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?
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.
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.
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.