Category Archives: Small States

Having grown up in Switzerland, I always have been interested in small states. Small states are not just small versions of large states–they are culturally and politically different from large ones. Small states have a more narrow range of interests and often develop peculiar specialties which offer prestige and economic well-being in a globalized world. This is why small states defend their interests much more vigorously and often in defiance of the international community. Small states are often spaces for social and cultural experimentation. All these factors make small states and their stories so compelling.

So Why is Walgreens Moving to Switzerland? (And What Can We Do about It?)

The other day, a petition from Campaign for America’s Future ended up in my in-box. Its subject line read: “Why is Walgreens Moving to Switzerland?” Of course, Walgreens is not moving to Switzerland. My Walgreens still will by around the corner from my house. And most corporate jobs will remain in Chicago. The first line of the e-mail reads: “Walgreens is an American success story. Or, at least, they used to be.” Wrong again: it still is, and will remain so even after Walgreens moves its corporate headquarters to Switzerland. It just will not pay taxes in the US anymore. But that, too, is very American. Ever since Ronald Reagan declared the government the enemy of the people, paying taxes no longer is a civic virtue. Avoiding taxation altogether is considered smart because the money would only serve to bloat the government.

The planned move by Walgreens was precipitated by its merger with Alliance Boots, a British drugstore chain. Alliance Boots moved its corporate headquarters to Zug, Switzerland, in 2008 which caused the very same discussion about corporate citizenship in Britain. Alliance Boots never had more than a mailbox in Zug. According to The Guardian, the move comes at a cost of £100 million to the British taxpayer every year. In 2013, the company headquarters were moved to Bern as Alliance Boots already had operations there. While Zug is the quintessential corporate tax haven, the move to Bern, which was missed by Bloomberg News, does little to change the story. A move to Switzerland by the Walgreen Corporation would have similar benefits. A few weeks ago, analysts from UBS, a global bank based in Switzerland, claimed that stocks in the Walgreen Corporation would rise 75 per cent if corporate headquarters were to be moved to Switzerland.

Modest multi-party office building at Baarerstrasse 94 in Zug. Alliance Boots was based here until 2013.

Clearly, Walgreens does not want you to read this. In 1904, Charles Walgreen traveled from his small-town home in Dixon, Illinois, to Chicago and opened a pharmacy and soda fountain. It is the quintessential American success story, but today’s corporation has little to do with its humble beginnings. Walgreens want you to believe that they are an American company that pays their taxes, that they are being a good corporate American citizen, and that they live up to their iconic status as a quintessential American corporation. In a wicked way, of course, they are: like so many other American corporations, they are moving their corporate headquarters offshore.

Large corporations are de-nationalized entities which nimbly navigate the global financial and fiscal system while maintaining the fiction of national citizenship for public consumption. Two years ago, Gregory D. Wasson, the chief executive of Walgreen Corporation, sought tax breaks from the state of Illinois the company is still based. At that point, he stated: “We are proud of our Illinois heritage. Just as our stores and pharmacies are health and daily living anchors for the communities we serve, we as a company are now recommitted to serving as an economic anchor for northeastern Illinois.” At the time Wasson made this statement, the merger with Alliance Boots was essentially a done deal.

Walgreens is not the first and probably not the last US corporation to move their headquarters overseas for tax reasons. But Walgreens is different in that it is part of daily life in the US. My Walgreens is not just a pharmacy, I go there as well when I am out of dish detergent or beer. When Transocean, the owner of the Deepwater Horizon platform which caused the huge oil spill in the Gulf of Mexico in 2010, moved its corporate mailbox from Houston to Zug in 2008, nobody took notice. But Walgreens lives off he daily contact with American consumers, and in that it is seen as a quintessentially American brand that cannot be relocated so easily. And herein lies the chance to create public pressure not just to prevent Walgreens from moving to Switzlerland but to expose the fraudulent global scheme of corporate taxation.

So what does Campaign for America’s Future want you to do about this? They want you to send them ten bucks so they can “expose this scam, pressure Walgreens to do the right thing, and shut down the tax loophole that allows this to happen.” You can also sign their “Tell Walgreens: Don’t Desert America” petition. While I cannot argue against closing tax loopholes, this approach is merely cosmetic.

In 1998, the OECD published a report entitled Harmful Tax Competition: An Emerging Global Issue which arrives at the stunningly simple analysis: “Where activities are not in some way proportional to the investment undertaken or income generated, this may indicate a harmful tax practice.” Ultimately, the OECD had to abandon its efforts to develop non-abusive global taxation standards due to resistance from the wealthiest countries. The OECD report makes it clear that it is unethical for Swiss cantons (and other entities) to allow foreign corporations to incorporate and that it is harmful for tax jurisdictions where the actual economic activity of these corporations takes place. This practice particularly hurts developing countries, as Nicholas Shaxson argues in Treasure Islands (2012), that as a consequence become more dependent on foreign aid. Yet, fighting individual predatory jurisdictions, like many Swiss cantons, would only be marginally productive as corporations easily can move their mailbox to a different, equally beneficial jurisdiction.

One of the OECD recommendations was that a global standard should be established by which corporations should be taxed where their economic activity is taking place. We need to vigorously push for this standard, and we need to seek a fundamental change in how corporations are taxed globally. Corporations need to be taxed where they are producing goods and services and where they are using the infrastructure, not where they are having their corporate headquarters, i.e. their mailboxes. Such mailbox headquarters create a windfall for the host tax jurisdictions which in turn allows them to drop the corporate tax rates even more to attract even more corporate mailboxes. The Swiss canton of Zug is a textbook example for that.

The only real solution, ultimately, is to end tax competition between jurisdictions. In competitive tax environments, corporations win and taxpayers lose. Corporations and their lawyers always can move more nimbly than politicians and the polities they represent. Corporations can move their mailboxes as they please, pick where they pay taxes, and play tax jurisdictions against each other. Tax jurisdictions cannot move their citizens or their infrastructures. Unless we change the very system of how corporations are taxed, the Walgreens of this world will always have their way and citizens will lose out.

One of many mailboxes at Baarerstrasse 94 in Zug: Künzi Treuhand AG. About 50 corporations and business groups receive their mail here–meaning that this is where they are legally incorporated. One of their advertised specialties: helping foreign corporations set up and manage corporate headquarters here. This is big business, and there are many such companies in Zug.

Small-State Reaction to Crisis: Let’s Hoard Food

Ever since I read the two volumes of the graphic novel Maus by Art Spiegelman two decades ago, I have been thinking how the historical context that marked our parents’ formative years impacts our lives today. My parents are not Holocaust survivors–they spent their teenage years during WW II in northern Switzerland, about 20 miles from the German border. Switzerland was completely surrounded by the Axis powers, food and other daily commodities were scarce, and practically everything was rationed. Not to speak of the daily routine of going to bed with the fear of waking up to German tanks rumbling through town.

