Thanks to P O’Neill in comments to my last post, for suggesting both the idea for this poor-man’s Friedman travelogue and its title. The first installment comes to you from the youth hostel in Grindelwald.
I don’t really have much need of apocryphal taxi drivers to serve as sources of information and/or mouthpieces for my own views for this one. I got to know the Swiss (or at least, a fair number of a particular and possibly unrepresentative class of them) when I was working for Credit Suisse, for five years which were roughly coincident with the first phase of the Global Financial Crisis. CS wasn’t, and isn’t, recognisably a “Swiss Bank” in its London office, or at least not in the way that you could tell that ABN Amro was a “Dutch Bank” or BNP Paribas is a French one. Credit Suisse was basically an American investment bank – lots of people, including those who named the servers in the IT system, still hadn’t got the message that “First Boston” had been dropped from the name years earlier. The Swiss were almost like mythical creatures, who lived on the floors above the cafeteria, only dealt with the world’s super-rich and all knew each other. Then there were the equally mysterious people of “head office”, who were mentioned once a quarter at the time of the annual results; I presume that the fact that these announcements tended to roughly coincide with Samhain, Beltane, Lughnasadh and Imbolc was coincidental. But then there was “our Zurich office”, a little bit of First Boston in the heart of Credit Suisse, and these guys were our kind of people, although at the same time interestingly foreign. I also ended up making a good friend in the private bank, who probably doesn’t need her name dragged into this, but she was one of the most impressive people I met and is presumably scheduled for higher things within the bank at some time in the future.
Switzerland is one of those small countries of Europe, the existence of which makes a lot more sense when you consider that the alternative would have been for one Empire to let another have control of the territory. If you want to know what I mean, consider a map of the stretch of North Sea coast stretching up from Normandy in the direction of the Baltic and ask yourself why it is that such a huge country as Germany only has a scant few dozen miles of coastline and only two or three usable ports. What is it, the man wondered, about small, independent, trade-oriented countries like Denmark and the Netherlands that has made France, Sweden and Britain so keen on protecting their independence? To ask the question is to answer it, particularly when I gave such a strong hint. Similarly, the independence of Switzerland is not really underwritten by its geography, and the Swiss Army knows it – most of the big cities are located on easily accessible plains and the Swiss national defence plan has always been to abandon them. After all, Switzerland was actually ruled by Austria as recently as the days of William Tell. The independence of this little country is assured by the fact that it has long been understood by all the great powers bordering on the Alps that it’s probably in everyone’s best interests in the long term to have the key trade routes owned by a gang of ornery peasants who don’t want to be bothered by outsiders rather than having to fight over them all the time.
I often used to win bets by asking people how important they thought banking was to Switzerland’s GDP. Few people, even Swiss natives, guessed less than 20%; most common guesses were above 30%. The actual answer is around 12% (roughly the same percentage as the UK), and that’s for total financial services – since there’s quite a lot of insurance, that would mean that classic “Swiss banking” is even less important. What makes people think that banking is more important than it is seems to be the huge global operations of Credit Suisse and UBS. But, of course, the majority of these activities take place outside Switzerland and go into the GDP of the places where they happen – mainly the UK and USA. Which means that the Swiss government’s too-big-to-fail liability is massively out of proportion to the economic benefit of the banking industry to Switzerland. This fact was not lost on the Swiss in the aftermath of the 2008 UBS bailout; the report of their Experts’ Group on Too-Big-To-Fail remains the best thing written on the subject and has formed the (badly imitated) template for a lot of other policy responses. Actually, Switzerland’s largest industry, by quite a way, is pharmaceuticals and chemicals manufacturing, which traces its heritage in the country back to the arrival of a bunch of Huguenot dyers, running away from religious persecution in the 17th century.
The rumours of Swiss life being a little bit staid are not wholly unfounded. It’s a country where you can have a major political controversy when the Bourgeois Party splits from the Middle-Class Party. I have heard natives of Zurich claim that they would honestly prefer to live in Mogadishu than in Geneva; boredom is, after all, a form of pain. But I’ve also (thanks to a somewhat misguided attempt to save money on hotel reservations) sat in Geneva and eaten shashlik sitting next to guys with wrinkly blue tattoos. Even surprisingly small towns in Switzerland will have their Casa Dos Santos, or similar, serving specialitas Portuguesas for the immigrants who make up a large proportion of the country’s working class; in the chalet towns the garages and the vans driven by plumbing companies will have names like Da Sousa on the side of them.
