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“Switzerland’s prosperity is in large part due to the openness of its markets”

Interview with Erich Herzog

Rising trade conflicts as well as uncertainties concerning Switzerland’s future relationship with the EU are tarnishing the country’s attractiveness as a location. At the same time, federal elections have ushered in a new Parliament. Erich Herzog, Member of the Executive Board and Head of Competition and Regulatory Affairs at economiesuisse, explains which priorities Parliament must set for itself to ensure that Switzerland remains one of the world’s most innovative and competitive countries going forward.

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Erich

Erich Herzog, Member of the Executive Board and Head of Competition and Regulatory Affairs at economiesuisse

The National Council elections are over (apart from a few second rounds of voting that are still pending in the Council of States). What does the result mean from an economic standpoint?

Primarily new contacts and sparring partners. economiesuisse seeks dialogue with all interested parties to ensure that companies’ concerns are heard and, in doing so, to help shape the best economic conditions possible. We are exclusively committed to non-partisan politics. But that also means we work together with a variety of collaborative alliances, depending on what’s on the dossier. 

From a liberal perspective, the election results will probably make getting business-friendly demands passed a bit harder for a while. How do you plan to address that? After all, economiesuisse’s charm offensive during the last legislative period was only fruitful to a certain extent, even despite the theoretical conservative and center-right majority, at least in the National Council.

We’ll have to adapt our approach to this scenario. Finding majorities in Parliament might well get a little trickier at times. In Switzerland, though, there are many corrective measures in place plus any number of other ways to raise issues. As you mentioned, a theoretical conservative and center-right majority in the National Council alone is no guarantee for business-friendly solutions. That makes it important – regardless of the results of the election –­ to keep an eye on the entire political process rather than focusing solely on the Swiss Federal Parliament or even on just one chamber. economiesuisse pursues this holistic approach toward policy making and monitors political processes professionally, covering everything from A to Z. Often silently but to great success. Cooperation within business associations and companies as well as the solidarity that exists between different industries is playing an increasingly important role in instances where economic concerns are unable to make any headway, something that is occurring with growing frequency. Broad alliances are needed to boost our effectiveness, credibility and visibility.

Switzerland no longer tops the rankings in the Global Competitiveness Report published by the World Economic Forum (WEF). Why?

In an international comparison, Switzerland is indeed under considerable pressure as a location. The last legislative period mainly preserved the status quo. Forward-looking projects and urgent reforms either were not initiated at all or else buried at the half-way point. Unless corrective action is taken, the competitiveness of both the location and its companies will suffer. This is largely due to the steady increase in regulatory requirements, which is rising more quickly than in many other countries. These requirements place an ever-greater administrative and financial burden on companies. A clearly negative trend is emerging: Politically opportune issues are being incorporated into the never-ending stream of new regulatory interventions, culminating in an ever-tighter web of requirements. Both discipline and new approaches are needed to dispel this regulatory spiral. The new Parliament’s job is to pursue good economic policy rather than cater to specific interests or focus on cries of indignation.

Where is the need to take action most urgent in Switzerland?

It’s not just about a few scattered issues, rather all the requirements smothering innovation and entrepreneurial spirit in their entirety. Regulatory requirements that have arisen historically in certain areas are constantly evolving and gradually stifle companies’ room to maneuver in the process. Individual regulatory tools are not being looked at in terms of how they fit into the big picture.

Switzerland is expected to vote on the “termination initiative” in May 2020. If accepted, which repercussions could this have for the Swiss economy?

If it’s accepted, Switzerland would then have to terminate the Free Movement of Persons Agreement with the EU. Since this agreement is linked to the Bilateral 1 package through the guillotine clause, that would spell the end of the successful bilateral path. Particularly in times of trade wars and surges in protectionism, it’s imperative that Swiss companies are able to rely on stable, healthy relationships with their most important trading partner. The Bilateral 1 package brought Switzerland additional per capita income of up to CHF 4,400 per year. Without the Bilateral 1 package, Swiss businesses will lose the chance to participate in the European single market. Without that, companies won’t just be shifting their manufacturing activities from here to an EU country – they’ll refrain from making any new investments in Switzerland. This would have dire consequences for our country’s prosperity.

Calls for tighter political control over foreign investments have gotten louder. What do you think are the chances of this happening? Are state controls on investments really necessary?

Since foreign investments are a vital success factor for the open, internationally networked Swiss economy, Swiss businesses take a very critical stance toward political demands for state controls on investments. Switzerland would essentially be jumping on a protectionist bandwagon without any factual necessity for doing so. We don’t need stronger controls of foreign investors; instead, we need to strengthen the overall political conditions for business activities in Switzerland. Switzerland’s prosperity is in large part due to the openness of its markets and its internationally networked economic system. The free flow of investments is essential in this regard. Direct investments help provide the economy with sufficient capital. They safeguard more than one out of every ten jobs in Switzerland while also boosting the country’s exports, innovation capacity and attractiveness as a location.

It’s been nearly 30 years since the last comprehensive revision of company law. Since then, partial revisions have been used mainly as a way of responding to unwelcome popular initiatives. In this context, some major issues include the fat cat and responsible business initiatives. Where is regulatory action actually needed most?

Company law is really the backbone of business law. Changes made to it must be free of any ideologies and socio-political issues that happen to be in vogue. Given that company law hasn’t been revised since the 1990s, an update would be crucially important for the economy. Vital yet unspectacular changes take center stage, like adding greater flexibility for capitalization and the rules of procedure for annual general meetings and board of directors meetings as well as the creation of legal certainty. The ordinance that entered into force following the vote on the Minder initiative also needed to be incorporated into Swiss law unchanged, if possible. Parliamentary debates have revealed that politicians liked packing other issues into the bill on top of these more technical topics. So far, it’s been possible to prevent efforts to significantly tighten the Minder initiative and to incorporate the basic mechanics of the responsible business initiative into company law. 

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