Dr Doom predicts looming gloom for the Swiss
Swiss investment guru Marc Faber says the standard of living in Switzerland will go down and that adjusting to the situation will be a painful process for many people.
In an interview with swissinfo, Faber says Switzerland has essentially a no-growth economy and is “totally uncompetitive”.
His comments come in the same week it was announced that Switzerland had for the first time slipped out of the top ten of the world’s most competitive nations – from ninth to 14th position.
The World Competitiveness Report, compiled by the prestigious IMD management school in Lausanne, on Tuesday attributed the country’s poor performance to the country’s failure to implement economic reforms fast enough.
Affectionately known as Dr Doom for his sometimes bearish views, Faber says there needs to be less red tape, reduced social benefits – and the Swiss should work harder.
swissinfo: Switzerland has fallen out of the top ten of the world’s most competitive nations. How much of a surprise is this to you?
Marc Faber: It’s not a great surprise to me because in Switzerland we have practically no growth in the economy. I believe that in western Europe, in countries like Switzerland, we have reached a very high level of prosperity from where our standard of living or the standard of living of our children will definitely have to decline.
The standard of living in other countries, such as the Asian countries, will rise. When I came to Asia in 1970, South Korea, Taiwan and Singapore were poor countries. Singapore looked like a dump. Today it is the richest country in the world, all things considered. It has a reasonable price level, so I really feel that in Asia we will see many more Singapores in the next 20 to 30 years, cities that become rich and prosperous.
I suppose in the years to come a lot of industries will also migrate to eastern Europe where the price level and the tax structure are more attractive than in our overburdened western European countries, overburdened especially by horrible government bureaucracies.
swissinfo: Why is Switzerland lagging behind?
M.F.: I think one of the reasons is that some entrepreneurs in Switzerland benefit from the cartel conditions that we have and that lead to a price level that is about 30 per cent higher than in France and in Germany. The country is totally uncompetitive. Someone has to have brain damage to start a new industry in Switzerland that is labour intensive.
Production will shift more and more to other countries. The sickness of Switzerland is the artificially high price level. Eventually as more and more services become tradable, even banks, insurance companies and so on will quietly shift more and more services to India and to other low-cost service providers.
swissinfo: What should Switzerland do about this situation?
M.F.: I have argued that it would be better for Switzerland to join the eurozone. As a result, the price level would be reduced. Swiss voters didn’t want this and therefore I think that Switzerland will continue to be essentially a no-growth economy.
It doesn’t mean that the entire Swiss economy is in the pits. Countries like China and Russia are building up a new class of super-rich people. Some prestige type of real estate or products like expensive Swiss watches have a new group of buyers… the nouveaux riches of these countries.
swissinfo: How can Switzerland make up lost ground?
M.F.: One step obviously would be for the Swiss to work harder and to cut down on government intervention, on the bureaucracy, to reduce social security payments and to reduce pensions that are being paid to people who essentially don’t deserve them… they cheat the system.
Unemployment benefits are far too high. When someone loses his job, they frequently act as an incentive for him not to take a new job. He earns more from the unemployment benefits than he would if he takes on a new job.
swissinfo: But how painful a process might this all be for the Swiss? As you say, they’re used to prosperity.
M.F.: Europe and the United States will experience a painful adjustment period because expectations are so high… In Switzerland people still think that they are rich because they maybe inherited some money from their parents and they drive cars which they buy on credit.
I think that the standard of living in this country will go down and that in many sectors and for many people the adjustment will be painful because they are not prepared for it.
swissinfo-interview: Robert Brookes
Marc Faber was born in Zurich and obtained a PhD in economics magna cum laude from the University of Zurich at the age of 24.
From 1978 to 1990, he was managing director of Drexel, Burnham and Lambert in Hong Kong.
In June 1990, he set up his own business that acts as an investment adviser, fund manager and broker/dealer.
He now lives and works in northern Thailand, but maintains an office in Hong Kong.
Faber publishes a monthly investment newsletter, entitled “The Gloom, Boom and Doom Report”.
Marc Faber believes that the standards of living will fall in western Europe and the United States and they will rise in Asian countries.
He believes the adjustment will be painful for the Swiss.
Faber argues that Switzerland lags behind in terms of economic growth for a number of reasons, including red tape and excessive social benefits.
He is calling on the Swiss to work harder.
Faber was in Zurich to give a presentation at Credit Suisse Asset Management.
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