Multinationals' Need for State Protection: The Creation of the Swiss Investment Risk Guarantee in the 1960s

This chapter focuses on the role of Industrie-Holding, the Federation of Swiss Industrial Multinational Companies, in the introduction of an investment risk guarantee during the 1960s. The chapter therefore contributes to a) the growing body of literature on how multinationals have addressed political risks from a historical perspective and b) the literature dealing with the role of entrepreneurs and their organizations in influencing politics and building new institutions. Drawing on a wide variety of historical sources, it reveals how a small group of Swiss multinational enterprises (MNEs) pushed for the assistance of the Swiss Federal states despite their usual strong aversion for state interventionism. Their motivations were twofold: First, MNEs wanted to secure their new investments in developing countries against political risks such as nationalization. The introduction of a state guarantee was especially important for Swiss MNEs since the United States and Germany had already introduced similar insurance schemes to support their national firms. The managing directors of Swiss MNEs were very aware of the advantage of being the first mover in emerging markets and were afraid of being at a disadvantage compared to their U.S. and German competitors. A second issue was the growing pressure from international organizations and civil society to increase Swiss development assistance. Swiss MNEs sought, therefore, to present the creation of the investment risk guarantee as a way of fostering economic development in poor countries. The introduction of such an insurance scheme could prevent a significant increase in public spending on development assistance and show the goodwill and the effectiveness of the private sector in tackling the issue of underdevelopment. The chapter also highlights how Swiss multinationals had to find allies within the rest of the business community to push for the creation of this new insurance scheme. Establishing consensus on the matter was not an easy task since many business leaders saw the introduction of a state guarantee as a dangerous precedent of state interventionism, which could ultimately lead to increases in taxation. Therefore, MNEs and the Swiss business community needed to solve their dilemma and form a united front in order to gain enough political leverage to prompt the introduction of the Swiss investment risk guarantee.