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What is so special about Swiss! How Davos manages to 'herd big cats' together?

TIOL - COB( WEB) - 818
JUNE 02, 2022

By Shailendra Kumar, Founder Editor

THE global economy is literally caught in a 'Restless Legs Syndrome'! It has its teeth intriguingly sunk into too many crunchy and gungy issues! A hot kettle of the walloping pandemic, followed by the 'crisis-breeder', the Russian invasion of Ukraine, and now, energy crisis persistently fuelling inflation across the world, has palpably thrown all the macro indicators out of kilter! We are buffeted by the whirlwinds of a 'perfect storm'! Sickening rampage! Cue the fireworks! With the West-sponsored economic sanctions not proving to be incisive enough to bite into the Russian autocrat's cerebrum, the soaring inflation has emerged as a highly inflammable gun-cotton for many a economies! What evidently nourished inflation at the embryonic stage was the 'fiscal saline transfusion' treatment adopted by several elite economies in the past two years! Perhaps, inescapable against the gun-barrel of the COVID-19! And the Ukraine war has simply fuelled it to its 'Robinhood' growth stage a la global food shortage and fossil fuel crisis! It has cast a pall of policy trepidations over the gunmetal sky! It is boiling hot across the continents! It indeed stings excruciatingly as the governments and their Central Banks continue to shilly-shally or, act sluggishly! Concrete solutions to all these pressing issues appear to be far beyond even Timbuktu!

Against the deep bucket of multi-hued economic and climatic catastrophes-in-the-making, big cheeses from the world of corporate, media, politics and academia last week droned down after a prolonged hiatus of two years at a small mountain village. The widely-loved host was the World Economic Forum(WEF). And their agenda was to munch over the intractable and sluggy global problems. For a large swathe, high inflation was never a part of their Bible! Unmindful of being tee-heed they honestly put forth their ideas to be barbecued. Esoteric groups with their earth-size agenda items harangued for hours on issues like the skullduggerous diplomacy of Russia (Russian oligarchs were, for the first time, not welcome by the WEF); the sharply growing chasm between the rich and the poor; the ghoulish famine, the darkening clouds of global recession or even stagflation and how the geopolitics slipping into a deep ideological gorge! A submarine canyon, indeed! A few groups also afforded themselves the luxury of pettifoggery over the climate change, tourism, employee wellbeing and the real collapse of the real estate! They let their steam in wintery Davos come out of their ears! After a stay of four days in the salubrious climate of no-honk haven, a major chunk of 'Top Guns Maverick' left the snow-capped health resort with a flinch that the belle epoque for the global economy is eminently in the gun!

Though such bemoaning may match the prognosis made by a cowrie-shell thrower but my curiosity is more about why is it Davos or Switzerland, for about five decades, and no other place in the world? What is so special about it to punch above its weight and also the size of its population - less than 11,000 in two villages of Davos Dorf and Davos Platz? How did it manage to 'herd big cats' of different 'colours' together? Is it not a study in contrasts? Davos is one geographical coordinate where North and South, East and West and even democracy and autocracy indulge in tete-a-tete, not in earshot, but on gun microphone! Enough to make you feel gun-shy! From the middle of the 19th century, Davos became a popular destination for the sick because medics deemed its micro-climate as excellent for speedy recovery - particularly for diseased lung patients. Money talks here because its health-giving climate talks aloud in the high valley! Besides its climate, the political neutrality of the Swiss was perhaps a much stronger magnet for the WEF to tilt in its favour as the gung-ho destination! With chances of no gripe from ideologically-soaked political statesmen like Xi Jinping or Putin! Both have attended WEF summits in the past.

Commenting on its neutrality in 1944, Winston Churchill had said, "Of all the neutrals, Switzerland has the greatest right to distinction." In fact, it was granted 'eternal neutrality' at the Congress of Vienna long back in 1815. Even during the two World Wars, it was knowingly spared to remain an island of neutrality. Even during the post-Cold War period when none knew the exact connotation of neutrality, Switzerland remained a popular destination as much for the Russians as for the Americans! Its cantons also decided against joining the EU! For the Swiss, neutrality was almost like an emblem of national honour! Even on ordinary global issues, the Swiss preferred to remain silent as if the cat had got its tongue or it consciously tethered its tongue to a glue pot! But, not any more! With Russia invading Ukraine, Switzerland has joined the caravan of economic sanctions led by the West. In the past, even a remote debate of deserting neutrality was construed as a betrayal of the country!

