There are multiple reasons for this “Swiss way” of holding back on direct subsidies. For one, Switzerland is still home to many companies with a relatively high level of in-house R&D – for example, in the pharmaceutical and medtech industries, in manufacturing in general and in the information and communication technology industries. Our country also has a long tradition of free trade and capital. After all, our export-oriented industry is accustomed to holding its own in fierce international competition with technology leaders.
Switzerland’s lead is shrinking
The Swiss innovation system and the Swiss economy are facing several challenges. First, fewer companies are conducting their own R&D, as innovation activities are expensive and international competition is catching up. Second, China, the EU as a whole, individual EU countries and the US have launched large-scale industrial subsidy programmes to reduce their dependency on foreign countries and strengthen their own economies. Third, the OECD countries have decided to introduce a minimum tax on corporate profits. This could reduce the attractiveness of Switzerland as a business location, as such a tax would affect a considerable proportion of value added.
Staying out of the subsidy race
How should Switzerland react in this new setting? In our view, joining the subsidy race of these countries isn’t a promising option. The benefits of such an industrial policy – however carefully conceived – are very limited as a rule. In addition, Switzerland is too small to become self-sufficient in key technologies or even in individual product categories. Any attempt to increase subsidies would be extremely costly and is doomed to fail.
