Both Switzerland and California are more competitive than the UK. If they can be damaged, and if businesses start to leave as they start beating up on companies, then the impact here will be far worse.
Switzerland is the fourth richest country in the world, measured by per capita GDP Photo: Alamy
6:15PM BST 20 Apr 2015
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What are the most competitive, successful economies in the world? You could make a case for Singapore, and increasingly for Dubai. But measured over the long-term, they would probably be Switzerland and California. Nowhere else really comes close, whether measured by income per head, or the vibrancy of their companies and entrepreneurs.
And yet, both have been flirting with anti-business populism. In Switzerland, a series of referendums have sought to limit executive pay, and to restrict immigration. California, along with New York, has been pushing up taxes to finance more generous state spending. There are signs already that is having an impact – and not in a good way. The numbers of companies moving to Switzerland is starting to fall sharply. Workers are leaving California for lower-tax states.
There is a worrying lesson for the UK. Both Switzerland and California are more competitive than we are. If they can be damaged, and if businesses start to leave as they start beating up on companies, then the impact here will be far worse. We may imagine that when it comes to the crunch, companies will stay here – but the evidence suggests that is a very foolish assumption. The reality is, business is more mobile than ever, and it won’t stay where it isn’t wanted.
The wealth of both California and Switzerland has been evident for years. Switzerland, with its formidable banking industry, and its depth of engineering, pharmaceuticals and consumer goods giants, is the fourth richest country in the world, measured by per capita GDP. The three above it are either tax havens or oil states. California, with its Silicon Valley tech powerhouses, and its massive entertainment and software industries, is an economic power all by itself. With a GDP of $2.2 trillion, according to Bloomberg calculations, it has just overtaken Brazil to become the world’s seventh-largest economy. It has already overtaken Italy and may edge past France quite soon.
So these are not slouches. They are two of the most hyper-competitive economies in the world, home to companies and industries with deep roots, and with skills and infrastructure that very few can match.
And yet both have been succumbing to a popular politics that takes aim at business. In the past year or so, a series of referendums in Switzerland have directly targeted big corporations. In 2013, voters backed a proposal that would give shareholders a direct veto over compensation, and banned big payments to incoming and outgoing executives. Another vote proposed limiting the pay of the most senior executive in a company to 12 times the most junior person – that didn’t pass, but it got 35pc support. On a separate issue, last year the country voted in favour of strict quotas on immigration, including from the European Union – the Swiss are, of course, not members of the EU, but had allowed its members free access.
You can argue about the rights and wrong of any of those proposals. Maybe executive pay has got out of control. It is quite legitimate to believe that too much immigration undermines communities. What you can’t dispute is that big business is deeply opposed to both initiatives. Companies don’t want to cap the pay of their top people, and they want to hire the best workers from anywhere.
So what impact has that had on the Swiss economy? This week we found out. A report from the Conference of Cantonal Economic Directors found that the number of foreign firms setting up in Switzerland fell by 8pc last year, to its lowest level in a decade. The number of new jobs fell by 21pc. It is not just that firms are not coming – they are leaving as well. Yahoo! shifted its European HQ to Ireland. So have companies such as the security firm Tyco.
There may be other factors. The soaring Swiss franc has made the country cripplingly expensive. But then it has always been pricey – it is only since it started bashing businesses that businesses have started to stay away.
Something similar is happening to California. For all its digital prowess, it also levies some of the highest state taxes in the US. With personal income taxes of 12pc on top of federal taxes – while many states have none – it is the highest taxed state in the Union. It has been ramping up labour protection, environmental legislation and business taxes. Chief Executive magazine has voted it the worst place to do business in the US. One report calculated that it took two years to get all the permits necessary to open a restaurant in the state, compared with six to eight weeks in Texas.
The result? People are moving out. A recent report from the American Legislative Exchange Council found that the five highest-tax states, led by California, lost 4m workers over the past decade, while the five lowest increased their population by roughly the same amount. Toyota has just moved its North American headquarters from California to Texas. Overall, the number of businesses in California is dropping by 73,000 a year.
