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COMPETITIVENESS

IMD ranks US and Swiss tops for competitiveness

The United States has regained the top spot in a global economic competitiveness ranking compiled by Swiss business school IMD while Switzerland moved into second place, bucking the trend in the rest of Europe.

IMD ranks US and Swiss tops for competitiveness
IMD's Stéphane Garelli explains 2013 competitiveness ranking in video issued by the Lausanne-based institute. (Screenshot)

In its annual ranking for 2013, released on Thursday by the Lausanne-based Institute for Management Development, the United States jumped ahead from the number two slot in which it found itself in 2012.

The American improvement was thanks to a rebound of its financial sector, abundant technological innovation and successful companies, IMD said.

Last year's frontrunner, Hong Kong, meanwhile fell to third place in the 2013 ranking, while Switzerland moved up to second from third.

Sweden moved up to fourth place from fifth last year, trading places with Singapore which dropped to fifth.

"We base our study on 333 criteria, two-thirds of them statistics and the remaining third opinion polls," Stéphane Garelli, head of the IMD World Competitiveness Center, told AFP.
   
"In the end, the golden rules of competitiveness are simple: manufacture, 
diversify, export, invest in infrastructure, educate, support SMEs, enforce fiscal discipline, and above all maintain social cohesion," he said.
   
Running from the United States to last-placed Venezuela, the 
60-economy ranking also helps flag up broader economic trends.
   
"While the eurozone remains stalled, the robust comeback of the US to the 
top of the competitiveness rankings, and better news from Japan, have revived the austerity debate," said Garelli.
   
"Structural reforms are unavoidable, but growth remains a prerequisite for 
competitiveness," he said.

"In addition, the harshness of austerity measures too often antagonizes the population. In the end, countries need to preserve social cohesion to deliver prosperity."

While the United States is well-positioned in the short-term, it is also expected to outperform in the longer term due to anticipated higher oil and gas production, which will keep energy prices low compared to those in Europe, Garelli indicated in a statement.
   
The top 30 includes 10 members of the austerity-gripped European Union, 
with Germany and Britain at an unchanged ninth and 18th respectively.
   
Ireland rose from 20th to 17th, and France from 29th to 28th.

   
Japan also climbed from 27th place to 24th.

   
The IMD underlined the impact of Japan's "Abenomics" — Prime Minister 
Shinzo Abe's drive to ramp up the money supply and offer fiscal stimulus — saying it seemed to be having an impact on the dynamism of the world's third-largest economy.
   
Fortunes were mixed for the BRICS group of emerging economies, made up of 
Brazil, Russia, India, China and South Africa.
   
China climbed to 21st from 23rd, and Russia to 42nd from 48th.

   
But India slipped from 35th to 40th, Brazil from 46th to 51st, and South 
Africa from 50th to 53rd.
   
"Brazil, Russia, India, China and South Africa are immensely different in 
their competitiveness strategies and performance, but the BRICS remain lands of opportunities," said Garelli.

Click here for the IMD press release.

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SWISS ECONOMY

EXPLAINED: Why is Switzerland so rich?

Aside from chocolate, cheese, watches and army knives, Switzerland is often synonymous with wealth. But why exactly is this small country of only 8.7 million people so rich?

EXPLAINED: Why is Switzerland so rich?
Switzerland's wealth is legendary. Photo by Claudio Schwartz, Unsplash

In various international surveys and studies, Switzerland consistently ranks among the world’s richest nations, whether in terms of household income or individual assets.

On average, every person in Switzerland owns assets totalling 460,000 francs, according to statistics from the Swiss National Bank (SNB).

This makes Swiss residents among the wealthiest in the world.

However, as individual assets have doubled in the past 20 years, inequalities in the distribution of wealth have also increased.

For instance, the richest 1 percent of the population saw their wealth grow by 43 percent, while the assets of the bottom 75 percent went up by only 18.6 percent, figures from the calculations of the Federal Tax Administration indicate.

But before analysing the reason for the country’s famous (or sometimes infamous) wealth, one thing must be mentioned:

Switzerland has not always been so affluent

It may be hard to believe, but there was a time when tens of thousands of Switzerland’s citizens emigrated to escape a life of poverty.

As The Local wrote in March 2020, “In centuries past, a large portion of the population in this landlocked, mountainous country with no natural resources, struggled to survive. This was especially true of rural areas, where people remained poverty-stricken well into the 19th century”.

Even as urban dwellers started to benefit from the economy-transforming industrialisation, those living in the countryside or in Alpine regions suffered from widespread famine, prompting many of them to seek their fortunes overseas — primarily in South and North America.