My father operated this artillery gun at the underground Fürigen fortress which was tunneled into the rocky cliffs overlooking Lake Lucerne in 1941-42. The fortress is a museum now.

My father was a soldier in the Swiss Army starting in 1943. He never fired a shot. I cannot possibly compare the history of my family with the tragic fate of the Spiegelman family. Yet what happened to my parents marked an entire generation in Switzerland and has been passed on to my generation. I grew up in a house of food hoarders. An entire pantry was dedicated to the storage of non-perishables, such as flour, sugar, rice, canned food and of course soap. My mother stored potatoes and apples in our cool, dark cellar, and we ate home-made jam that was always about three years old. Yes, my mother had a sophisticated labeling and rotation system. It was clear that my parents were not ever going to suffer food shortages again.

I had a dinner party at my house a week ago, and one of my sons made fun of the extraordinary amount of pasta in my pantry. This was one of these Maus moments in my life. We all laughed, including myself, because it is funny. And we had laughed about this before, and will again. Yet I know I always will store ample food supplies. I would not feel comfortable without a full pantry. And freezer. When in 2005 Hurricane Rita hit the Gulf Coast and even threatened my home in Austin, my house was ready for six additional people who had been displaced by the storm while everybody else was at the stores clearing shelves of anything that was edible.

This morning I read this headline in the online version of the German news magazine Der Spiegel : “Swiss Army chief hoards emergency supplies.” Of course, I knew right away that General André Blattmann was a kindred spirit. Apparently, he is storing about 80 gallons of mineral water (non-carbonated, in case you were wondering), wood for heating, and all kinds of food supplies. The title of the interview General Blattmann gave to the Swiss Sunday paper Schweiz am Sonntag, on which the Spiegel report was based, makes it plain that he would like all Swiss to do the same: “The Army chief advises the population to store emergency supplies.”

General Blattmann (in uniform), food hoarder, at a political event in 2010. (Wikipedia, Creative Commons)

Blattmann points out that contemporary society has become very vulnerable to a number of threats: the crisis in Ukraine with the potential for armed conflict, the growing risk of cyber-attacks, and the possibility of accidents in nuclear power stations in or near Switzerland, all of which could cause a systemic loss of electric power and disrupt the supply of food, water, and other necessities of life. And he paints a bleak picture for the role of the army: “We need the army to prevent looting when ATM machines don’t work anymore and there is nothing to buy.” Here is the lesson Blattmann takes away from this: “If you cannot defend yourself, history will tell you what you will have to do.”

This is the essence of small-state thinking. Small states do not have the resources to shape international politics. But small states can prepare for worst-case scenarios to ensure their own survival. Switzerland always has taken the concept of Zivilverteidigung (civil defense) very seriously, and after 1945 enormous resources were spent to create nuclear shelters and underground hospitals for the general population, culminating in the publication of the Zivilverteidigungsbuch (Civil Defense Book) in 1969 which was distributed to all Swiss households. Storing food supplies and asking citizens to do the same was part of that effort. But my parents did not need that reminder.

This kind of preparedness has been the essence of the long-standing Swiss policy of neutrality which has been practiced successfully since the 16th century: keeping out of conflicts between other countries to ensure survival, and being prepared militarily to create a deterrent. The lesson of WW II clearly has been that Switzerland as a nation, but also individual Swiss citizens have to prepare the resources to be self-reliant in times of crisis as the country cannot control the outcomes of international conflicts and cannot count on being bailed out by a larger power. According to Blattmann, the conflict in Ukraine and the threat of future asymmetrical conflicts have shown that we are entering a renewed period of uncertainty that requires a higher degree of preparedness.

Blattmann’s response to this new sense of insecurity clearly is a small-state response. Just imagine General Dempsey requesting that all Americans do the same. It also is anchored in this hoarding reflex the generation that came of age during the last war has instilled in their children and grandchildren. Just check the general’s basement–or my pantry. But then, I sleep better that way, even in Texas.

Switzerland Discovers the Ugliness of Offshore

In recent days, Johann Schneider-Ammann, the Swiss Minister of Economic Affairs, has become the target of criticism for the tax dealings of the Ammann Group in Langenthal, the company he led between 1987 and 2010. From 1999 to 2010, Schneider-Ammann served in the National Council, the lower chamber of the Swiss parliament. He only gave up control of the Ammann Group when he became a member of the Swiss Federal Council, the federal cabinet, as Minister of Economic Affairs in 2010.

Official 2014 picture of the Swiss Federal Council. Schneider-Ammann is on the left.

The Ammann group was founded in 1869 by an ancestor of Schneider-Ammann’s wife and has been specializing in the production of construction machines. Since 1931, Ammann has been the exclusive importer of Caterpillar products to Switzerland. Today, the company has a worldwide employment of about 3,700–2,500 of them abroad.

Ammann road construction machines (Pavel Ševela / Wikimedia Commons)

One of the allegations, first reported by Swiss TV in late January, is that the Amman Group sold Caterpillar equipment to Iran after the 1979 revolution, thus circumventing the US embargo. Two retired truck drivers, Werner Zwahlen and Robert Z’Rotz, claim to have delivered many truckloads of Caterpillar products to Teheran and Baghdad between 1975 and 1984: “We picked up the machines and spare parts in Belgium and the Netherlands and brought them to Ammann in Langenthal. There we got new papers and, without ever unloading, drove on to Teheran and Baghdad.” As Schneider-Ammann entered the company in a leading position in 1981, it stands to reason that he knew about this scheme–which to be sure was not illegal under Swiss law.

The more serious allegation is that the Ammann Group set up offshore schemes to evade–or avoid–taxation in Switzerland. In 1976, the Ammann Group founded Manilux SA, a financial holding corporation, in Luxemburg. In 1996, they founded another financial subsidiary, Jerfin Ltd., on the Channel island of Jersey. Schneider-Ammann himself was listed as the chief of Manilux which had neither employees nor offices in Luxemburg, nor elsewhere, even though 250 million Swiss Francs were invested there. Manilux and Jerfin were dissolved in 2007 and 2009, respectively, and the funds transferred first to Jersey and then back to Switzerland.

In an interview with the Zurich daily Neue Zürcher Zeitung on February 8, Schneider-Ammann confirmed the basic facts but denied any wrongdoing: “This was about reserves which we optimized in terms of taxation. The funds were intended for the strategic development of the international Ammann Group and were used to protect jobs. Everything was legal, everything was transparent, the taxation authorities had complete insight at any time. They confirmed this to the company again on Friday.” Entrepreneurs today, according to Schneider-Ammann, have to resort to such offshore schemes because companies are part of a global competition where this is standard procedure: “If you want to secure domestic jobs in an international corporation, it is legitimate to optimize taxes. From an entrepreneurial perspective, it would be a mistake not to take advantage of all legal options.”

