Switzerland… the country known for its obsession with precision and quality,
and a fabled knack for making chocolate and luxurious watches.
Switzerland is a post-industrial, highly ‘service-driven’, ‘free-market’ capitalist
economy. Termed as one of the most expensive countries in the world,
the country also ranks on the very top of the ‘quality-of-life’ index.
While Swiss people don’t flaunt their wealth, the country is often in the economic news as
one of the richest in the world, and with one of the highest GDP per capita of over US $80,000.
With its unique national history and location, Switzerland has earned itself a stellar reputation
in International Finance. There is more to Switzerland than luxury watch brands like Rolex,
Richard Mille, and premium chocolate brands like Lindt and Toblerone.
The country’s geographical location is probably the worst in terms of factors contributing to
economic success. It is often referred to as a ‘landlocked’ country, which means it has no direct
access to trade routes or sea. The country also has little in terms of natural resources like oil,
gas, coal, etc. The country also has a terrain unfit for building an inexpensive infrastructure.
The country also does not have any cheap labor to capitalize on.
But, how did Switzerland became so rich despite all these disadvantages?
It has something that is one of the most important factor when it comes to business
and trade, and anything that involves an exchange of money. It has TRUST!
Whether it comes to the high-value services, or, trains roaming in the
high altitudes carrying tourists, or, exports of pharmaceuticals and agricultural products,
or, its notorious banks protecting your hard-earned or not so hard-earned money,
Switzerland, offers trust like no other, making itself a financial powerhouse.
The claims that Switzerland was wealthy by the beginning of the 20th century, lacks credibility!
The Swiss economy started to take off some time around World War 2. While other countries
in Europe had suffered total collapse due to the war, Switzerland’s economy began to bloom!
The country’s decision to remain neutral in war played a major role in economic success.
World War II was a time of chaos and Switzerland used this chaos for its benefit.
While some people would bring morality to this topic by saying that everyone should follow
Switzerland’s stance when it comes to wars, But, one should realize that every country
can be sucked into a war. And, Switzerland was in the war too, BUT, in a different way.
The script was simple. We are not going to the war and kill people. But, if you want to kill people,
we would provide you with weapons. And while you are busing killing each other and you want your
wealth to be stored at a safe place, we offer the best services. In short, Switzerland’s role
to not directly indulge in the war was more of an economic decision than a moral one.
Nazis did not steal only from Jews, but from everyone, and they stored it in the Swiss banks.
Many rich jews and other wealthy people stored their money in Swiss Banks too.
The germans also sold the looted gold to the Swiss to get the Swiss Franc to fight against the enemy
territories. The Swiss Franc was used to buy steel from the Nordic countries. The Swiss banks
knew about how the gold was obtained but they didn’t object.
You can say Switzerland isn’t pure, BUT, tell us a country that is?
Years later, those bank accounts were forgotten and no one came to claim them. It also became
really hard for anyone else to withdraw that money once the original owner passed away.
How much it contributed to Switzerland’s economic
success stays a controversial topic and no conclusion can be reached with consensus.
With 12 Kgs of chocolate eaten per person per year, more than 450 varieties of cheese,
more than 250 varieties of grapevine, and more than 200 types of bread baked, Swiss
usually prefer products made in their own country, choosing better quality over cheap imports.
Knowing how to use their resources well and being aware of their disadvantages,
Swiss understand their economic success is tied to the value-added services.
That pushes them to focus more on creating high skilled labor and investment in
their people. This creates a culture of industriousness and companies like Nestle,
ABB, Novartis, Roche, Buhler, Novartis, Schindler, Swatch, etc. are proof of it.
Investing in the education system and research programs is of prime importance. Switzerland
is one of the top countries that invest most in the R&D. It also holds the most
number of patents per capita. With one of the highest average national IQ of 102,
the country produced 27 Noble prize winners which are also one of the highest per capita.
While ‘Made in China’ makes you think of products that can’t last long,
‘Swiss Made’ is associated with products that are of high quality and durability
carved with attention to detail and craftsmanship.
Switzerland also does well for itself in agriculture and pharmaceuticals.
Agricultural produce like wheat, sugar, dairy products, wine, to mention a few,
are actively cultivated for domestic consumption and exportation.
Switzerland’s economy benefits from its political stability. People in Switzerland trust the
government probably because they have a say in public policies including the amount of taxes they
pay. Unlike other countries, a new administration doesn’t come with an intent to abolish everything
the outgoing administration has put in place. Presidents are not flaunted around like a king,
instead, an inner council is responsible to bring forward a new mostly ceremonial president every
year. This makes it easier to follow the long-term plans and seeing them get carried through.
While the Direct-Democracy approach has nationalistic tendencies, that can be
seen from people’s behavior toward immigrants. However, it seems to work fine for countries
with a small population like Switzerland. The direct democracy approach makes it harder for
the Swiss government to waste money that doesn’t benefit the people directly. It also stops elites
from hijacking the government policies for their benefits against the public interests.
Not only do projects and policies require a consensus among political representatives,
but they also have to go through the people’s approval in the form of referendums.
And Swiss people go through a lot of referendums. Like a lot a lot!
A small population of over 8.5 million spread across the country
is easier to manage. Due to the high amount of wealth coming in the banks of Switzerland,
they can easily give loans to their citizens, which means a strong domestic market.
