OECD calls for major reforms to Swiss economy

Agricultural subsidies came in for criticism by the OECD Keystone

The Organisation for Economic Cooperation and Development has told Switzerland it needs wide-ranging economic reforms.

In its latest report on Switzerland published on Thursday, the OECD called on the authorities to “vigorously” pursue reforms, in particular the liberalisation of product markets and the strengthening of competition.

It said that after a decade of disappointing economic performance, potential gains were “considerable”, and if implemented in the health, agriculture, electricity and gas sectors, would lead to a boost in GDP of between four and seven per cent.

It added that several draft laws already in the pipeline were steps in the right direction and should be passed without delay.

The OECD study largely supports conclusions on Swiss competitiveness published earlier this month by the Swiss State Secretariat for Economic Affairs (Seco).

Low productivity

Seco highlighted that Swiss economic growth had lagged behind other industrialised countries for the past 25 years and that productivity was low.

“I think this report is quite in line with our own observations… that we have sound macroeconomic policies but that we have a long-term structural growth problem,” Seco’s head of economic analysis, Aymo Brunetti, told swissinfo.

“This general message is exactly the message that we share,” he added.

The Paris-based OECD said public spending in Switzerland needed to be more transparent and more efficient. It added that more effective competition was needed, particularly in the health sector to reduce costs.

Agriculture subsidies

Subsidies for farmers came in for heavy criticism, amid calls for further liberalisation in numerous sectors.

The OECD noted that the current policy of providing direct payments to farmers who adopt environmentally sound agricultural practices had helped reduce environmental pressures. But it added that these payments should not be used as a pretext for maintaining a high level of subsidies.

“When you look at the numbers, it’s clear that agricultural prices in Switzerland are still very, very high,” Brunetti told swissinfo.

“We cannot go as fast as the OECD would like… but the aim of competition is also the aim of the government too.”

Other sectors singled out by the report for further liberalisation were electricity, gas, postal services and telecommunications.

Swissair

The OECD’s Economic and Development Review Committee also referred to the “spectacular” collapse last October of Swissair, and the role of government in propping up the carrier.

Although the report acknowledged that state intervention would have been difficult to avoid, it questioned the amount of public aid provided, saying it seemed “larger than desired”.

It also questioned the prospects for Swissair’s successor airline “swiss” saying it would be hard pressed to survive in a highly competitive environment where aircraft capacity still exceeds demand by a wide margin.

It added that the authorities needed to gradually overhaul the sector to ensure that in future the collapse of a single company did not cause a major disruption to air transport services. Swissair’s entire fleet was grounded for two days last October, amid fears that the company could not meet its fuel and landing bills.

Corporate governance

Citing the Swissair “affair”, the OECD also called for remedies to address the shortcomings of corporate governance in Switzerland, where cross-membership of boards is common, the number of independent experts on boards is limited and there are often restrictions on the voting rights of shareholders.

The OECD said these factors were detrimental to efficiency and encouraged conflicts of interest which undermine a sound company management.

Money laundering

The report also made the point that a number of developments in the financial sector need close monitoring.

The report acknowledged that legislation on money laundering was very strict, but noted that funds were “still limited” for the agency which oversees the fight against financial crime in the parabanking sector.

It also said the effectiveness of self-regulating organisations had to be assessed.

The OECD commented that the good overall performance of Swiss financial institutions could be further improved if the management and credit policy of cantonal banks were less subject to local political interference.

by Robert Brookes