Of course they’re not actually called the “Bourgeois Party” and “Middle Class Party”. But the slogan of the SVP is “Swiss People’s Party, the party of the middle class”, and the French name of the BDP is the “Parti bourgeois democratic Suisse”, so I think I can be allowed my joke.
5. Lotus Eaters
I suppose I ought to explain the title of this piece. It’s my suggested slogan for the Swiss tourism authorities – while Dublin makes a reasonable amount of capital out of Bloomsday and the setting of Joyce’s masterpiece, he actually lived elsewhere for most of his life. Along with Paris and Trieste, Zurich was one of the places where he lived for quite a while – from 1915 to 1919 and then again from 1941 until his death. He’s buried there, a factoid which rather obsessed me for a while; I visited his grave once during an afternoon when I had a couple of meetings cancelled. Ulysses and Portrait of the Artist were both published while he was living in Zurich. Joyce wasn’t the only misfit and artistic oddity to wind up in Switzerland; a fairly large percentage of the Berlin cabaret movement shifted there in the 30s. There’s quite a tradition of people ending up in Switzerland when their particular vision of the world started causing them problems back home.
The Swiss tradition of hospitality to free-thinkers and oddballs, of course, has its roots in the Reformation. As does the counter-tradition of hostility to and violent persecution of free-thinkers and oddballs. Driving down from Geneva to Interlaken, I saw a banner up for an exhibition of Amish art and furniture, the Amish of course being (as I’m sure you’ll remember) a name originally derived from the followers of Jacob Amman, an Anabaptist leader from Bern. Most of the American Amish are actually members of the theological lineage of Menno Simmons, a Dutch Anabaptist, or of some other group related to the Anabaptists, but the movement got its first big break in Switzerland, at the time calling itself the Swiss Brethren. Ulrich Zwingli (himself a religious oddball to begin with, and so was John Calvin; they did better at playing the political game) was deputed by the Zurich town council to meet with them every couple of weeks to see whether or not any progress could be made on this infant baptism business; the Protestant cantons had just finished kinda-sorta losing the Kappell Wars against the Catholic cantons, and were keen to avoid any further schisms.
Then the terrible business in Muenster happened (summary for people who didn’t do the Reformation for A-level history – Anabaptist sect took over in Muenster, went a bit cultish, started executing people for not being Anabaptists, much panic, town retaken, genitals nailed to city gates, massive disaster in which some hopeful socialist historians claim to be able to see the beginnings of class consciousness), and the political weather changed decisively in terms of people’s willingness to put up with the Swiss brethren, who now looked less like earnest god-botherers and more like worrying bearded freaks. Setting in chain a set of events which led to that Harrison Ford film and so on.
The modern parallels are presumably so obvious as to not need labouring.
The villain of the William Tell legend was, of course, a foreign tax collector (specifically, the Austrian reeve, but the causes of the historical rebellion which formed the Swiss Confederation was tax). It’s probably a little bit ridiculous to try and draw a direct link from this to the Swiss policy on tax evasion that prevailed between the end of the Second World War and the mid 1990s, but that isn’t the reason not to try – the reason why one shouldn’t bother with this analogy is that the policy in question is dead. It was never a specific Swiss thing – banking across a lot of Europe was secret in the postwar period, and for very good and obvious reason. The Swiss did have a particular issue with their tax law which never failed to enrage American tax collectors, which was that they made a distinction between “tax fraud”, a felony which involved a fraudulent document, and “tax evasion”, a misdemeanour offence. Misdemeanours weren’t extraditable and Switzerland wasn’t prepared to make exceptions in its domestic banking secrecy law for them either. Fundamentally, Switzerland didn’t for the longest time see any real role for itself as an unpaid law enforcement officer for other countries.
8. The Lestrygonians
A strange reminder of how much national boundaries matter even in this allegedly globally connected world – in the kitchen of my chalet is a roll of aluminium foil. An incredibly commoditised product, with huge economies of scale in its manufacture, and here we are, less than fifty miles from the border with France. But no, this was made in Bern.
9. Scylla & Charybdis
I’m surprised that the country of Switzerland doesn’t have a more prominent place than it does in the bestiary of the John Birch Society, the LaRouche movement and similar exemplars of the paranoid tendency. Twentieth centry reactionaries tended to be marked out by their horror and fear of the decline of absolute standards in anything; Switzerland provided the modern and post-modern era with the destruction of classical physics with Einstein, and with radical change to the concept of the narrative novel with Joyce. Even LSD was first synthesised by the Sandoz laboratory in Basel. Switzerland has always been a country where the law is malleable and changeable rather than an absolute standard, simply because of the importance of referenda in the constitution, and the history of federal government. The national character has always been based on a kind of pragmatism and compromise which is easy for an outsider to mistake for relativism.
