Q: There has been significant controversy concerning Liechtenstein’s banking system, with some calling the nation a haven for tax evaders. How does Liechtenstein balance protecting the secrecy of bank clients with its interest in eliminating tax crime?

A: It is necessary to differentiate between tax offenses which represent a “minor offense” and are collectively known as “tax evasion,” and tax offenses which are collectively known as “tax fraud,” considered criminal offenses under Liechtenstein law and pursued appropriately by our courts. In the case of tax fraud offences, we have been assisting foreign countries in the enforcement of related laws for many years. With the so-called “Liechtenstein Declaration” of March 2009 Liechtenstein recognised the standards set out by the OECD for the exchange of information related to tax evasion with foreign tax authorities upon request (i.e. such information is not provided automatically). Any third-party state can now sign a bilateral agreement with Liechtenstein on the exchange of tax-related information. Only specific requests for specific information on a specific person are covered by these agreements.

Q: Liechtenstein has historical and cultural ties to Germany. As foreign minister, could you talk about your relationship with Angela Merkel’s government?

A: Liechtenstein has had an excellent relationship with Germany for many decades. As the question suggests, that relationship is founded on a common language and a similar cultural-geographical position in the European landscape. It is reflected in a wide range of joint initiatives carried out by the two countries and a close cooperation in areas such as justice and environmental protection.

At a certain time during Chancellor Merkel’s tenure, the relationship between our countries was clouded by an unusually aggressive stance towards Liechtenstein by the incumbent German Finance Minister. The discussions were on a specific incident – the criminal sale of data to the German authorities by a Liechtenstein citizen – which was the basis for a broad campaign against “tax evaders” by German authorities. With the above-mentioned policy change the dispute eased to a large extent. It has been possible to arrive at an agreement on tax-related data, and a double taxation agreement is set to be concluded in the near future. We are looking forward to continuing the regularly excellent relationship with Germany.

Q: Liechtenstein is a member of the European Economic Area (EEA) and the European Free Trade Association (EFTA) but not the European Union (EU). What is the relationship between Liechtenstein and the EU and why has the country not joined the EU?

A: Liechtenstein has now been a member of the EEA for 15 years, and that membership has proved to be an especially suitable model for Liechtenstein’s integration into Europe, especially  given the size of the country. Its EEA status entitles Liechtenstein to pursue and benefit from all four “freedoms” – freedom of persons, freedom of goods, freedom of capital and freedom of services – and this in turn makes Liechtenstein an outstanding environment for both residents and businesses. Liechtenstein is obliged to grant those same freedoms to other EEA member states, which include all 27 EU countries and not just Liechtenstein, Iceland, and Norway. The EEA does not, however, include political cooperation, which is restricted to EU countries, nor cooperation on tax-related issues. The latter requires the adoption of other legal instruments, for example the Schengen Agreement or the Anti-Fraud Agreement. Liechtenstein has already given the green light to both agreements, while EU ratification is still outstanding.

Given the advanced level of Liechtenstein’s integration into Europe, an EU membership is currently not discussed in Liechtenstein. For its part, the EU has never made a statement on the way in which it would handle accession requests from small states.

Q: The monarchy of Liechtenstein has significant amounts of power, even the constitutional authority to veto (almost) any law. How is Liechtenstein’s government consistent with representative democracy?

A: Liechtenstein is a constitutional, hereditary monarchy on a democratic and parliamentary basis. The power of State is embodied in the Reigning Prince and the People and is exercised by them in accordance with the provisions of the Constitution (article 2 of the Constitution of 1921). The Constitution stresses that the head of state (the Prince), the government, and the parliament are to work together in adopting laws. The right of Liechtenstein citizens to request a referendum and to introduce a bill is comparable to the one of Swiss citizens.

Though it is true that every law and significant element of foreign policy requires approval from the head of state, it is nevertheless extremely rare that the Prince exercises his power of veto. The contents of new laws are agreed with him well in advance. This situation is comparable to countries that have a president as their head of state – just think of the level of power and status given to the President of the United States. The only significant difference is that Liechtenstein’s head of state is not elected, but defined by the right of succession – the so-called “House law” – of the Liechtenstein Royal Family. The citizens of Liechtenstein passed the country’s constitution by a significant majority, and under specific circumstances, the constitution even allows for the removal of the head of state on the initiative of the people.

China’s economy is strong despite the global recession. “Make Way For The Rise Of Asia” says Kishore Mahbuban, author of “The New Asian Hemisphere: The Irresistible Shift of Global Power to the East.” Many academics, journalists and businesspeople share Mahbuban’s opinion that America is declining economically and that China is the next superpower. Their predictions are premature, as it will take decades before it can be called the world’s economic superpower. Fortunately for the U.S., it is far from losing its international edge in business and innovation.

China’s prosperity should be welcomed. It benefits the Chinese people through better living standards, social mobility, economic freedom and improved government safety nets. China’s growth will also increase demand for foreign products and spur trade.

Despite its strengths, China still lags far behind the U.S.—especially in economic freedom and its capacity for innovation. Its GDP per capita is relatively low and its government inhibits innovation. While China should be recognized for its progress and strong economy, it is ridiculous to discount the U.S.’ economic potential or prematurely pontificate about American decline. The U.S.’ diverse population and capacity for innovation will keep it economically competitive and geopolitically strong for years to come.

