Latest / The Productivity Podcast with Fexingo: Output, Efficiency, and Long-Term Economic Growth / How a Tiny Swiss Village Beat the National Productivity Slump
Transcript
- Lucas: Switzerland's productivity numbers have been pretty flat for a while. Between 2000 and 2024, labor productivity growth averaged under one percent per year — well below the OECD average. And economists have spent a lot of time trying to explain that. Luna: Right. The usual suspects — aging population, dominant banking and pharma sectors that are already highly efficient, maybe Baumol's cost disease creeping in. Lucas: Exactly. But there's a village in the canton of Graubünden, up in the Swiss Alps, that has been growing productivity at over three percent annually for fifteen years. Double the national average. And it's not a biotech hub or a fintech startup. Luna: What is it? Lucas: It's a village called Vrin. Population about 250. And its economy is built around an integrated timber cooperative. They harvest local larch and spruce, process it in a community-owned sawmill, and use it to construct buildings — residential and commercial — all within a thirty-kilometer radius. There's almost no export. Luna: So the whole value chain is local. Harvest, mill, construction, end user. That's rare. Lucas: It's extremely rare. Most timber towns ship raw logs elsewhere. Vrin stopped doing that in the 1990s. They realized they were losing most of the economic value. So the cooperative invested in a sawmill, then in a construction company, then in a design studio that specializes in timber architecture. Luna: And the productivity gains came from that vertical integration? Lucas: Partly. But the real driver was something else. The cooperative doesn't just own the chain — it also owns the training programs. Every local worker gets certified in modern timber construction methods. So over time, the village's workforce became specialized in exactly the tasks the cooperative needed. No mismatches, no retraining lag. That boosted labor productivity directly. Luna: So you're saying the productivity improvement came from human capital alignment, not just capital investment. Lucas: Exactly. The Swiss Federal Institute of Technology in Zurich studied Vrin in 2022 and found that the village's labor productivity in construction was forty percent higher than the national average for the same sector. And it wasn't because they used fancier machines. It was because every carpenter and sawyer knew the entire process. They could anticipate the next step. That reduced downtime and waste. Luna: I'd love to see the numbers on waste. In traditional construction, material waste can be fifteen to twenty percent. Lucas: Vrin's waste rate was under five percent. The sawmill uses every part of the log — bark goes to biomass heating, sawdust to particleboard, offcuts to smaller joinery. Nothing leaves the village except finished buildings. So the material productivity is also very high. Luna: That's a closed-loop system in a tiny alpine village. It sounds almost like a circular economy pilot. Lucas: It is. And the interesting thing is that Vrin's model has been replicated by about a dozen other Swiss mountain communities. Not all of them succeeded. The ones that did had a few conditions in common. One, they already had a strong cooperative tradition. Two, they had a local champion who pushed for the vertical integration. Three, they were willing to accept slower growth initially — the sawmill took years to become profitable. Luna: So the payoff took a while. That feels important for the broader productivity conversation. A lot of policy focuses on quick wins — tax incentives for R&D, deregulation. Vrin suggests that patient, community-level investment in value chains can also work. Lucas: Right. But it's not scalable in the usual sense. You can't roll out the Vrin model to a city of a million people. The whole point is that it's small-scale and trust-based. However, the principles might transfer. For example, the idea of integrating training with production so tightly — that's something larger firms could do. In fact, some German mittelstand companies already do something similar. Luna: Let's talk about the numbers a bit more. Three percent annual productivity growth for fifteen years — what does that mean for the village's output? Lucas: It means output per worker more than doubled over that period. In 2008, the cooperative employed about forty people and had revenue of roughly eight million Swiss francs. By 2023, revenue was twenty-two million francs, with about the same headcount. So real revenue per worker went from two hundred thousand francs to about five hundred and fifty thousand. Luna: That's a huge jump. And it's not inflation — Swiss inflation averaged under one percent in that period. Lucas: No, it's real. And the wages in Vrin tracked that. The cooperative pays above the regional average. So the productivity gains were shared. That's another feature of the cooperative model — the workers are also the owners. Luna: That probably creates a different incentive structure. If you own the sawmill, you care about reducing waste. If you're just an employee, maybe you don't. Lucas: Exactly. The FTZ study found that the cooperative's governance — everyone has one vote regardless of