While many corporations set up much more sophisticated tax avoidance schemes with a more complex web of subsidiaries in numerous jurisdictions, this is a textbook example for how offshore works. “Optimizing” tax liabilities becomes part of what corporate leaders do in order to increase profits or just to remain competitive. At the other end of the bargain, jurisdictions compete to offer the most attractive conditions to get companies to incorporate there. This is the mechanism Schneider-Ammann described quite frankly: “The Ammann group has to compete in a brutal environment. Before the turn of the millennium, this type of a tax break did not exist in Switzerland. That is why it was recommended to us to invest money in offshore corporations to shelter it from taxation. In the last few years, similar tax shelters were created here [in Switzerland]. This is why we brought the money back to Switzerland.”

This is how the offshore race to the bottom works: corporations create shell companies to move their money to the jurisdiction that offers the most advantageous conditions–and ordinary citizens all over the world shoulder an ever-increasing percentage of the tax burden. Jurisdictions in turn adjust their tax schemes to make their location even more attractive to corporations. When Switzerland matched the conditions offered by Luxemburg and Jersey, repatriating the accounts made business sense for the Ammann Group.

So why did revelations about the business practices of their Minister of Economic Affairs create such a stir in Switzerland to the point that some demand his resignation? Switzerland is one of the pioneers of the offshore system and for well over 80 years has created offshore opportunities for corporations and individuals who are based elsewhere. Mr. Schneider-Ammann has delivered a high-profile example for how offshore looks from the point of view of the jurisdiction that gets cannibalized–a perspective the Swiss are not used to seeing. And all of a sudden, it is very easy to comprehend just how wrong and unjust this system is.

The question is not just whether Mr. Schneider-Ammann’s tax schemes were legal but whether a corporate leader who actively pursued offshore strategies to avoid paying corporate taxes in Switzerland can be a trusted guardian of the common good and more specifically is fit to be its Minister of Economic Affairs–who sits at the table when tax issues are discussed with foreign entities. And just perhaps the offshore system has become odious enough for even the Swiss to understand that the global offshore system they helped create–and from which they profited immensely–may be legal but is morally corrupt.

On the Wrong Side of History: Christoph Blocher on the Passing of Nelson Mandela

The passing of Nelson Mandela reopens the question of Swiss collaboration with South Africa’s Apartheid regime. Switzerland continued to have both diplomatic and trade relations with South Africa even at a time when the rest of the world shunned the regime. It allowed commodities traders, like Mark Rich, to use Switzerland as a base to circumvent international sanctions against South Africa. Switzerland was not a member of the United Nations then and was not bound by its sanctions. The policy of absolute neutrality served as justification for non-interference and free trade with the result that Swiss corporations were allowed to do business with the Apartheid regime and thus profit from the international sanctions against South Africa.

Christoph Blocher (b. 1940) is one of the most prominent, influential and divisive politicians in recent Swiss history. He was a Nationalrat (national councilor, member of parliament) from 1980 to 2003 and has been serving as Nationalrat again since 2011. He was a Bundesrat (federal councilor) and minister of justice between 2003 and 2007. He represents the populist-right Schweizerische Volkspartei (SVP, Swiss People’s Party) which has spearheaded all anti-immigration and anti-EU measures of the past quarter century and which currently is the strongest party in Switzerland.

Blocher was a co-founder of the Arbeitsgemeinschaft Südliches Afrika (Southern Africa Working Group) in Switzerland–a Swiss lobby group that supported the Apartheid regime all the way to its demise. The work of this influential but secretive group still is largely unexplored. In spite of the 2005 report by the Swiss historian Georg Kreis on Swiss relations with South Africa between 1948 and 1994, there is little public awareness of the larger role Switzerland played in support of the Apartheid regime.

Christoph Blocher (left) in his home, discussing the passing of Nelson Mandela. (Screenshot teleblocher.ch, 12/6/2013)

For several years, Blocher has run his own webcast called Teleblocher–a weekly program where he chats with the Swiss journalist Matthias Ackeret about the issues of the week. The 25-minute program recorded on December 6, 2013, includes a segment dedicated to the passing of Nelson Mandela which lasted a total of six minutes and 42 seconds (also posted on Youtube). The conversation was in Swiss German–I transcribed and translated the entire Mandela segment, and I am posting it below. The interview has a certain oral and stream-of-consciousness quality to it, and I decided to render that in my translation even though it is is not always clear what Blocher meant to say. The transcript also does not render the tone of the conversation–for instance the indignation with which he tells us how the Swiss federal government refused to receive the South African president F. W. De Klerk in the late 1980s. The Mandela segment starts at minute 7:12 and ends at 13:54.

Rather than commenting on this interview, I want to make it available to a wider global audience. What this interview shows is a clearly Euro-centric, unrepentant racist apology in support of the Apartheid regime–and of the Swiss collaboration with it. Blocher throughout the interview idealizes the accomplishments of the Apartheid regime while showing contempt for Black liberation. But I think that the text can stand for itself. Read on.

Ackeret [7:12]: Well, our second topic is a bit more serious. This morning, an announcement which went around the world, Nelson Mandela died. What kind of a relationship did you have?

Blocher [7:21]: I did not have a direct relationship, but I followed this issue of course. Simply put, Nelson Mandela was in South Africa which had a very brutal and strict racial division between White and Black—he always fought for Black people to have the same rights. And he was banned and put into prison—that was an island just off the coast where he was put. And as the Whites were–whoever was against that, it was a question of whether the government would be toppled—they intervened quite brutally. And South Africa was part of Southern Africa.

Ackeret [8:11]: Well, you were part of this famous committee.

Blocher [8:13]: The Arbeitsgemeinschaft Südliches Afrika (Southern Africa Working Group); it was not just concerned with South Africa. And that was during the time of the Cold War. The Soviet Union wanted to do everything to gain control over Southern Africa. Because, this was the Cape of Good Hope, it was a very important route around Africa. And whoever strategically had control over this had an important part of global power in their hands. And thanks to the most important state in Southern Africa, South Africa, where the Whites made sure that it would not be Communist-controlled, they did not gain control over it. And the Southern Africa Working Group in which mostly higher officers [of the Swiss Army] were participating was concerned with this issue.

Ackeret [9:06]: But which supported Apartheid—that was the allegation at the time.

Blocher [9:08]: No, no, that is what they said, because we said that South Africa should resolve this problem on their own. Of course, it is clear: Russia wanted the Blacks to gain control because with them they could have turned things. So they held back in such a strategic situation. And the Whites always said that when they get this into their hands we would not come anymore. But one always has to know: Africa turned this regime on its own, and it was the Whites to be sure. And I was part of these discussions. And De Klerk who afterwards turned things.

Ackeret [9:55]: The Prime Minister.