10. Wandering Rocks
One thing that you tend to pick up pretty soon when working for a Swiss company, unless you are very unobservant indeed, is that the senior Swiss guys all know each other because they’re all in the Army together. It is possible to opt out of continuing service in the Swiss Army reserve after you’ve done your compulsory duty (and even that can be done in non-military service). But this doesn’t seem to be the way to a successful career if you want to stay in Switzerland and be a business executive. So Switzerland has an army of middle managers, which in my opinion is probably a pretty frightening prospect for anyone thinking of attacking them, as these are middle managers who have been given a single aim (defend Switzerland) for decades, plenty of time to practice and budgets which have to be considered for practical purposes to be inexhaustible. That’s the sort of situation that can get aircraft hangars built into the sides of mountains, tunnels that double as horrific tank-traps and Alpine passes that can be rendered impasses at the touch of a button. Even the low-lying cities like Basel would, according to highly classified rumour, be able to provide a number of nasty suprises to any machanised army which decided to detour through them.
The thing that the Swiss Army hates above all else, of course, is helicopters.
11. The Sirens
Arguably, a number of Switzerland’s other industries have, to say the very least, developed symbiotically with the offshore banking industry. If you have a load of money stashed away in Switzerland which you haven’t declared to your domestic taxman, then it’s surprisingly hard to spend it; bringing the stuff onshore is always going to raise questions. But on your annual visit to Switzerland, this secret stash of money at the end of the rainbow turns into a proper, spendable balance of liquid assets! So you can have a really slap-up holiday with all the treats you can force into yourself. You can get your teeth straightened or your tummy tucked. You can even get your kids put through a really posh education. If you’re looking for examples of how the financial services industry can support a number of other cluster specialties, the in flight magazine of Swissair is a fine place to look.
Another thing you can do is buy yourself a really really expensive watch, and presume that the fellow at Customs on your return won’t get impertinent about asking whether it’s the same one you were wearing when you flew out (he almost never does). The Swiss watchmaking industry dates back a long time earlier than the offshore banking industry, but it seems very likely to me that the development of the high-end watch market into basically a jewellery segment wasn’t substantially aided by the fact that watches are probably the best way known to man of smuggling a few multiples of the US$10,000 money laundering reporting limit.
The ban on construction of minarets, imposed by referendum in 2009, is a reliable source of embarrassment to the “international class” of Switzerland – the people who you tend to meet in the course of business or banking. In my experience, German-speakers tend to blame it on the French (“terrific racists, the lot of them”) while French-speakers tend to blame it on the inner cantons (“people whose surnames end in li and le, hillbillies, basically”). The fact that the ban passed is, of course, a useful reminder to the rest of us that the international, outward-oriented business class of Switzerland is by no means the entire population and in this case at least, wasn’t even a majority.
The minarets ban was the proximate cause of the split between the Bourgeois Party and the Middle Class Party, but I can’t remember which one was against it. Its supporters claimed that it was not a measure against Islam per se, but against all forms of fundamentalism in religion, which is something that makes a little bit more sense if you put it in the context of the history of Switzerland and extremist religious movements. Albeit that “makes a little bit more sense” still leaves the measure in the realm of making more or less no sense at all.
It can be presumed that the Saudi and Emirati billionaires who are the current growth segment for the Swiss private banking industry are not stowing their money in Switzerland in order to avoid Saudi and UAE income tax. My reason for believing this is that neither Saudi Arabia nor the UAE have any income tax. They’re putting it there because Switzerland has been a politically stable, neutral country for several hundred years now, while the Gulf states have existed for only a little bit more than half a century and have fairly obvious political tensions surrounding them. This is one of the very important points made by Taleb in “Antifragility” – that a good basis for guesstimating how long a political or social institution is going to last is to ask how long it’s lasted already.
This stability, neutrality and reliability seems to be very important to the Swiss conservative temperament – for the kind of people who vote in favour of banning minarets, the bankers of Geneva and Zurich seem to be regarded as untrustworthy, destructive and bad in and of themselves, but valuable simply because they’ve been around for such a long time and are therefore symbols of the eternal persistence of the Swiss Confederation. Certainly, when I was following the debate about bank regulation in Switzerland, one of the chief sources of populist rage against the banks in Switzerland was that they had damaged the reputation of the banks in Switzerland. The right-wing party in the parliament was often in the odd position of simultaneously allying with the socialists to demand public flogging and supertax, but also decrying any movement at all in the direction of compromise with the US tax authorities.
