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The following OECD assessment and recommendations summarise Chapter 4 of the Economic Survey of Switzerland 2006 published on 6 January 2006.
Are the recent series of measures directed to bolstering competition sufficient?
Increasing the potential growth rate of the economy, which is among the lowest in the OECD, is the most important and a well-understood challenge. Even taking account of the revenue generated by investment abroad, and of positive terms-of-trade effects, the standard of living has declined in relative terms when compared with Austria, the United States and the average of the large euro area countries at a rate of between ½ and 1% per year over the past 15 years. The lack of dynamism cannot be attributed to a chronic lack of demand as slow growth is a long-standing feature. Rather the phenomenon has structural roots, and it stems above all from meagre productivity growth, even though hours worked by females is also low in international comparison. However, since labour resources are better used than in most other OECD countries, it is primarily faster productivity gains that would halt the erosion of the advantage of Switzerland in terms of living standards.
Consumers pay dearly for the lack of competition
1. Purchasing power parities divided by the exchange rate, OECD=100.
2. In thousand USD, converted with the PPPs.
Source: Eurostat and OECD, National Accounts.
The main reasons for sluggish productivity growth are a lack of competition in sheltered sectors, inefficient product market regulations and high costs of services delivered by the public sector or financed by compulsory contributions. Consumers pay a high price for the lack of competition, with a general price level that is some 40% above the EU average. In the past, reforms aimed at improving the competition framework were narrow and the pace of reform slow. Initiatives were often taken in reaction to developments in the European Union, and reform attempts have sometimes been blocked by popular vote. Potential gains from changes, are, however, likely to be substantial, and competition policy has appropriately moved up the policy agenda. The new Cartel Law gives the Swiss competition authorities important new means to combat restraints and has been brought closer to international standards.
In 2004, the government launched a package of 17 structural policy measures to be implemented during the current legislature in order to raise potential growth. These measures, which include significant advances in the area of competition, go in the right direction and should be implemented in a timely fashion. Major proposals currently examined by the Parliament concern the revision of the Domestic Market Act, which would eliminate the regional and local obstacles to a well-functioning national market and will guarantee the freedom of exercising a profession anywhere in the country. Reforms are also planned in the public procurement market and in network industries, especially in the electricity sector, where liberalisation has been very slow. Internal reform is complemented by the adoption of a comprehensive strategy in foreign economic policy through which deep integration of Switzerland in the world economy is sought. As one of the first elements of this strategy, the authorities are, for example, exploring the possibility of negotiating a free trade agreement with the United States, which would also bolster competition, given that the United States is Switzerland’s second largest trading partner.
There is still much scope to reduce protection and consolidate a culture of competition. In this regard, the adoption of the “Cassis de Dijon” principle to unilaterally eliminate technical barriers to imports is an important initiative, though it should not be undermined by the granting of exemptions. The provisions of the new Cartel Law should be applied vigorously, while the competition framework could be improved further by ensuring the political independence of the members of the Competition Commission and by raising its resources. In network industries, reforms have in general remained slow and their pace should be accelerated, especially in the postal services and the electricity and gas sectors. More rapid opening to international competition in agriculture, which is more heavily subsidised than in any other OECD country, would also help. Finally, price competition could be stimulated, for instance, by making competition of imports of patented products more effective.
Product Market Regulation remains tight in international comparison
Index scale of 0-6 from least to most restrictive
Source: Hoj, J. (2005), "The OECD Indicators of Competition Law and Policies", OECD Economics Department Working Papers, forthcoming and OECD, Product Market Regulation database.
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Return to the Economic Survey of Switzerland 2006
A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
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For further information please contact the Switzerland Desk at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat's report was prepared by Claude Giorno and Florence Jaumotte under the supervision of Peter Jarrett.
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