Many of those who did not go abroad moved from rural areas to the cities, where they continued to live in precarious conditions.

According to an official government document, “Anyone who was not a citizen of a commune was homeless and lived on the margins of the community or was left to wander the country as a vagrant”. 

So how did Switzerland morph from a poor nation to an affluent one it is today?

Its rags-to-riches story has roots in the economic boom of the late 19th century, which would continue into the 20th century — and beyond.

“There are many factors that are interrelated — from being an early industrialiser to becoming an innovator, especially around 1900 when it combined hydropower with electrification”, Patrick Ziltener, who teaches a course called “How Switzerland Got So Rich” at the University of Zurich, told The Local.

Other important factors are “stability and neutrality in wars, combined with prudent economic and social policies”, he pointed out.

In the 1950s, Switzerland shifted from industrial to a service economy; its financial sector started to flourish by offering confidential — and not always totally legal — services and protection to the wealthy.

However, new laws have been enacted in past years, making Swiss financial institutions more transparent and compliant with international regulations.

READ MORE: Which Swiss canton has the most millionaires?

There are many more reasons for Switzerland’s prosperity

“A lot of business books refer to Switzerland as ‘wonderland’. And that’s the core of it”, said Ueli Mäder, a sociology professor at the University of Basel in an interview with The Local.

Several years ago, Mäder and his team conducted research into this subject, which resulted in a 257-page report titled “Money and Power in Switzerland”.

Professor Mäder provided more insight into Switzerland’s spectacular transition into a rich and prosperous nation.

“A simple answer is that Switzerland became wealthy thanks to diligence and ingenious innovation”, he explained.

“But there are many other factors as well”.

First, Switzerland shifted from a nation of emigrants (as noted above) to that of immigrants — in fact, more than 25 percent of the current population has foreign roots.

Through immigration, Switzerland, a country without natural resources, “benefited from the European colonial empires, receiving urgently needed raw materials”,  Mäder said.

“Switzerland practiced colonialism without  having own colonies. That was the basis of its early industrialisation”, he added.

This system continues to this day, Mäder noted.

“There is a tendency for raw material prices to fall in relation to the industrially manufactured goods that Switzerland exports. Therefore, poor countries receive less revenue and Switzerland benefits from it”.

Throughout many decades, the country also chose protectionism over free trade.

One example of protectionism, as well as of aforementioned diligence and ingenious innovation, is that “Switzerland protected itself against cheap textiles from England, preferring to mechanise its own looms.”

Trade protectionism, a policy that protects domestic industries from foreign competition, is still very much alive today.

A case in point is milk.

Milk can only be imported if it is in short supply in Switzerland, which is not currently the case. This means that Swiss milk has no foreign competitors vying for the consumers’ attention, and forcing it to lower its price.

READ MORE: How Switzerland plans to beat its butter shortage (again)

Such a system is obviously bad for Swiss consumers who have to pay a higher price for milk. However, it is good for dairy farmers whose income is not undercut by foreign manufacturers.

This, in turn, creates wealth (even if relative) instead of poverty among Switzerland’s milk producers.

There are other ‘wealth factors’ as well.

As Mäder pointed out, “the political stability of Switzerland is also important and it made Switzerland attractive for foreign assets. And even though banking secrecy has been lifted. Switzerland remains an important financial center”.

Did Nazi gold stashed in Swiss banks contribute to Switzerland’s wealth?

Up to and during the Second World War, Switzerland and its banks came into possession of a significant amount of ‘Nazi gold’. 

Known in German as ‘Raubgold’ (stolen gold), it had been confiscated from citizens of Germany and other countries by the Nazis and deposited in Swiss banks.

While it is impossible to know exactly how much gold was stashed, estimates by the Swiss National Bank published in the New York Times suggest it was upwards of 20 million francs, although British intelligence estimates it was at least ten times that amount. 

“The gold shipments of the Nazi regime to Switzerland are a sad reality”, Mäder said, adding that it has also contributed to the country’s wealth.

“How much is debatable and there are certainly many myths about this. But even a small amount is shameful enough”, he noted.

Did Switzerland get less wealthy during the Covid pandemic?

Like all countries rich and poor, Switzerland also suffered the economic consequences of the pandemic.  In 2020, its production declined by 2.9 percent, but according to research by an insurance and reinsurance company Swiss Re, Switzerland fared better than other European nations.

For instance, in Italy, Spain, France and Germany, economy suffered losses of 8.8 percent, 10.9 percent, 8.2 percent and 4.9 percent, respectively.

One of the reasons is “the make-up of the Swiss economy with its solid public and household finances.

REVEALED: What are the best and worst paid jobs in Switzerland?

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