Recession Forces the Swiss To Look Again at Economy

A rejection of closer economic ties with EC sparks soul-searching

SOME countries have a knack for doing things right. Switzerland, for one, a net exporter of capital since the 16th century, is home to one of the world's best-paid work forces, and is also headquarters to some of the most successful multinational corporations in the world.

Lately, though, its aura has looked a little tarnished. Unemployment is at record highs. The country is limping through its third year of recession. And recovery seems unusually lackadaisical. Switzerland's problems are not as bad as those of Germany or France. But the Swiss are having to reexamine their position in the world.

"The globalization of markets is a fact," says Christian Kauter, secretary-general of the Radical Democratic Party, Switzerland's largest political party. "And we can't as a small independent country stop its development.... We need allies."

"We can no longer isolate ourselves," adds Daniel Hefti, head of economics for the Federation of Swiss Employers' Organizations. "We are too big to be able to survive as a white spot inside an enlarged community."

What has sparked this soul-searching is a referendum last December, when the Swiss voted on closer economic cooperation with the European Community (EC). Of the seven nations of the European Free Trade Association (EFTA), only Switzerland voted no. The "No" majority was razor-thin: 50.3 percent to 49.7 percent. But Switzerland also requires the approval of a majority of the cantons. And there, the No vote was overwhelming.

The Swiss economy has for so long outperformed the rest of Europe that, in one sense, the No vote might have been expected. The economies of the EC are not in good shape. But the current problems within Switzerland are forcing a reevaluation.

"The biggest problem is not that they voted No, but that they voted No because they thought we were better than the others" in the EC, says Fritz Stahel, senior economist with Credit Suisse. "They have not yet realized that ... in a lot of areas we need to work harder to remain competitive."

Switzerland still has a greater gross domestic product (GDP) per capita than the rest of the industrialized world, but the gap is narrowing, Mr. Stahel say. And the days of 0.5 percent unemployment rate are probably over. "In the future, 2 percent could become the natural unemployment rate," he adds.

Wage rates are one area of concern. Switzerland has traditionally ranked No. 1 or No. 2 in wages paid. That was fine when high-wage Germany, the country's largest export market, was doing well. But with Germany's economy in trouble, Swiss industrialists are saying that wages will have to be more flexible - lower for lower-skilled workers.

Another concern is Switzerland's generous social benefits. In past recessions, foreign workers could not claim unemployment, so many of them left. Since 1977, unemployment benefits have been extended to foreign workers, so they have stayed. That is a major reason for the country's high unemployment rate.

What troubles conservatives is the strange behavior of the Swiss economy. Switzerland's past recessions were sometimes sharp but always quick. This recession is not short. The Union Bank of Switzerland forecasts that the nation's GDP will fall by 0.5 percent this year - the third year the economy will have shrunk. "The Swiss economy risks being a stagnating one until sometime in '94," says Markus Lusser, chairman of the governing board of the Swiss National Bank.

December's No vote leaves Switzerland with three options:

* Bilateral negotiations with the EC and other nations of the EFTA.

* Participate in a newly designed economic zone.

* Press for membership in the EC itself.

The first option - bilateral negotiations - is the chief activity right now, Stahel says. The second is more long term and may or may not happen, since all the other EFTA participants are asking to become members of the EC. There are six EFTA members besides Switzerland - Austria, Finland, Iceland, Liechtenstein, Norway, and Sweden. A vote on a reconstituted economic association will have to wait until after Swiss federal elections in 1995, says Jose Bessard, a spokesman for the Swiss government's Europe an Integration Office.

By 1995, Austria, Finland, Norway, and Sweden should have decided whether or not to enter the EC. Meanwhile, the Swiss themselves have launched two referendums.

The first asks the population to ratify that Switzerland be allowed to enter into the economic agreement that they rejected in December; the second requests that the federal government withdraw its request to enter the EC. Political observers say neither referendum is likely to succeed as now worded.

Full membership in the EC - if it ever happens - will have to wait until the turn of the century. By then, the Swiss may find themselves in different economic circumstances. "Since the mid-1980s, the increase in jobs from Swiss industries is much stronger outside Switzerland than inside Switzerland," says Manfred Gutmann, an economist with Union Bank of Switzerland.