Blocher [9:55]: He [De Klerk] came to Switzerland shortly before that. He was not given a reception, in Switzerland, by the Bundesrat [Federal Council]. They let him stand in front of the Bundeshaus [federal building] just so they would not get a bad reputation with the United Nations. So I received him with two or three other members of parliament in the Bellevue [hotel]. And then, as a White, he turned things around and received the Nobel Prize afterwards. And since then, race discrimination has disappeared. Africa is a wonderful country, this has to be pointed out, in terms of landscape, and the Whites kept very good order. But they did not grant equal rights. They did everything to integrate the Blacks. Hundreds of thousands of them, every year, came from the North, all Blacks, because they had it much better in South Africa than back home. But they did not have political rights. They also did strange things: they labeled benches, only for whites, only for blacks. And the Blacks also did not want to be where the Whites were. For us, this is a alien way of thinking.

Ackeret [11:08]: What was the goal of that committee?

Blocher [11:10]: The committee wanted to ensure that South Africa would not fall into the hands of Communism. Because we knew if that was going to happen the Cold War would turn in favor of the left, of the Soviets. One would not get it back once they would control that tip [of Africa]. The Americans knew that too. That is why the Americans always did both things: Apartheid, nothing at all, but simultaneously collaborated with the South Africans. And I believe that this was the merit of those groups who said, let the South Africans solve the issues on their own, we do not have to give them advice, and they did solve it themselves. South Africa is difficult now. One has to be very careful when going to South Africa, because they have a high crime rate which did not ever exist before. It is difficult to go out into the streets, and of course they are economically doing more poorly than before. But as before, South Africa is the state that is the strongest in Southern Africa, and all the other states profit from that as well. And now Mandela, the representative, they had released him, and since then he has been a hero in South Africa.

Ackeret [12:35]: Rightly so or not?

Blocher [12:37]: Well, I mean, he contributed a lot to the end of racial discrimination—this is alien to us. And rightly so, we say that he fought during his entire life and went to prison—that is always a sign that one is serious about it. But perhaps he has been overrated (“überschätzt”) in many places. This is how it goes: if somebody did something well at some point, everything else he does is considered to be good. But this is all over now. Those who in the early years saw Mandela’s house—which for us almost is a palazzo—and Bishop Tutu, that was the other one…

Ackeret [13:20]: That was the neighbor.

Blocher [13:21]: […] he was on the same side. Well, they did not live in tin huts. They were well taken care of.

Ackeret [13:30]: You went to look at it?

Blocher [13:31]: Yes, look at it. I wanted to see where they lived. Well, I said, of course this is hierarchical. But in these states this has to be that way, that people of this kind and that kind live that way. And of course those in the regime made sure that they did not have to live in poverty.

Nelson Mandela’s home in Soweto before his 1964 imprisonment. Yes, I went to see it too–not exactly a palazzo. (2007)

Ackeret [13:54]: Let’s go back to Switzerland. […]

Rhäzüns castle, part-time residence of Christoph Blocher. Why criticize Mandela for living in a simple bungalow? (Wikipedia)

Reinfeldt to Obama: “You’re now in Sweden, a small country.”

On his way to the G-20 summit in St. Petersburg, President Barack Obama stopped in Stockholm on September 4 to visit Swedish prime minister Fredrik Reinfeldt. During their joint press conference, Reinfeldt in his opening statement summarized the issues being discussed in their private meeting and said this about the situation in Syria: “Sweden condemns the use of chemical weapons in Syria in the strongest possible terms. It’s a clear violation of international law. Those responsible should be held accountable. Sweden believes that serious matters concerning international peace and security should be handled by the United Nations.” Obama tried to gloss over the apparent differences in his own opening statement: “I respect–and I’ve said this to the prime minister–the U.N. process.”

President Obama with Swedish Prime Minister Fredrik Reinfeldt. (Screenshot: whitehouse.gov)

Later, Obama explained his views in response to a question on Syria to both leaders. Reinfeldt responded to Obama in this unexpected way: “Just to remind you, you’re now in Sweden–a small country with a deep belief in the United Nations.” While expressing understanding for Obama’s position, he added a little later: “But this small country will always say let’s put our hope into the United Nations.” Why did Reinfeldt remind Obama that Sweden was a small state, and what was the real message he had for Obama?

Throughout history, small states routinely disappeared from maps or became client states of larger neighbors—the history of Poland or the fate of small states in both World Wars could serve as examples. Ironically, the two World Wars (and de-colonization) triggered an unprecedented proliferation of small states which was followed by equally unprecedented political protection of small states anchored in international law and guaranteed by international organizations, particularly by the United Nations which has served as a de facto accreditation agency for small states.

Since 1945, power relations have been primarily regulated by international organizations rather than by armed conflict. Small states profited from the rise of multilateralism as it reduced the power differential associated with smallness and offered them agency and disproportionate political influence in an increasingly globalized world.

The events leading to the US invasion of Iraq in 2003 offer a textbook example of how this dynamic can play out in an international conflict. The United States preferred a unilateral path by building a “Coalition of the Willing” that constituted a community of values promoting “freedom” and “democracy.” President George W. Bush’s phrase “You’re either with us or you are against us” symbolized the ideological polarization his brand of unilateralism fostered–which created great anxiety in small states who wanted to sit out this conflict.

Small states, on the other hand, insisted on building a community of laws and thus creating a multilateral path, based on resolutions passed by the UN Security Council–a step that would be elusive in the brewing conflict over Iraq, as it appears to be in the Syrian conflict now. Small states want actions by the international community to be based on laws and on treaties and to be embedded in the framework of the United Nations—an approach that has served well to protect small-state interests since 1945.

So Reinfeldt’s unusually blunt comment was a history lesson to remind Obama how American unilateralism spectacularly failed in the past—particularly in Iraq. It also was a reminder that small states think and act differently and prefer a multilateral conflict resolution within the framework of the United Nations—even though both Reinfeldt and Obama agree that President Assad’s horrendous crimes against his own population constitute a violation of international law. This reminder must have stung as Obama is the most multilateralist president in recent memory. Not surprisingly, the only reference to Syria in the official Joint Statement was that “we strongly condemn any and all use of chemical weapons.”

Reinfeldt in the press conference quickly moved on from this point of discord and instead focused on humanitarian aid–an area on which this small Scandinavian state has built part of its reputation and which is an important source of national identity: “You’re also in a country where, I think yesterday or the day before, we took the decision that all the people that are now coming from the war in Syria are allowed to stay permanently in Sweden.” Humanitarianism is a proven safe ground for small states that want to make a mark in a globalized world.

Why Is Norway So Expensive? (Think Living Wages.)

On a recent visit to Norway, two friends from the University of Oslo on my first evening in Oslo took me out for a beer to talk about my visit–as in one beer each. The tab for the three beers: $57. Needless to say, I headed for a store the next day to check out retail prices. I noticed that they mostly sell beer individually, not per six-pack. It is because buying a six-pack would bankrupt you. The cheapest beer I could find, a mass-market Pilsner, was about $5 for one half-liter can–just over 16 ounces. Beer is very expensive because it is heavily taxed, as are all alcoholic beverages, as part of a strategy to curb alcoholism. My Norwegian friends assured me that the plan is not working.