share size — encouraged long-term thinking. The village also has a land-use policy that prevents outside developers from buying up properties. So the local economy stays local. Luna: That feels like a contrast to a lot of productivity discourse, which focuses on agglomeration — big cities concentrating talent. Vrin is the opposite. Lucas: It's a counterexample. And it's not the only one. There's a paper by the OECD in 2025 that looked at 'high-productivity islands' — small regions that outperformed their national averages. They found that about fifteen percent of these islands were rural and based on cooperative structures. Vrin was one of the cases. Luna: So the lesson might be that productivity isn't just about technology or scale. It's also about alignment — between skills, ownership, and local demand. Lucas: I think that's right. And it raises a question for policymakers: can you create conditions for such alignment without a century-old cooperative tradition? Vrin's cooperative was founded in 1923. That's a hundred years of trust building. Luna: Maybe you can't just copy Vrin. But you can look for places where the trust already exists — maybe a different sector, a different country — and apply similar thinking. Lucas: There are examples. In Japan, some fishing cooperatives have done something similar with the seafood value chain. In Denmark, agricultural cooperatives have integrated dairy production from farm to supermarket shelf. So the model is adaptable. Luna: I want to come back to the training piece. Vrin's workers all go through a three-year apprenticeship that rotates through the sawmill, the construction site, and the design office. That's a lot of cross-training for a small workforce. Lucas: It is. And it's expensive. The cooperative spends about fifteen percent of its payroll on training, which is high. But they see it as an investment. The apprentices come from the village and usually stay. Turnover is very low — under five percent annually. So the training cost pays off over decades. Luna: That's the kind of long-term thinking that public companies often can't do because of quarterly earnings pressure. Lucas: That's a real tension. Vrin's cooperative doesn't have shareholders demanding returns. It has members who live in the community. The time horizon is generational. That's a luxury most firms don't have. Luna: But maybe that's part of why aggregate productivity growth is sluggish — the institutional setup of most companies pushes against the kind of investments that yield slow, compounding gains. Lucas: I think that's a fair argument. The Vrin case shows what's possible when the incentives are aligned for the long run. And it's not just a theoretical point — these are real numbers, real people, real buildings. Luna: Speaking of real — a lot of the research and reporting that goes into episodes like this comes from work that listener support helps sustain. If walking through the economy with us has made something click, a couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo. Lucas: Yeah, it really does make a difference. We don't run ads, so listener contributions are what keep the podcast ad-free and independent. No pressure, but if you've gotten value from the show, it helps us keep digging into cases like Vrin. Luna: Alright, back to the Alps. Lucas, you mentioned that Vrin's model has been replicated. Which of the replications actually worked? Lucas: The most successful one is in the village of S-charl, also in Graubünden. They set up a similar cooperative in 2015. By 2023, they had comparable productivity gains — about two point eight percent per year. But a few others in Ticino and Valais failed because the communities were too small or lacked the initial capital. Luna: So scale matters, even at the village level. You need a certain minimum size to support the whole chain. Lucas: Right. The OECD paper estimated that the threshold is about two hundred working-age adults. Below that, you can't staff all the roles. Vrin has about one hundred fifty, so it's close to the minimum. S-charl has about two hundred. Luna: It's almost like a minimum viable ecosystem. And that raises another question: what happens when the population ages? Switzerland's rural areas are getting older. Lucas: Vrin is facing that. The median age is forty-seven, higher than the national average of forty-three. The cooperative has started recruiting from outside the village — offering housing subsidies to attract younger workers. So far, it's worked. They've brought in about a dozen families in the last five years. Luna: That's a pretty concrete solution. It also means the village is growing for the first time in decades. Lucas: Exactly. Population was declining in the 1990s, now it's stable and slightly increasing. So the productivity gains have reversed demographic decline. That's a powerful outcome. Luna: It's a hopeful story. In a productivity landscape that often feels dominated by tech giants and automation, a small village using timber and cooperation shows there's another path. Lucas: And it's a reminder that productivity isn't just a macro abstraction. It's about how people organize work, how they learn, and how they share the benefits. Vrin's example may be small, but the principles behind it are worth paying attention to.