Beyond our borders lies only the universe
July 06, 2017

Beyond our borders lies only the universe

The Swiss banks are a good example of just how detrimental the effects of protectionism really are. Sindy Schmiegel would like to see greater courage when it comes to welcoming an open world.

The world’s political elite will be meeting in Hamburg for the G20 summit on 7 and 8 July to discuss the condition of the global economy, drive structural reforms forward and promote the stability and resilience of economies. Also present with be opponents of the summit, who see the informal G20 forum as representing capitalism, hunger and death. However, according to BIS’ latest Annual Report, economic collaboration has in recent decades resulted in an enormous improvement to the quality of life. In light of this fact, would it not be logical to open the way for the internationalisation of the real economy and the financial system, and in doing so, increase prosperity?

Globalisation as an opportunity

The opposite appears to be the case. In these times of “America first”, Brexit and neonationalist tendencies in Eastern Europe, protectionism and market fragmentation are gaining ground. The Newspaper Spiegel even diagnoses an “illiberal zeitgeist”. BIS is so alarmed about the current isolationist tendencies that it dedicated an entire chapter in their Annual Report to the accomplishments of globalisation. “Just like technology, globalisation is an invaluable common resource that offers tremendous opportunities. The challenge is to make sure that it is perceived as such rather than as an obstacle, and that those opportunities are turned into reality,” the report says. In other words: technological advancement should not and cannot be stopped. The same applies for global economic integration. 

Fragmented banking market

Switzerland’s financial centre is a good example of just how detrimental the concrete effects of market fragmentation can be. The Swiss banks are global leaders in cross-border wealth management. Almost one-quarter of all assets held by customers abroad are in Switzerland. However, cross-border only works if banks have the right to serve customers who are in other countries out of Switzerland. EU regulations such as MiFID II, the directive for the harmonisation of financial markets in the European single market, have an exclusionary nature vis-à-vis third countries. Some countries do not even allow for customers to be called out of Switzerland if the customer has not asked to be called. The Swiss banks therefore have difficulty serving customers in their most important foreign market. Coincidence or not: last year, the banks created more jobs in the EU than in Switzerland.

Online worldwide

Digitalisation is fuelling a countertrend: thanks to online trading, things can be bought from all corners of the world, tech-giants from the US and China are penetrating more and more deeply into our everyday lives (examples thereof are provided in this equally informative and entertaining presentation by Henri Arslanian), SMEs have unlimited financing possibilities thanks to crowdfunding. Economic realities and political will appear to be diverging. I would like to ask the people who support isolationism if they would be prepared to forgo the progress that is possible in a connected, collaborative world. My preference for openness and internationalisation is of course influenced by the fact that I am standing on the winning side of globalisation, at least for now (saying “on the winning side” means I recognise that there are also those less fortunate). However, the illiterate woman in India, who today also has access to banking services, the Kenyan who runs his local business with the help of his mobile phone, or the cooperative in Peru that is able to sell its clothing around the world will all say the same thing. It was only in the spring of 2017 that the B7, the G7’s business organisation, in a joint declaration called for no additional barriers that hinder global trade. The International Monetary and Financial Committee of the International Monetary Fund, however, regrettably decided not to mention the negative effects of protectionism in its communiqué regarding this year’s Spring Meeting; perhaps because the proponents of “my country first” had their way.

The world long ago stopped consisting of isolated nation states, just as the interconnectedness between the real economy and the financial system cannot be severed. BIS is right: globalisation is a big opportunity. Let’s make the most out of it and not be afraid of the competition out there, because it stopped existing a long time ago. Switzerland plays an important role here: on the one hand as an example of successful economic liberalism, and on the other as an influencer in those bodies where international standards are set. The G20 summit offers the next opportunity, as Switzerland is invited as a guest to a meeting between finance ministers.