The Squander of a Reputation

The adage that it takes a lifetime to create a good reputation, but only a second to squander it is by now rather a platitude than a clever insight. And yet, it seems that we all too often forget this truism, especially if under the influence of short-term profitability.

At a recent conference of the Swiss Association for Quality there was much talk about the reputation of Switzerland – especially “Swissness” - as it relates to the quality of the products and services offered by Swiss companies and organizations. The problem Switzerland faces is that it’s “brand” – the Swiss Cross and the wording “Swiss” -  is increasingly misused by foreign companies for financial gain. It is estimated that customers are willing to pay an average premium of roughly 20% for goods with a “Swiss” brand, although the gamut ranges from 1-2% for the machine industry to 50% for luxury goods such as watches. As these percentages make evident, the favorable reputation of Switzerland translates into very concrete economic returns.

According to a world-wide assessment by the Nation Brand Index, however, the brand “Swiss” lost quite precipitously in value these past years, from being the number 2 in the world in 2005, to coming in only at number 9 in 2001. Part of the reason for the image damage has to do with the fact that a number of firms have taken advantage of the above elucidated value premium even though they have absolutely nothing to do with Switzerland, or then only in a limited fashion. The most egregious example of this is the BelSwissBank (http://www.bsb.by/en/) which features both the Swiss cross as part of its logo and its name, even though it is headquartered and operated entirely in Belarus!

 

Such examples of misuse of the Swiss brand are, however, only part of the reason for a steady erosion of the Swiss brand. It was interesting to note that several exponents of the Swiss industrial and added-value manufacturing sector, as well as the deputy head of the Swiss Federal Institute of Intellectual Property, clearly pointed to the continuous negative publicity that Switzerland receives abroad in conjunction with its taxation practices and banking sector. Instead of thinking about perfectionist watch-makers or hi-tech machine manufacturers, Switzerland is increasingly perceived abroad first and foremost through the prism of having long played a smooth zero-sum game of hiding the money of foreign tax evaders and creating tax havens for high net-worth individuals and multinational corporations. That, clearly, is not a particularly good way to cultivate your friendships with other nations, nor is it conducive to the “brand” of Switzerland.

 

Having lived and worked in a number of different countries, it is my experience that “Swiss quality” – although hardly perfect and de facto necessarily always the best – does nevertheless have some reality to it. The Swiss virtues of reliability, conscientiousness, attention to detail, perfectionism and superb organizational and planning skills, do translate into a merited good reputation in its products and services. This hard earned good reputation, however, stands to be squandered today, due both to free-loaders of the brand “Swiss” and the persistent negative media attention Switzerland gets abroad in conjunction to its banking and taxation schemes.

Manuel Dawson

After the Occupy Movement

Danach – After the Occupy Movement, After Capitalism?

The Occupy movement, originating on Wall Street, rapidly swept through the US, Europe and Latin America, reaching also Asia and Africa, albeit with less fervor. Under the banner of “Occupy Paradeplatz” the protest planted itself in the middle of the Swiss financial heart right in front of the headquarters of the two largest Swiss banks, the UBS and Credit Suisse. After being politely told by the police to move, they set up camp in the Lindenhof Park overlooking the old town of Zurich, where they held out until the police once again cleared the terrain after some weeks.

What happened since then? Was this just a momentary venting of outrage, gone as soon as the emotional waves waned? Whereas this may have been the case with some of the participants, the action has taken root in numerous ways. Behind the scenes a lot is buzzing, including a first Symposium (http://www.danach.info/) which united leading thinkers and doers. Anything but reactionary, I was impressed by the well-reasoned, nuts-and-bolts approach to shedding light on our current financial system and what to do about it so as to avoid a complete crash (although, as the title “Danach”, German for “Afterwards”, suggests, most shared the conclusion that it will crash before truly significant change will make its way also through the political and economic systems).