Proponents of America’s decline make it appear as if China outperforms the U.S. both economically and educationally. In China, however, more than 20 million college students have few job prospects and half of its engineering graduates only have associate degrees. Naturally, given China’s massive population, it will eventually overtake the U.S. in its population of scientists. The U.S. though, educates more engineers per capita than does China and in its 2008-2009 report, the World Economic Forum ranked the U.S. as the most competitive economy. Minxin Pei, senior associate at the Carnegie Endowment for International Peace, says that despite China’s rapid growth, it will take nearly 50 years for the average income in China to equal the average income in America.

A recent article in the New York Times suggests that job opportunities for American graduates in China are plentiful and that so are the Americans seeking these positions as evidence of American economic decline. It recounts stories of Americans and their successful jobs in China; yet, it cites no research and provides no concrete figures. Some Americans may easily find work in China like the Americans in the article. Shaun Rein, founder and managing director of the China Market Research Group thinks not. Jobs for recent college grads are scarce in China. And Rien says that Chinese companies would rather hire Chinese employees who understand both American and Chinese cultures than American applicants. Rein says that Americans have to convince employers that they are more valuable than the Chinese applicants—hundreds of thousands of whom have the same western education as the Americans.

Jobs are scarce in China. Unemployment in cities is officially 4.3 percent, but unemployment among last year’s Chinese graduates is about 12 percent. And the number of Chinese college students is growing. The bottom line is that Americans will struggle to find jobs in China just as they will in the U.S.

Both countries suffer slow growth and high unemployment rates in this tough economy. The difference between the U.S. and China is that American culture and its government fosters innovation. The U.S. is home to a majority of the world’s most innovative companies and people. In 2003 IBM, an American company garnered five times as many patents as China and India gained combined. In 2008 the U.S. still greatly outpaced China in the number of patents generated.

Former Woodrow Wilson School dean and current Director of Policy Planning for the U.S. State Department, Anne Marie Slaughter talks about America’s creativity in “America’s Edge,” published in Foreign Affairs this year. She says that the U.S.’ capacity for networking will “renew its power and restore its global purpose.” Slaughter says that China’s economic and political policies will prevent it from becoming an international leader in economics.

American companies and even American universities are experts at networking and marketing themselves and their products. Slaughter explains how American multinationals use networking to create well-selling products in markets around the world. A recent article in The Economist points to America’s history to show how important marketing has been for American innovation: “Edison did not invent the light bulb and Ford did not think up the motor car, but both came up with the business-model innovations required to profit from those marvels.”

American universities also market themselves to draw foreign students who contribute greatly to innovation in America. Fareed Zakaria, author of “The Rise of the Rest,” says that nearly half of all science researchers in the U.S. are either foreign students or immigrants. Foreign nationals made up 62% of all PhDs in the 2006 in the U.S., but they only comprised 7% of all B.S. degrees. Although the stay rate—percentage of foreign students who stay in the U.S. upon graduation—decreased slightly over the past few years, it remains high. A little over two-thirds of foreign PhD students stayed in the U.S. for at least 2 years after graduation. The stay rate will depend on America’s economy and immigration policies and whether foreign students and researchers have job prospects there in the future. As of 2009, the U.S. State Department is reworking its policies to reduce the time it takes to process Visas to two weeks.

For now though, as a 2008 RAND corporation report says, “America accounts for 40 percent of the total world’s spending on scientific research and development, employs 70 percent of the world’s Nobel Prize winners and is home to three-quarters of the world’s top 40 universities.” Diversity helps America discover new markets. Like Henry Chesbrough of the Berkeley Haas School of Business says, Americans are so successful at marketing because of their “ability to listen to, and learn from, customers in new markets.”

The Chinese government is trying to increase its capacity for innovation through state-created communities that consist of University campuses and research centers of International and Asian firms. These state-planned centers of innovation will not recreate the dynamic environment that encourages innovation in the U.S. because innovation comes from what Slaughter describes as “positive conflict”—the ability to challenge the status quo. China wants to produce more innovative citizens yet it controls the simplest aspects of their lives.

During the 2008 Beijing Olympics, China exposed how strictly its censors media. Foreign journalists were appalled by how much the government censored the internet. Chinese journalists also face tough restrictions—China leads the world in number of Journalists imprisoned. The Chinese government controls foreign trade just as strictly. On August 12th, 2009 the WTO ruled that China has been violating trade rules by restricting imports of media—movies, music etc. The state film distribution organization, China Film Corp., can decide for example that this summer the Chinese people will watch Harry Potter and not Star Trek. Unless China allows its people more freedom, both personal and economic, its private sector will remain stifled and small.

China has a strong and growing economy that is helping many people escape poverty and improve their lives. The U.S. and the world though, should not lose confidence in America. Eric Schmidt, CEO of Google’s reminds us that, “innovation is how America works…creative destruction, this constant process of layoffs and new jobs and new companies and so forth is key to America’s competitiveness.” That mentality will make America the world’s most competitive economy for decades to come.