Beautiful mountains and lakes, and some tourism infrastructure,
makes Switzerland cash an estimated 2.6% of the country’s GDP through tourism.
Swiss people are very conservative when it comes to fiscal policies.
They will vote for increments in taxes instead of the government taking more loans. However,
taxes are relatively low in Switzerland compared to other Western European countries.
The labor is not cheap, the Swiss work long hours
compared to other European countries. The country has a low unemployment rate and a culture of
emphasis on working hard. While salaries are very lavish by most measures, so is the cost of living.
Switzerland did a good job of staying out of the European Union without being affected by
their decision. Low skilled labor can be attracted from Eastern European countries.
High skilled labor is attracted from neighboring countries like Italy,
Austria, France, and Germany. Swiss profit from the economically strong neighbors by
exporting them goods without being affected by anything happening in the European Union.
Other than policing each other, the Swiss are a peaceful nation
which is obvious from the fact that they don’t use their guns
even though many choose to keep their rifle at the end of their compulsory military service.
Swiss also have a culture towards saving money. One reason for this saving culture comes from the
sort of welfare system Switzerland is running and employment protection not being one of the best.
That forces people to adapt to more savings. Also, Switzerland was not always a rich country.
And the previous generations coming from poverty in a tough climate and terrain were always careful
with how they spend their money. Low consumer spending is still a culture in the country.
In short, Swiss people have a culture of “Work Hard, Spend Little, And Save a Lot”
The topic of Switzerland’s economy is incomplete without talking about its banks. Swiss Banks are
notorious for their Banking Secrecy principles. For this sole reason, a considerable amount of
money allegedly finds its way into the vaults of Swiss Banks. That's why Switzerland is referred
to as a Tax Haven in popular literature, all thanks to the Hollywood movies mentioning
it now and then. The country has no natural resources but their banks are their mines!
Banking secrecy in the region can be traced back to the Great Council of
Geneva, which created a law against the disclosure of information back in 1713.
While the law was created to protect certain individuals and groups of that time,
the reputation of Swiss banking secrecy grew more and more.
While other European countries began to heavily charge taxes to facilitate the process of their
contribution to World War I, Swiss bankers were on a campaign in France, capitalizing
on wealthy people’s fear of losing money by offering them secrecy in the time of crisis.
Disclosing the client information was already a civil offense in the region for centuries,
the Swiss Federal Assembly went on even further making it a federal criminal offense
in 1934 with landmark legislation, also known as Federal Act on Banks.
The strong currency, declaration to remain neutral in World War II,
and history of being a safe-heaven for wealth,
contributed significantly for it to become more trustable in the time of crisis and years later.
The country has received significant criticism for serving as a safe-haven for the wealth of
dictators, despots, mobsters, arms dealers, corrupt officials, and tax frauds of all kinds.
The script is very simple. You are in court in your home country for money laundering,
your wealth is safe in Swiss Banks. You are arrested in your home country for
shady business practices, your wealth stays safe in Swiss Banks. You die,
well, then it stays safe forever in Swiss Banks. The truth is, everyone wants to raise finger at
the Swiss banking industry until their own wealth is involved.
Switzerland’s banking industry played a major role in the Swiss economy.
The banking system contributed significantly to the money that
was invested within the country from education to health care etc.
The Swiss Bankers Association in 2018 gave an estimate, indicating that Swiss
banks held US$6.5 Trillion in assets or 25% of all global cross-border assets.
In 2020, the Swiss National Bank (SNB) reported that Total Banking
Assets in Switzerland account for 500% of the country's total GDP.
There have been claims that the entire banking industry has been changed for Switzerland,
and for shady money practices you have to look for another place like Cayman islands,
They also claim that the wealthy continue to work with Swiss banks
like UBS AG and Credit Suisse Group AG, due to their experience and expertise in
the banking industry and the quality of advice and service they provide.
There has been an international push to rollback the banking secrecy in recent times. Switzerland
did go to sign some agreements and it seemed like the banking secrecy no longer exists, popularized
in the headlines by some excitable news reports, the truth is the banking secrecy remains intact.
Swiss banks make sure that there is a difference between tax avoidance and tax evasion and both
are not mixed. Under Swiss law, an external authority that seeks to gain access to the
confidential Banking information of a client in a Swiss Bank must be ready to satisfy certain
strenuous conditions. Most of these external authorities don't like the high standard
they have to scale before accessing banking information about their citizen in Swiss Banks.
In 2018,
Transparency International ranked Switzerland as the third least corrupt country in the world. But,
its banking sector is a different story as it was rated the most corrupt in the world due to strong
secrecy laws and a large offshore banking industry allowing money laundering and hiding shady money.
The Swiss economic model cannot be duplicated in other countries as it would not work the
way it works in Switzerland. It is not easy for other countries to stay neutral in wars.
It’s not easy for other countries to have a terrain that is comparatively less invade-able.
It’s not easy for other countries to provide the sort of trust that Switzerland provides.
It’s not easy to give big loans to its citizens. But if you have to learn anything out of it,
there could be two lessons. 1) TRUST is the key element to any sort of business, financial deal,
or anything that involves an exchange of money. 2) The second lesson is what you can
learn directly from the people of Switzerland: “Work Hard, Spend Little, And Save a Lot”
We hope you have enjoyed the video. We would reply to every question
in the comment section below. We would love to hear your opinion.