One of the most fascinating insights I gleaned was just what money is and how it was created in today’s economy. What precisely money is, is not based on some kind of natural law, but is what we have made it to be. Thus we can deliberate about how we want to employ it and what precisely we want it to do for us. Conventional economic wisdom (and what I was taught in my undergrad economics course) has it that when I or you deposit our money into a bank account the bank makes good use of it by pumping it back into the economy in the form of loans for businesses or home owners. In reality, they do not even require such deposits but rather are able to “create” their own money pretty much out of thin air or simply go to the central banks where they get it for next to nothing. Thus, as claims positivemoney.org, some 97% of all money in circulation in the UK is “created out of nothing” by private banks (see http://www.positivemoney.org.uk/).  The problem with this scenario is that there is a complete detachment of this kind of money with the real economy, real value creation and real wealth. Moreover, since money creation is so easy, it inexorably leads to various financial bubbles and to rising personal and public debts.

To solve this problem, the concept of “positive money” or, a similar initiative in German called “Vollgeld” (http://vollgeld.ch/) , has been promoted. The basic underlying idea is that there should be a complete separation between speculative money (loans, bonds, stocks, derivatives etc.) and the “real money” that is deposited by people in a savings account.

Since these speculative investments would no longer be insured by the government, it would consequently solve the “too big to fail” dilemma, all the while also attributing the real burden of risk on such investors in search of superior returns. Since simple savings accounts would no longer be subject to being dragged into a bank failure due to the speculative investment part of the bank, the risk of bank runs would be largely mitigated. One version of this would make simple bank deposits no longer be part of the bank’s balance sheet and no longer reaping any interest rates.  Only savings accounts, with which the bank makes direct loans, would still reap interest rates. Moreover, through the introduction of “Vollgeld” there could be a one-time write off of all state debt as banks  are required repay their credits to the national banks. (For a detailed explanation of this, in German, take a look here: http://tinyurl.com/cn7c5lt )

Numerous other interesting insights were presented, including the notion of the use and/or misuse of interest rates and how interest rates force economies to keep on growing in order to not collapse (an impossible proposition in a finite world).

The simple take-home message was quite clearly that the current financial system is not sustainable and bound to collapse sooner or later unless fundamental changes of how our money is created and organized are undertaken. Current remedies, beginning with financial transaction taxes, the Volcker rule, Basel III and all the way to the separation of investment and deposit banking, fail to get at the systemic problems inherent in the current system. As always, the jury is out on just what will transpire. But I think it’s safe to say that it can’t remain “business as usual” or even “business more or less as usual” forever for the financial institutions of the world.

Manuel Heer Dawson

Two further very interesting links regarding this matter:

http://neweconomicsinstitute.org/

http://www.monetary.org/

Trust and Responsibility in the Financial System

Trust and responsibility in the financial system: this is the theme of the 3rd international conference on ethics in finance, to be held next week at HWZ University of Applied Sciences in Business Administration Zurich. Academics, politicians and practitioners from the financial sector will present and discuss their theses on the causes, the course and the prospects of the present crisis.

Trust is one of the most critical components of financial transactions. However, trust has suffered heavily during the past years. Trust among banks, trust among states, trust in currencies such as the Euro, trust in financial products, trust in shares and public bonds: citizens and investors are alienated. How can trust be re-established? One thing is clear: it is not by trying to go back to business as usual as fast as possible.

We need to better understand the reasons, in order to be better prepared for the future. There is no use in asking who is responsible for what happened. But it is important to ask who will, and how they will take their responsibility in the future. It is most obvious that many tend to point at all the others: THEY need to do this, and shouldn’t do that. But when we talk about responsibility, it’s all about ourselves: academics, politicians and practitioners from the financial sector. We should all reflect on the mantras we have been praying for the last decades. We should be critical about what we teach, decide and deliver. There is no simple solution to the challenges of our time. So join us on Thursday and Friday, 25.-26. October at HWZ University of Applied Sciences in Business Administration Zurich, and enter the dialogue on a more stable, and more live-serving future of our financial system!

www.finanzethik-kongress.ch

Christoph Weber-Berg