14. Oxen of the Sun
If I had sufficient spare time and a wholly warped sense of priorities, I think I could trace the boundaries of the wars of religion by driving around and listening to regional radio. As far as I can tell, Catholic cantons really go for snare drum backbeats and 2/4 time – if Mumford and Sons aren’t huge in Vaud, they are really missing an opportunity. Protestant cantons are much more into generic AOR. Everywhere in Switzerland gets a signal for the Europop collossus that is RTL2. However, the country does not seem to have any local attempts at hip-hop, for which I greatly respect them.
Of course, the position of Switzerland in the global economy means that the “fortress in the Alps” myth has to be a myth – there are really not many countries in the whole world that are more at the mercy of international forces, and by the hegemony of the USA specifically. The drugs industry in Switzerland, like everywhere else in the world is entirely driven by FDA approval. The banking industry’s self-anointed sense of independence lasted roughly five minutes after the US authorities decided to make a priority out of doing something about it.
Because Switzerland is a politically stable and neutral country with a good reputation for trustworthiness, it’s a good place to locate your trade association or standards organisation. Partly, this is an industry that’s grown up synergetically with the United Nations; in the immediate postwar period it must have made sense to have FIFA, the WIPO and similar bodies based there too. One of the more interesting companies I looked at was SGS, the Societe Generale de Surveillance, which will inspect your tanker loads of olive oil to see if someone has switched them for seawater, test your machine parts by the ten thousand to see if they’re made to the advertised tolerance, and generally carry out all sorts of services that have grown out of its original business model as the site inspectors at the massive bonded warehouses in the commercial zone outside Geneva. There are a lot of things that happen in Switzerland which don’t make any sense at all outside of the context of the global economy. It’s a country that is proudly independent, but which knows that it can’t really be too independent if it wants to be prosperous..
The median Swiss private banking customer is, according to the industry joke, “every year, getting older and more female”. It’s a description of the gradual death of the European offshore banking franchise, basically from a mixture of two parts international tax treaties to eight parts demographic change.
What happens is this; consider Olaf, who survived the war and took his part in industrial reconstruction. As his manufacturing business grew, he kept sticking a bit of money away in Switzerland; if the memory of the 1930s wasn’t enough to make him cautious, the overhanging threat of Communism would. Life goes on and so does the world, but Olaf never changes his policy of sticking a proportion of his savings into his Swiss account – why would he change? He’s been given truly excellent service from his trusty account manager since the early days. Olaf has a great suntan, beautifully educated kids and a really nice watch.
Then he dies. Not much changes as the estate is passed on to Gerta, but sadly, she doesn’t live much longer. So now the estate, including the offshore account, has to be dividend up five ways between the kids; possibly even including the grandkids or nephews and nieces. These people of course knew that Olaf was a rich man, but they tend to be somewhat surprised to find out exactly how much a regular savings account can build up to if it’s kept pace with stock market returns and been largely invested in hard currency.
Unfortunately, there is now an awkward moment, where a Swiss lawyer expresses his condolences, and then informs the grieving children that they have a maximum of 48 hours to decide whether they want to start a career as tax evaders. What would you do? Particularly since Olaf’s fortune needs to be split up; a pot of $10m is a borderline ultra-high-net-worth account, but when you split it into units of $2.5m, and each of the heirs pays off their mortgage, what’s left isn’t so much of a fee income generator. And so the old European money which was the bedrock of Swiss banking profitability declines, and they have to seek out new markets.
The railways are, of course, a source of wonder to the rest of the world and no less so for being such a cliche. They don’t actually always run on time; mine were generally between five and ten minutes late. But they go everywhere; the SBB, great though it is, is not the real miracle of Switzerland compared to the dozens of little cantonal and sub-regional railways that serve even the smallest little towns on rails carved into the roads or running alongside them. This sort of infrastructure asset doesn’t depreciate if maintained properly, and it keeps providing the services for which it was intended in all economic climates. It’s a classic illustration of a point that John Quiggin has regularly made – that classic “risk-adjusted” discounted cash flow analysis will always overstate the risks of government spending and result in underprovision of infrastructure.
As we drove from the airport, we turned away from Lake Geneva to go up into the Alps. Before the road turns up into the col, it goes along a valley floor, which stretches out ahead of you, seemingly endless until it turns up into forests and rocks. Way out in the distance, we saw a plume of white smoke rising, dead vertical in the windless valley. About half an hour later, we saw it was rising from a chemical refinery.