But the bread at the store was expensive as well. As were restaurant food, train rides, hotel rooms, and books. And the list goes on. Most surprisingly, gasoline is expensive, too. Norway is the only oil-producing country with high gas prices. In fact, Norway has the highest gas prices in the world. Yet, the government through heavy taxation seeks to convince Norwegians to keep their cars at home and use public transportation instead. And it also subsidizes alternatives to fossil fuels, like this recharge station for electric_cars in central Oslo.

Battery recharge station for electric cars in central Oslo–in an oil-rich country. Nice parking job.

One interesting tool to compare price levels across countries is the Big Mac index which was developed by The Economist in 1986. Not surprisingly, the most expensive hamburgers in the world are sold in Norway where in July 2013 they cost 64.7% more than in the US. We might arrive at the conclusion that the Norwegian krone is overvalued. But if we use the index adjusted for GDP per person, the hamburger is only overvalued by 13.6%. So the exchange rate is a factor, but perhaps not the major one.

A Whopper will set you back a whopping $10. (That is without cheese.)

While the price of a hamburger is 64.7% higher, the GDP per person is a little more than double than that in the US. As the per-capita economic output is twice that of the United States, I assumed that some of this would trickle down in terms of personal income. So I asked the colleague who paid for the $57 beer tab why things are so expensive in his country. His response was, if you have a Norwegian paycheck this is not a problem. Not only are the wage levels very high, but disparities in income are much smaller than in the US. In other words, the person who sells you a hamburger or a beer in Oslo actually earns a living wage. High wages are prevalent and render the service industry expensive. But high wages are also common in education and other areas of the public sector–not to speak of the energy sector.

It is no secret that the North Sea oil brought a lot of wealth into the country over the past 30 years. What is interesting is how this wealth has trickled down. It has lowered the unemployment rate to an enviable 3.4%–one of the lowest in the world. (There are downsides to this which I will explain in a future post.) At the same time, it has supported a notion of a livable wage that is deeply anchored in Norwegian society. This stands in stark contrast to the United States where the working poor not just include workers in the service industry but increasingly also school teachers and other workers in the public sector.

But in this small Scandinavian country that sees itself as a social laboratory, making sure that this new-found oil wealth benefits all Norwegians is a national priority. Norway is a consensus-driven, relatively egalitarian society with a high level of social cohesion. According to the OECD, wage inequality is low, and a very progressive system of taxation further helps to reduce income inequality. And there even appears to be a consensus that the few that fall between the cracks deserve support–which is not the sole responsibility of the government. I observed a young woman, perhaps 18, walk out of a 7-Eleven convenience store in central Oslo and hand a sandwich to a street person.

Homeless person in front of 7-Eleven in central Oslo, shortly after a young woman gave him a sandwich.

So if you will visit Norway as a tourist any time soon, you will surely complain about the exorbitant prices. But keep in mind that the money you pay in restaurants, hotels, and other parts of the tourist infrastructure will allow real people to have a real middle-class life. And Norway is a stunningly beautiful country, well worth a visit.

View of the Aurlandsfjord from the town of Flåm. (Yes, this was the view from my hotel room.)

Oprah Creates a Stir: Switzerland’s Small-State Response

In my blog post of August 9, I commented on the Oprah incident in Zurich which has been dubbed Täschligate (handbag-gate) in Switzerland. While “Oprah-Gate” has long been dropped from short-lived news cycles around the world, the story continues to unfold in Switzerland. And here the story becomes interesting: how does a small country process the scolding and humiliation by the global media?

Here is a brief synopsis: Oprah entered an exclusive Zurich boutique, asked to see a very expensive handbag, but being turned down by the sales clerk with the remark that this item would be too expensive for her. This at least is Oprah’s version of the story. The story was picked up by news outlets around the world after Oprah’s high-profile interviews with Entertainment Tonight and with Larry King, and Oprah’s interpretation of this incident as racially motivated was uncritically accepted and disseminated. In my first blog post, I concurred that there was a racial component to the story, and in spite of some unresolved discrepancies I have not changed my mind.

There have been multiple responses in Switzerland, and the bulk of them focused on discrediting Oprah on some level and thus on putting her credibility in question. One commentator bluntly claimed that she couldn’t sing nor act and that her only true skill was self-presentation. The most common response is to frame Oprah as a petulant and narcissistic star who was irritated by the fact that she was not recognized in an upscale boutique–which is used to dealing with celebrities–and that her show does not have any traction in Switzerland.

First, there was a tearjerker of an interview in the Swiss tabloid Blick with the sales clerk–who was idendified as Adriana N.–with the title “I have not been able to sleep for days!” It is a full-blown victim narrative–“I feel like I am in the center of a hurricane.” Adriana remembers that Oprah entered the store accompanied by a man (Oprah claims to have gone shopping alone). In Adriana’s version of the story, she showed Oprah a handbag from the Jennifer Aniston line and explained that they existed in different sizes and materials. In Adriana’s account, Oprah eyed the expensive crocodile skin bag on top of the shelf: “I told her that this is the same bag like the one I was holding in my hand at the time. Only that that one was much more expensive. I would be happy to show her other bags.” The uncontested fact is that Adriana did not take down the expensive bag even though Oprah showed an interest in it and that Adriana tried to steer Oprah towards less expensive bags.

Trudie Götz, the owner of the boutique, in her own interview with Blick, admits that Adriana committed one mistake by not having taken the bag off the shelf and handed it to Oprah. When Adriana mentioned the price to Oprah, she felt bad about it, according to Götz. Why would you feel bad about stating a price in an upscale shop–unless of course you believed that the item was way out of the person’s price range. So Oprah’s reaction seems justified: she indeed was profiled by Adriana and considered not worthy of being shown this very expensive bag. Was racism a factor? Götz, flatly denied that, adding: “I am sorry, but perhaps she [Oprah] is a bit too sensitive in this regard.” Götz unwittingly points to the inverse as the real problem: if you are white, you don’t have to concern yourself with issues of race.

This is the mainstream interpretation of this event in Switzerland. Even the speedy apology to Oprah by Switzerland Tourism, Switzerland’s heavily subsidized tourism office, now is being criticized in Switzerland. Rino Büchel, a member of parliament representing the populist-right Swiss People’s Party (SVP), is demanding to know how this “bizarre apology” came about. Even Daniela Bär, the spokesperson for Switzerland Tourism who had tweeted the apology, is now backpedaling, stating that the apology was premature, too emotional and provided an unfortunate interpretation of the event. Büchel in the meantime increased the pressure by promising a parliamentary investigation of Switzerland Tourism’s original apology, stressing that too many outside of Switzerland were confounding Switzerland Tourism with the country itself and read this as a national admission of guilt. Unfortunately, the headline in Britain’s The Telegraph bears this out: “Switzerland apologises to Oprah Winfrey over handbag incident.” And Politico reported: “The Swiss government and the boutique apologized, trying to tamp down what had a become a worldwide story.”

