Hans-Ulrich Bigler, Director of the Swiss Federation of Small and Medium Enterprises, talks in an interview about the repercussions of the strong franc, the innovative capacity of local SMEs and the economic burden of regulation.
The Swiss Federation of Small and Medium Enterprises has been addressing the matter for several years now, not just since the headlines following the abolition of the currency floor against the euro. We need to ensure that Switzerland’s industry is and remains competitive on the international stage. This means we need the right underlying conditions for our companies. These include, for instance, a deregulated labor market, a fair tax burden and as little red tape as possible for our businesses. The current overvaluation of the franc makes these measures all the more urgent. The decision to scrap the minimum euro exchange rate has increased firms’ fixed costs by between 10 and 15 percent. So it’s now even more important for us to ease the burden on companies and create an environment that is conducive to business. We need to increase our focus on tried-and-tested policies instead of pointless, unfocused action.
Negative interest rates harbor various risks. Most importantly, they encourage misinvestments: To preserve the monetary value of their investments, businesses pile into tangible assets, such as real estate, or engage in acquisitions that don’t make financial sense. This creates bubbles, which may prompt the state to respond and intervene with ‘corrective’, i.e. regulatory measures. And this in turn increases the cost of regulation. Many institutions based on equal representation are also being affected – specifically the pension funds, which are finding it hard to secure minimum returns.
It was already clear when the minimum exchange rate of CHF 1.20 to the euro was introduced back in 2012 that the Swiss National Bank wouldn’t be able to maintain a currency floor indefinitely. Many companies moved long ago to revise their strategies, cut their process costs and attempt to carve out a position for themselves by innovating and targeting new markets. They are now benefiting from the adjustments that they made from 2012 onward. These companies are also facing some major challenges at present. However, it would be pointless postponing them. After all, the SNB cannot keep up its intervention in the long run. The more businesses hang back now, the greater the pressure to reform and the shock will be later.
Nowadays, we lumber our economy with some CHF 50 billion in regulatory costs each year. Every law, every ordinance comes at a price, which ultimately also has to be borne by the economy so that the ever-increasing number of ever more comprehensive regulations can be implemented. Put simply, regulatory costs eat up some 10 percent of our GDP every year. This is what we’re focusing on: The Swiss Federal Council itself confirmed the extent of the regulatory costs in a 2013 report and listed some specific measures that could help to curb them. These are what we’re now demanding to see. And we want to make sure that, in future, the political mindset is rigorously set against creating new regulatory costs. Any new regulations must be restricted to where they are absolutely necessary. And their cost to the economy must also be made clear. This requires an independent body to be set up that can ensure regulatory costs are measured and whose say is final.
SMEs need to be able to generate funds that they can invest in innovations and in pushing their operations to the next level. So it’s essential for them that their margins aren’t eroded by a constant flow of new and higher taxes and charges. It’s an issue that won’t go away. The crushing defeat of the inheritance tax initiative in June is an important step in the right direction. SMEs also need the right qualified staff – this is something that’s crucial for them. A solid grounding in the profession and advanced vocational training are key if SMEs are to source and train people with the right skills. However, this also includes access to the global labor market and thus means implementing the anti-immigration initiative in a business-friendly way.
Politicians know what levers can take the pressure off the economy and what a growth strategy looks like. Earlier this year, the mainstream parties joined forces to campaign against new taxes and charges and in favor of cutting unnecessary regulatory costs and limiting federal spending to 2014 levels. In this respect, we are expecting these parties to make some progress and deliver tangible results.
Switzerland is one of the most innovative countries in the world. The pressure to innovate and keep on developing is part of companies’ DNA. It’s what has enabled many SMEs to become global market leaders in their own particular niches, by specializing and developing high-tech innovations. Others are managing to ratchet up the quality of their products or services high enough to beat off cheaper competitors from other countries. Here too, the foundations are laid by innovation, which is predominantly done in-house. In other words, the main priority is to make companies stronger. Allowing them the freedom to develop their strengths is the biggest lever we can give them.
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