to follow the example of Monaco in trying to imitate their model for prosperity.

Monaco had a very modest existence for most of its history, getting by on fishing and farming for the most part. However, that all changed with the reign of Prince Charles III. Monaco was drastically reduced in size, all but eliminating any possibility for agriculture and, later, during his reign the gaming industry was established with the Monte Carlo Casino. When Monaco became connected to France by rail tourism also vastly expanded (the only prior routes to Monaco being by sea or narrow, dangerous mountain paths). As gambling was then outlawed in France (and most of the rest of Europe) Monaco and the Princely Family became very wealthy very fast on revenues from the casino and the tourism industry. That was how prosperity first came to Monaco, but far-sighted princes knew it wouldn’t last and indeed it did not as gambling became legal in other countries the number of visitors to the gaming tables in Monte Carlo naturally declined. However, the Princes of Monaco took care to invest for the future and today the gaming industry only accounts for a small fraction of the income of Monaco. Tourism is still quite important but even more so is finance, commerce and increasingly environmental research.

The arts and sciences flourish in Monaco but, it must be said, this, as well as the widespread philanthropy of the Princely Family and others, would not be possible were it not for the abundance of quite wealthy citizens and residents of Monaco. The primary reason many wealthy people flock to Monaco is quite simple; the lack of a personal income tax. In fact, when the socialists were at the height of their power in the United Kingdom, English was almost an unofficial second language in Monaco as so many “tax refugees” relocated to the principality to escape the enormous tax burden of life in Britain. At times this has led to some friction with foreign countries. At one point, relations between Monaco and France became quite tense due to anger in Paris over the large number of French citizens who escaped French taxes by relocating to Monaco. Because of that, and the special relationship Monaco has with France, a legal exception was passed so that French citizens can no longer avoid paying taxes by living in Monaco. However, there is no doubt that the immense prosperity Monaco has enjoyed in our time is due in large part to having no personal income tax, no overregulation and a very pro-business and pro-investment environment.

This has attracted a very wealthy population and many, what we might call “elite” industries to Monaco. As a result, Monaco has consistently enjoyed a very high national income, a very high standard of living and a 0% unemployment rate, almost unheard of anywhere else in the world. It also means there are an abundance of people who can afford to give generously to the many charities which operate out of Monaco, including those organized by members of the Princely Family, which do an immense good for huge numbers of people around the world and, in the case of those championed by Prince Albert II especially, do good for the world itself. Other countries, envious of the wealth in Monaco, might do well to stop angrily trying to change the country and instead trying to emulate its formula for success and sustained growth. Monaco has also been able to accomplish this by maintaining their much prized independence. The country is in a customs union with France (and has been for a long time), which is necessary, and though Monaco is not a member of the European Union, it is a member of the Eurozone and mints its own Monegasque Euro coins. Obviously, not everyone in Monaco is extremely wealthy but the country is almost alone in the world in having no poor and those who are not so well off as the rich are easily cared for because the economic environment, which does not look to punish success, has attracted a population wealthy enough to easily take care of the less well to do.

Monaco is a stunning example of what can happen when the people of a country are allowed to keep and control their own money and dispose of their wealth as they see fit. Monaco, in this regard, is one of the best kept secrets in the world with a political and economic system that is able to satisfy the most ardent liberals and conservatives alike. Taxes are low, people keep their own money, invest it as they please, creating wealth, creating prosperity and there is a monarchy which, through numerous charity galas throughout the year, provides a social incentive for these wealthy people to give generously to help the underprivileged and sponsor (quite often) liberal causes they might otherwise not. Conservatives appreciate the traditional structure, the low taxation and the pro-business atmosphere while Liberals appreciate the efficiency of the government and the liberal causes that are sponsored, funded and promoted by the Princely Family and the many charitable organizations. It all works together to make the Principality of Monaco one of the most successful and prosperous countries in the world as well as one that does immense good for people across the globe with the proud support of a loyal population at home and many friends abroad.