One of the more bizarre commentaries by Martin Sturzenegger in the Zurich daily Tages-Anzeiger focuses on the object of desire: the handbag, made from crocodile skin and with a SFr. 35,000 ($38,000) price tag. For this handbag, the skins of three crocodiles were used who were raised under horrible conditions in a crocodile farm, as the linked PETA video narrated by actor Joaquin Phoenix graphically shows. Sturzenegger points out that PETA, the animal rights organization, named Oprah the person of the year in 2008 because she made her large audience aware of the systemic abuse of animals in industrial settings. Based on the handbag incident, Heinz Lienhard, the president of the Swiss animal rights organization, declared that Oprah was not a true protector of animals. So Sturzenegger’s take is that Oprah is a phony animal lover with a pathological desire for publicity. The problem with this argument: Oprah just wanted to see the bag; she never expressed the desire to buy it.

The most recent line of argumentation in the Tages_Anzeiger and in Blick is that Oprah created a big stir around this incident to promote the new movie “The Butler” in which she has a starring role. Granted, Oprah knows how to generate publicity and how to stage herself. But the article in Politico–on which this theory is based–more generally argues that “Oprah Winfrey is stepping back into politics,” mentioning her discussion of the Zurich incident as one example and only in passing.

All of these responses are typical for a small state that sees itself exposed to massive criticism from abroad. In moments like these, defending national interests trumps introspection and reasoned debate. Even Martine Brunschwig Graf, the president of the federal commission against racism (Eidgenössische Kommission gegen Rassismus), condemned the efforts by mostly foreign media outlets to turn an ego problem into a racism problem, as she put it.

But in the French-speaking part of Switzerland, the response seems to be more moderate. A piece in the Lausanne daily 24 heures, entitled “Oprah Winfrey finds Switzerland racist, and our black community does as well,” takes this opportunity to reflect on racism in Switzerland. Celeste Ugochukwu, the president of the Conseil de la Diaspora africaine de Suisse (CDAS), stated in the article that racial discrimination was common in Switzerland–but more so in the German-speaking part. André Loembe, vice president of a different immigrant organization, diagnosed a rising anti-Black attitude in Switzerland since the early 2000s. The federal commission against racism in a 2010 report confirmed a rise in anti-Black and anti-Muslim incidents. Loembe further expressed his view that Swiss anti-racism laws should be used to prosecute the sales clerk. If you are black in Switzerland, it is a lot easier to see the racial component of Oprah’s handbag incident.

Some progressive politicians take a more critical perspective as well. In an interview with the German news magazine FOCUS, the social democratic politician Andreas Gross recognized a “combination of an inflated self-importance of being Swiss (Selbstüberwertung des Schweizer-Seins) and a strange provincial attitude in contact with foreigners.” In his view, this paradox between competency in foreign trade and inability to deal with foreigners in their own country is poorly understood in Switzerland and not part of a critical self-examination.

The context of increasing hostility towards immigrants in Switzerland also is hard to overlook. Most notable are popular votes against the construction of new minarets in November 2009 and for tightening asylum laws in June 2013. In July, allegations of inhuman treatment of asylum seekers in some Swiss towns became public. In the affluent town of Bremgarten, for instance, asylum seekers have been banned from the public pool and from local sports facilities–this town of 6,500 people has created a total of 32 exclusion zones where asylum seekers are not allowed to go.

So the Oprah incident is just the tip of the iceberg. It reveals a country that feels pressured by immigration and that is deeply troubled by the rapid demographic transformation unleashed by immigration. It also reveals just how clumsy and insecure the Swiss debate about race is. Moreover, it reveals the typical collective small-state defensive reflexes against any perceived threat from the outside that render a national debate toxic. In a more recent interview, Oprah showed a surprising insight into this issue: “It’s not an indictment against the country or even that store. It was just one person who didn’t want to offer me the opportunity to see the bag. So no apologies necessary from the country of Switzerland. If somebody makes a mistake in the United States do we apologize in front of the whole country? No!” The Swiss would do well to take this to heart.

Racist Attitudes in Switzerland? The Tales of two African-American Women

Oprah traveled to Zurich, Switzerland, recently to attend the wedding of Tina Turner who has lived in the tony Zurich suburb of Küsnacht since 1995. Earlier this year, Turner made the headlines for accepting Swiss citizenship while simultaneously renouncing her US citizenship, presumably for tax reasons. The US has the questionable distinction of being the only industrialized country that taxes its citizens who reside abroad. (One would wish that the US would apply similar standards to US corporations, but that is a different matter.) Taxes aside, Turner seems to be genuinely at ease in Switzerland: “I’m very happy in Switzerland and I feel at home here. […] I cannot imagine a better place to live,” Turner reportedly told the Swiss tabloid Blick.

Oprah, her wedding guest, had a different story to tell to Entertainment Tonight. Oprah apparently entered the exclusive boutique Trois Pommes (which Oprah refused to identify) in downtown Zurich by herself, without any of her handlers. She asked to see a handbag with a SFr. 35,000 ($38,000) price tag. According to Oprah, the sales person replied, “No, it’s too expensive!” When Oprah further insisted on seeing that bag, the woman at the store replied, “No, no, you don’t want to see that one, you want to see this one, because that one would cost too much and you would not be able to afford that.” The employee then proceeded to show Oprah other, less expensive handbags. After three unsuccessful attempts, Oprah apparently left the store without making a scene and without pulling “the black card,” as she put it.

Upscale shopping street in the historic heart of Zurich

In the interview, Oprah was clearly annoyed because her star power apparently has not reached tiny Switzerland yet: “I didn’t have my eyelashes on, but I was in full Oprah Winfrey gear. I had my little Donna Karan skirt and my little sandals. But obviously The Oprah Winfrey Show is not shown in Zurich. So this does not happen to me unless somebody obviously does not know it is me.”

It is unfortunate that this narcissistic display of injured vanity obfuscates the matter. It has allowed commentators in Switzerland to focus on the hissy fit by a narcissistic international entertainer–as a commentary entitled “Die verletzte Narzisstin” (the injured narcissist) in the respected Zurich daily Tages-Anzeiger did. This line of argumentation enables commentators to deny that there is any racism at issue in this scandal that now is referred to as “Täschligate” (handbag-gate) in Switzerland. As in the cases of the Nazi Gold and the bank secret, Switzerland again sees itself exposed to a barrage of international accusations, and the gut reaction is to circle the wagons–a posture that is common when small states see themselves exposed to massive criticism and pressure from abroad. And Oprah delivered all the arguments for this defensive posture.

This also is unfortunate because Oprah clearly has had a positive impact on young black women around the world. In a visit to South Africa some years ago, a group of young women from Limpopo province glowingly told us how Oprah is a role model for them who as a person of color and as a woman made it in a world dominated by white men.