But, things have changed post-financial meltdown in 2008 when it was placed under the gun by the US to clean up its wealth management industry. With American tax-dodgers parking billions of dollars in Swiss banks, aggressively offering enticing 'secrecy services' on a plate, the US crackdown left the top bananas and swagger of the banking industry bombinating in their luxury-willowing chambers overlooking the snow-capped mountains! And their key mascots were made to pay through the nose! For instance, the UBS paid as high as USD 780 mn as fine for not furnishing details of bank accounts and the quantum of money deposited by American tax evaders! The world remarked that the Swiss were 'inveigled' into inking a deal to 'swallowing toads'! Switzerland had as many as 300 banks piping 'good time' like Taus' (avuncular) of Haryana over piles of foreign deposits - many times of its GDP! Having assessed the risk to its profit-raking secrecy market, the Swiss Federal Government opted for a one-time settlement with America so that its weaker and Lilliputian private banks could survive the onslaughts against tax havens! With OECD-led tax transparency movement gaining foothold with the backing of G7, Switzerland felt hemmed in by the new rules with definite time-schedule to cooperate. And the Swiss then amended its tax treaties and signed Protocols for exchange of information and also a pledge to do away with harmful tax practices. Thus, parking eye-wateringly large funds in the Alps has become less heavenly experience, now! It has not dried up though!

How attractive were the Swiss bank secrecy services can be gauged from what famous Woody Allen once remarked - Believing in God would be easier if He would show Himself by making a huge deposit in a Swiss bank account in his name! Hahaha! Low corporate tax rate - one of the planks on which 26 of its cantons(States) compete, was historically a key magnet for the MNCs to choose Switzerland for their outside America offices or operations. For instance, Google commissioned its largest beyond-US engineering centre in Zurich. Other American MNCs shadowed Google! And it is today home for 12 of top 500 global companies. Its blue-chip companies persistently outshine their EU rivals! It is the home soil for many of global behemoths like Nestle, Lindt, Credit Suisse, UBS, Roche, Glencore, Richemont, Patek Philippe, Novartis, Rolex and many more! How did a small, landlocked country with scant natural resources and less than 90 lakhs population manage to scale such a height of success? Switzerland was historically a poor nation with infertile soil, wrapped in snow for most of the year! So, what is the secret sauce?

One of the key factors which has helped premise its corporate one-upmanship is its inimitable political mocktail of federalism gift-wrapped in direct democracy, simple and easy regulations, competition in taxation and also education among the cantons with over 200 municipalities and, on top of it, a 'handcuffed' federal government at Berne. In the 19th century, its city-cantons began to promote value-added industries like textiles, silk spinning, cheese trade, pharma and chemicals and watch-making. Three of its big cities - Geneva, Zurich and Basel - turned out to be mega successes. Later, the Jura Arc which stretches from Geneva to Basel, added lustre to its soaring curve of success. What helped it in its runaway success journey was its 'non-negotiable neutrality' which pulled talented folks from all over the world! Although the Swiss are not known for their feelings of camaraderie for their compatriots in other cantons but they played a supercalifragilistic host to international talents from Germany a la Henri Nestle; from India a la Vasant Narasimhan of Novartis; Gary Nagle of South African origin a la Glencore and Nicolas Hayek of Swatch who was of Lebanese DNA. Let's not forget the Polish Antoni N Patek of Patek Philippe and Leo Sternbach who invented Valium which earned billions for Roche's swooning tranquiliser! With 'coloured' and even colourless money pouring into the Swiss banks from all over the world, there was no dearth of capital for the industry.

Besides the corporate success stories which may appear to be bulging at the seams, its gun control and gun rights are another success story which is being debated by the big guns in America. Mass shootings in schools and shopping malls or even subways have become pedestrian sights, adding a thick layer of skin to the soaring insensitivity score in the American society. But, unlike the Americans, the Swiss behave responsibly despite every household having a scary rifle and a box of ammunition. Under Swiss law, all able-bodied men have to undergo military training and are allowed to keep weapon ready at home to respond to sudden mobilisation to defend the nation. It's households have over 20 lakhs privately-owned guns out of total population of about 90 lakhs but had just one mass shooting incident where 14 people were killed in 2001. It has one of the lowest murder rates with firearms in the world.

In fact, Switzerland is more famous for its Swiss Penknives and pocketknives. Its success story can be fathomed more by the fact that a large chunk of Indians are familiar with Swiss chocolates; Swiss Darning; Swiss gold; Swiss roll; Swiss-system of tournament in sports; Swiss Air (now dead); Swiss guards and also some mega cases of money-laundering, including Indian black money parked in their bank vaults! plus ça change! But, the Swiss have shown to the world that all challenges can be overcome with hard work and ingenuity! Their direct democracy has produced much more than the cuckoo clock! India and smaller countries need to learn this from the Swiss if they want to get out of multi-faceted hydrothermal vent of economic and geopolitical fissures! Grand Canyon! Ahoy!