Industrial policy and direct democracy in Switzerland

Industrial policy and direct democracy in Switzerland

The watch industry and the example of Nicolas Hayek

by Dr rer. publ. W. Wüthrich

About fifty years ago the third industrial revolution began with the usage of computers, with the invention of new global network communication and more in general with the digitalization of the economy and large parts of life. The binary principle of 0 and 1 was the key to a new world – to an extent as no one initially thought. As in many countries, it started in Switzerland with the worry for the future of the “work place”, that increasingly aligned globally. Entire industries changed their face. The share of industrial employment decreased in general, while service companies were founded increasingly. Many a factory closed its doors forever (or moved their production abroad). Within short, thousands of jobs were lost. Large companies with long-standing tradition like Alusuisse, BBC Brown Boveri, Saurer or von Roll got into difficulties. The watch industry, however, was affected most. This had particular reasons:
At the end of the 1960s, research scientists of watch companies and the ETH had invented the quartz technology and the digitally working watch that was newly powered by a battery. Approximately at the same time their colleagues in Japan accounted for the same invention. While in Switzerland the practical significance of this new technology was considered to be low and the watch companies continued to built almost exclusively mechanical watches, dominating the world market for many decades, Japanese companies like Seiko, Casio and others bet fully on the quartz technology. The Japanese began to flood the world market with masses of precision, but much cheaper watches. For Switzerland the consequences were disastrous. While in the 1960s eight out of ten watches in the world came from Switzerland, the share dropped to 10% in the 70s. The consequences were dramatic. More than half of the jobs in the Swiss watch industry were lost and some augurs predicted already its demise.

State as saviour?

Should the state intervene in this difficult time of crisis, similarily it had done in the great depression of the 30s? In 1978, the Federal Council suggested an impulse programme for the time being: The federal government should financially promote applied research, technology-related training and the development in companies. Parliament elaborated on a programme with “measures to mitigate the economic difficulties”. Parallel to this, the creation of new industries in economically threatened regions of the country should be encouraged, in particular in the crisis region of the Jura, the center of the watch industry.
In 1983, the Federal Council reinforced its efforts towards a national industrial policy. Federal Councillor Furgler submitted the introduction of an “Innovation Risk Guarantee (IRG)”. It should decrease at least in part the entrepreneurs’ financial risk associated with any research. Economists rejected the Federation project and simply called for “favorable basic conditions” for the companies. The “innovation” and the risk involved, however, was solely for the entrepreneur. This initiated an important fundamental decision in a difficult situation. In direct democratic Switzerland the people alone could set the course.
Federal Councillor Furgler succeeded to gain majority in parliament for his project “Innovation Risk Guarantee”, but not the majority of the people. On 22 September 1985, despite economic malaise, the sovereign set a clear signal against state industrial policy and rejected the innovation risk guarantee of the Confederation with 57% no-votes. Simultaneously, a new wind was already blowing in the terribly battering watch industry – however, for the time being, only a mild breeze.

Nicolas Hayek

The executive consultant Nicolas Hayek demonstrated what can be achieved with own entrepreneurship. He teamed up with engineers from ETH and the watch industry. Swiss banks helped with financing. On 1 October 1983, he had presented to the press the first Swatch (Swiss Watch) and in fact with twelve trendy models – a Swiss quality watch with quartz technology for 50 Francs. That was only the beginning. With a smart marketing strategy he and his colleagues began to conquer the world. The new watch should become a fashion accessory, and every woman and every man could have several watches that fit both jeans as well as evening dress. Moreover, the Swatch should become an object of art and a collector’s item. It succeeded in winning known artists for it. Five years later, 1 million pieces were sold already. But the success story was far from over. In 2008, the 25th anniversary of the Swatch (after that no figures have been published), 381 million pieces were sold already worldwide. Nicolas Hayek stuck to the tradition to exclusively produce in Switzerland. The other watch brands also allowed themselves be infected by the spirit of optimism. Especially in the luxury segment they started a high-altitude flight. The mechanical watch was newly “invented”, and it presented itself in the “brave new quartz world” as something special and particularly valuable. This is how the mechanical clock was soon sold afresh in large numbers all over the world as at the best of times. Today the once badly battered watch industry has more than overcome the crisis and no one speaks of state industrial policy any longer.

Conclusion

The vote on the innovation guarantee and the example of Nicolas Hayek make it clear that the people in Switzerland have a lot of confidence in the work of companies and advocate a favorable environment for their work – as for instance good schools, good vocational training, moderate taxes and other counting. It refuses, however, to let the federal government take off the companies’ shoulders the risk and responsibility for their work and to actively engage in industrial policy. In other countries like in France – it were the years of François Mitterrand – this took a completely different course.
In 1985, the people have set the economic policy course. To date, there is no economic government in Switzerland that directs economic activity by strong hand – except in the area of public service. But the sovereign has with this and other polls set a framework which leaves ample room for personal initiative and responsibility and preserves the decentralized federalism. For this, the Swiss watch industry is a prime example.     •

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