But Oprah is right that this incident would not have happened if the sales clerk had recognized her as a celebrity. Which brings up the question why it did happen. Trudie Götz, the owner of the boutique, in an interview with the Swiss tabloid Blick framed this as a “misunderstanding” due to the imperfect command of English of her employee and claimed that her employee meant well, acted correctly and in no way displayed racial prejudices. She further stated that she sees no reason to fire her sales person. Ironically, Ms. Götz was an invited guest at the Turner wedding as well.

Trudie Götz, owner of the upscale Trois Pommes boutique, in an interview with the tabloid Blick (screenshot Aug. 9, 2013)

If the sales clerk acted correctly by not showing a handbag to a customer deemed undeserving, business policies and practices come into focus. It is obvious that the profiling of customers in this boutique is standard procedure and that sales people are trained to profile customers–a practice that was confirmed by other upscale Zurich retailers. But what are the criteria for this profile? Obviously, the perceived ability to pay is key, and race factors into that in a major way. Furthermore, the rabid denials of racism by so many Swiss commentators imply that race indeed is a major underlying issue. Switzerland just in recent years has been forced to deal with a multi-racial society. Switzerland still lacks any authoritative mainstream voices–like Oprah–who can talk about race from a minority viewpoint. As the clumsy and insensitive commentaries in the Swiss press indicate, the Swiss have a long way to go to develop an understanding of the subtle ways of racism in our globalized world.

In the meantime, Switzerland Tourism, Switzerland’s official tourism office, showed outrage over the scandal, apparently fearing damage to its brand. International tourism in Switzerland has been in decline over the past few years, and the perception is that this scandal is not helpful. Daniela Bär, the spokesperson for Switzerland Tourism, offered a speedy apology to Oprah, reducing the issue to a clumsy salesperson who acted inappropriately. This also seems to be the view of other retailers in Zurich–again denying any systemic issues this scandal seems to have revealed. It is evident that Switzerland Tourism and other commercial interests would like the world to see Switzerland through Tina Turner’s eyes rather than Oprah Winfrey’s.

Note: see my later post, published on August 13, 2013, entitled Oprah Creates a Stir: Switzerland’s Small-State Response

Marc Rich and Switzerland: An Uneasy Relationship

By sheer coincidence, I arrived in Zug, Switzerland, a couple of days after the passing of Marc Rich (1934-2013) who was one of the world’s foremost commodities traders. It just so happens that this is the city where in 1974 Marc Rich and friends founded Marc Rich + Co AG which specialized in commodities trading. It is no accident that Rich set up his company in Zug which is a business-friendly tax haven cloaked in secrecy, located in a small country that specializes in tax shelters and bank secrecy. Rich sold his company in 1994 which then was renamed Glencore and today is one of the biggest traders in commodities–still based in Zug.

Zug, Switzerland. Humans: 25,000. Corporations: 30,000.

Marc Rich traded with anyone, and he pursued commodities even in countries with very difficult political situations where other traders stayed away. His company also traded with countries under US or international sanctions, such as Cuba, Iran, and South Africa during Apartheid, and with ruthless dictators like Pinochet, Ceausescu, Qaddafi, and others. A congressional investigation revealed that Rich for instance delivered Soviet and Iranian oil to South Africa and traded uranium from Namibia, which then was a South African protectorate, back to the Soviet Union in return. The Shipping Research Bureau in Amsterdam documented 149 oil deliveries to South Africa set up by Marc Rich between 1979 and 1993 in violation of the embargo. These oil deliveries were vital as oil was the only major raw material South Africa did not possess on its own.

Ken Silverstein in his well-researched 2012 profile of Marc Rich in Foreign Policy states that “the real secret to Glencore’s success is operating in markets that scare off more risk-averse companies that fear running afoul of corporate governance laws in the United States and the European Union.” Daniel Ammann, who wrote a Marc Rich biography entitled The King of Oil, in a 2010 interview with Reuters stated that Rich “went where others feared to tread – geographically and morally.” According to CNN Money, Rich was “one of the world’s most famous white-collar criminals,” and the Financial Times more bluntly called Rich a “buccaneering oil trader.”

Marc Rich was indicted in the US in 1983 on more than 50 counts of fraud, racketeering, evading income taxes, and breaking US and UN trade embargoes. At the time, he was considered the biggest tax evader in US history, and dealing with outlaw regimes had turned into his specialty. The FBI put Marc Rich on its most wanted list. In response, Rich renounced his US citizenship in 1984 and hunkered down in Switzerland which proved to be a reliable place of exile. Rich maintained his primary residence in Switzerland, first in Zug and then in nearby Meggen, until his death earlier this week. His exile only ended when President Bill Clinton pardoned Marc Rich on his last day in office on January 20, 2001–an act that left a stain on Clinton’s legacy. The record shows that influential politicians of another small state, Israel, had lobbied on Rich’s behalf, including Ehud Barak and Schimon Peres. In spite of Clinton’s pardon, Rich never dared to return to the United States out of fear that US officials would file charges not covered by the pardon.

But the question of interest here is why Switzerland offered Marc Rich a safe haven during his years as a refugee from the law. I see four major factors. Perhaps most importantly, Switzerland makes a distinction between tax evasion and tax fraud. Only tax fraud is considered a felony, while tax evasion, no matter the amount and degree of criminal intent, remains a minor civil offense not unlike a parking ticket. While most of the civilized world sees this as an artificial and self-serving distinction, it prevented Marc Rich from being extradited to the United States. This issue, by the way, is at the core of current taxation conflicts between Switzerland and the outside world, most notably the United States and the European Union. This quirk in Swiss tax law, in conjunction with bank secrecy laws, provides legal cover for tax evaders who hold accounts in Switzerland but whose tax home is elsewhere.

A second factor is the Swiss policy of absolute neutrality which the country implemented after WW II and was only softened when Switzerland joined the UN in 2002. In this strict interpretation of the 1907 Hague Convention on the “Rights and Duties of Neutral Powers,” Switzerland abstained from international actions against other countries, even trade embargoes. Therefore, Switzerland continued to trade with the Apartheid regime in South Africa , including the sale of war materials. Swiss corporations thus were free to engage in trade with countries like South Africa or Iran. Switzerland offered a safe home base to Marc Rich who had free hand to trade commodities with renegade countries like South Africa and thus to circumvent UN trade sanctions and embargoes and profit from them.