There is a clear message for this country. Our political class has been ramping up the anti-business rhetoric as the election campaign unfolds. Labour’s Ed Miliband can hardly get through a speech without denouncing predatory capitalists for one thing or another.
The Liberal Democrats are constantly wheeling out diversity and environmental initiatives. Ukip appears to have decided that big business is as much the enemy of ordinary people as the EU. Even the Tories, while in practice easing some regulation, and doing a good job on cutting corporate taxes, appear nervous of speaking up for enterprise.
That may be a costly mistake. The UK has plenty of competitive advantages. We have an enviable record in creating jobs, lots of start-up companies, a stable political and legal system, a world-beating finance industry and some manufacturers that can take on the world. We have some of the lowest corporate taxes. Inward investment continues to pour in, one reason for the economic recovery.
But if we think we are as fundamentally competitive as either Switzerland or California then we are kidding ourselves. We might tell ourselves that companies will stay in Britain because they have roots here, even if taxes go up a bit, and regulations get a bit tighter. It is too much hassle to move, runs the argument.
The Swiss and the Californians have told themselves the same thing, and found out the hard way that it isn’t true.
You can argue about the rights and wrong of any of those proposals. Maybe executive pay has got out of control. It is quite legitimate to believe that too much immigration undermines communities. What you can’t dispute is that big business is deeply opposed to both initiatives. Companies don’t want to cap the pay of their top people, and they want to hire the best workers from anywhere.
So what impact has that had on the Swiss economy? This week we found out. A report from the Conference of Cantonal Economic Directors found that the number of foreign firms setting up in Switzerland fell by 8pc last year, to its lowest level in a decade. The number of new jobs fell by 21pc. It is not just that firms are not coming – they are leaving as well. Yahoo! shifted its European HQ to Ireland. So have companies such as the security firm Tyco.
There may be other factors. The soaring Swiss franc has made the country cripplingly expensive. But then it has always been pricey – it is only since it started bashing businesses that businesses have started to stay away.
Something similar is happening to California. For all its digital prowess, it also levies some of the highest state taxes in the US. With personal income taxes of 12pc on top of federal taxes – while many states have none – it is the highest taxed state in the Union. It has been ramping up labour protection, environmental legislation and business taxes. Chief Executive magazine has voted it the worst place to do business in the US. One report calculated that it took two years to get all the permits necessary to open a restaurant in the state, compared with six to eight weeks in Texas.
The result? People are moving out. A recent report from the American Legislative Exchange Council found that the five highest-tax states, led by California, lost 4m workers over the past decade, while the five lowest increased their population by roughly the same amount. Toyota has just moved its North American headquarters from California to Texas. Overall, the number of businesses in California is dropping by 73,000 a year.
There is a clear message for this country. Our political class has been ramping up the anti-business rhetoric as the election campaign unfolds. Labour’s Ed Miliband can hardly get through a speech without denouncing predatory capitalists for one thing or another.
The Liberal Democrats are constantly wheeling out diversity and environmental initiatives. Ukip appears to have decided that big business is as much the enemy of ordinary people as the EU. Even the Tories, while in practice easing some regulation, and doing a good job on cutting corporate taxes, appear nervous of speaking up for enterprise.
That may be a costly mistake. The UK has plenty of competitive advantages. We have an enviable record in creating jobs, lots of start-up companies, a stable political and legal system, a world-beating finance industry and some manufacturers that can take on the world. We have some of the lowest corporate taxes. Inward investment continues to pour in, one reason for the economic recovery.
But if we think we are as fundamentally competitive as either Switzerland or California then we are kidding ourselves. We might tell ourselves that companies will stay in Britain because they have roots here, even if taxes go up a bit, and regulations get a bit tighter. It is too much hassle to move, runs the argument.
The Swiss and the Californians have told themselves the same thing, and found out the hard way that it isn’t true.