The third factor is that Marc Rich was good for business in Zug. Marc Rich and his corporation brought wealth into the community, and he enjoyed the protection of local politicians in return, particularly during the 1980s when he was a fugitive. Ties to then Zug mayor Walther A. Hegglin and to Georg Stucky, the cantonal minister of finance from 1975 to 1990, appear to have been particularly close. Hegglin allegedly coined the saying, “Was gut ist für Marc Rich, ist auch gut für Zug.” (What is good for Marc Rich is good for Zug as well.) In an interview with the Neue Luzerner Zeitung this week, Hegglin stated, “We owed a lot to Marc Rich,” explaining that tax revenue from Rich’s company created a windfall for the city. Stucky served on the board of the Marc Rich Group and of some of his charitable foundations from the early 1990s onward and has remained a close business associate until now–even though he simultaneously was a member of the National Council (lower chamber of the Swiss national parliament) from 1979 to 1999. In an Associated Press article by Clare Nallis from 2001 he is quoted as saying about Rich: “The whole picture of him has been completely distorted. He is an extremely generous man and he’s done an incredible amount of good.”

The fourth factor is that Marc Rich after his 1983 indictment in the US stepped up his philanthropic efforts which benefited Switzerland, other European countries, and Israel. According to his own official biography, his foundations have donated over $150’000’000 to various charitable causes. The Swiss Foundation for the Doron Prize, founded in 1986, recognizes Swiss “individuals and institutions that devote time, energy and/or financial resources to the fields of social welfare, education, arts and culture, and science.” The Marc Rich Foundation for Education, Culture and Welfare, chartered in 1991, seeks to promote education, art, culture and scientific research in Europe and Israel. And in 1989, Rich donated his extensive photography collection to the Kunsthaus Zürich, the premier art museum in Switzerland. Furthermore, he was an important sponsor of the EVZ, the local hockey club and one of the top teams in Switzerland. Through his philanthropy and a public relations campaign, “he achieved a level of social respectability in Swiss society not usually afforded to those facing 325 years in an American prison if the feds had had their way,” as the obituary in The Economist cheekily points out.

The story of Marc Rich shows how easily a wealthy renegade can sway the public opinion and achieve respectability by cleverly catering to small state sensibilities. But even in Zug, Marc Rich was not without detractors. Josef “Jo” Lang of the Green-Alternative movement created a political career out of his opposition to Marc Rich and his business practices, as he told the Zurich daily Tages-Anzeiger this week, and his party tends to garner around 20 per cent of the popular vote. In a small state, colorful and controversial figures like Marc Rich quickly can rise to a level of notoriety not seen in large states, but this also true for their equally colorful detractors.

News from Appalachia: UBS Is not the Kind of Bank the Swiss Think It Is

Few outside of Switzerland know what UBS stands for (or used to stand for): Union Bank of Switzerland. Few inside of Switzerland know that it is not really a Swiss bank.

Before English ruled the world, the bank was called Schweizerische Bankgesellschaft (SBG), or Union Bank of Switzerland (UBS) in its international business operations–its logo worked for both English and German.

When the Schweizerische Bankgesellschaft merged with the Schweizerischer Bankverein (Swiss Bank Corporation, or SBV for short) in1998, it became the second-largest bank in the world and simply called itself UBS, keeping the three interlocked keys of the SBV as its logo, but dropping the pretense that UBS stands for anything.

Two things are noteworthy: first, the acronym was based on the name of the bank in English, not German. And second, the fact that UBS does not really stand or anything anymore detaches the name from Switzerland–the origin of the “S” in the corporate name. Both indicate that UBS is downplaying its Swissness: with the merger and name change in 1998, they were positioning themselves as a global financial conglomerate that happens to be headquartered in Zurich. In positioning themselves as a global player, UBS clearly was interested in shedding any references that point to any national origin.

Most people outside of Switzerland do not see UBS as a Swiss bank–they see UBS as a global financial conglomerate, and in some places there have been protests against UBS because it was at the heart of a local conflict. One example is this demonstrations against UBS during a labor dispute involving cleaning staff in London in 2010:

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Protests against UBS in London in 2010. (Source: demotix.com, accessed 6/1/13)

In December 2012, global protest against UBS even hit home base: as the banking giant was negotiating a settlement with US and British authorities regarding its manipulation of interest rates, protesters gathered in the Paradeplatz in Zurich, where both UBS (center) and CS (right) are headquartered, and formed a giant red fish.

Protests against UBS in Zurich, December 2012 (nyt.com, accessed 6/1/13)

More recently, on May 24, 2013, activists entered the Knoxville, TN, branch of UBS wealth management services and refused to leave. (By the way, the web site of the Knoxville branch in no way communicates that UBS is a Swiss bank.) They protested against UBS because it is financing coal mining operations in Appalachia which is leading to mountaintop removals and extensive environmental destruction.

Protests against Knoxville UBS branch in May 2013 (mountainjustice.org, accessed 6/1/13)

Protesters also staged a sit-in in front of the UBS Knoxville branch, locking themselves to the effigy of an investment banker. The UBS Hands Off Appalachia campaign even has its own Facebook page. Protests against UBS also occurred in other parts of the Appalachia region, such as in Lexington, KY.

This UBS appears to have little in common with the UBS most Swiss still see as one of their national brands. Citizens of small states see major corporations that grew in their countries as national treasures. Nokia in Finland is the textbook example. No American seriously would identify with Bank of America, and if it were to go out of business (which it won’t because it is too big to fail) few would be upset about it (except for those who lost money). If UBS, on the other hand, were to go out of business (which it won’t because it is way too big to fail–and already was bailed out once in 2008) it would be regarded as the demise of a national symbol and a national humiliation. The demise of Swissair in 2001 is a textbook example: thousands demonstrated against “United Bandits of Switzerland” because UBS failed to make cash available to Swissair before its grounding–one national symbol betraying another. More on that in a different post.

Big corporations in small states fill citizens with pride. The message is that even small states and their economic institutions can be global players, and the well-being of these corporations has great symbolic (as well as economic) value for small states. Global corporations fill citizens of small countries with pride and give them a sense of importance in a globalized world that otherwise has little regard for them. The Swiss still see the two large Swiss banks UBS and CS (Credit Suisse) as national institutions even though this is not how the two banks see themselves.

UBS has been the eye of the storm in the ongoing taxation conflict between Switzerland and other countries, most notably the United States–more on that in another blog. Many Swiss resent the fact that Swiss banks are cooperating with the US government to prosecute large-scale tax evaders and thus, in their view, are selling out the Swiss bank secret–this also will merit another blog entry. UBS increasingly sees the Swiss bank secret as a PR debacle that is bad for prestige and business. For the Swiss, and particularly for conservatives, the bank secret still is a matter of national identity.

UBS profits greatly from its Swiss home base: Switzerland offers unparalleled political stability, a highly developed infrastructure, and a good quality of life, and he Swiss government pursues market-friendly policies from which the financial sector profits greatly–never in its modern history has the Swiss government restricted the flow of capital. But in the age of globalization no financial institution with a global reach wants to be defined in terms of national origin. In short, in times of globalization large corporate conglomerates do their best to de-nationalize themselves. So the story of UBS in Switzerland tells of a growing conflict between a post-national financial conglomerate and a public that still largely regards UBS as a national treasure.

Cultures Contexts

Essays on global issues, present and past