Understanding the Economy of Switzerland

Western Europe has long been an economic powerhouse, home to great countries such as the United Kingdom and Germany, but Switzerland has confused all experts with its high and constant economic growth. 

 

Switzerland's economy is tremendously successful, and its inhabitants are quite affluent, which is why it is also known as the "Swiss Miracle."

 

Even in the 1900s, Switzerland had one of the most successful economies, but it is believed that the miraculous growth of Switzerland was a phenomenon of the 20th century. 

 

Switzerland, with a $700 billion GDP, ranks in the top 20 largest economies in the world, according to The Times of India. The typical Swiss household earns $82,000 per year.

 

In this article, we are going to understand the factors that made Switzerland one of the richest economies in the world. 

 

How rich is Switzerland?

 

According to Swiss National Bank data, Swiss citizens have assets worth an average of CHF 460,000. The previous two decades have been a golden age for the wealthy. Between 2000 and 2019, the average adult's wealth increased by 53%, says Expatica.

 

As written in this article by heritage, Switzerland's economic freedom score is 81.9, ranking it fourth in the 2021 Index. Its total score has fallen by 0.1 points, with relatively minor changes in specific indicators. Switzerland is rated first among 45 nations in Europe, and its total score is higher than the regional and global norms.

 

In Switzerland, economic freedom is strongly established and institutionalized. Switzerland would be the top-rated country in the Index if it weren't for its constant and comparably low ratings on the indices of tax burden and government spending.

 

According to a Credit Suisse 2020 research, 

 

• Switzerland has the greatest wealth per adult in the world.

• In sum, 800,000 millionaires live in a country with a population of fewer than nine million people. 

• Surprisingly, the survey discovered that Switzerland accounted for 1.7 percent of the world's wealthiest 1% of people. 

• Despite having only 0.1 percent of the world's population, Switzerland is the most populous country in the world.

 

(Also read: Top 10 Largest Economies in the World)

 

Factors that strengthen the Swiss Economy:

 

1. The System of Taxation:

 

Large socialistic governments are an important cause for other European countries' dismal performance. Governments expand in size when they can collect large sums of money from citizens in the form of taxes. 

 

When the quantity of money in the hands of the central government grows, so do the prospects of corruption. As a result, the greatest strategy to avoid financial misappropriation from productive employees into the hands of unscrupulous politicians is to guarantee that taxes are done locally.  

 

The Swiss have been able to keep the government from becoming too large by imposing taxes locally. 

 

The federal government gets involved if the tax cannot be enforced at the local level.  The advantage of such taxes is that residents have greater input over how their money is spent. 

 

Because the tax is collected and spent locally, the prospects of corruption are reduced. Furthermore, regional politics cannot be played. Taxpayer funds from across the country cannot be concentrated in a few provinces. 

 

The Swiss economy exemplifies balanced development. It is not like many other countries where one half of the country is underprivileged while the other is highly affluent.

 

(Suggested article: An Introductory Guide to Estate Tax)

 

 

2. Industrialization:

 

Switzerland does not have many natural resources, yet the country was an early industrialized country. As a result, the Swiss economy underwent a massive boom in the late nineteenth and early twentieth centuries. 

 

Switzerland is well-known for having a robust and diverse export sector. The biggest contributors are pharmaceuticals, diamonds, chemicals, and equipment. Some Swiss industrial goods are well-known across the world. 

 

For example, there is a unique market for Swiss watches and Swiss cheese all over the world. Customers appreciate the superior quality of these items and are prepared to pay a premium for them. 

 

The country's approach toward free trade has resulted in a concentration on home production rather than importing inexpensive goods from other nations. This implies that Switzerland is far more costly than the rest of Europe.

 

It is also vital to understand that the Swiss government does not interfere with commerce too much. On foreign items, no prohibitive duties have been applied. Switzerland does not have a lot of resources because it is a landlocked country. 

 

It is reliant on imports from other countries. However, because free trade has been so carefully regulated, the Swiss people have not encountered any serious issues. 

 

Because Swiss people have no objections to other items being sold in their nation, their products are likewise welcomed across the world.

 

 

3. Enforcement of rightful law:

 

Property rights are vigorously protected in the Swiss economy, and an independent and impartial legal system is entrenched throughout the sector. Rights to intellectual property are respected and enforced. 

 

Commercial and bankruptcy laws are consistently and effectively applied. The administration is devoid of widespread corruption, due in great part to its robust institutions.

 

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4. Political Stability:

 

Switzerland's long-term success is dependent on its capacity to maintain stability. 

 

• For starters, the country's neutrality in major wars and conflicts has spared it some of the economic destruction that many of its European neighbors have experienced. 

• Second, the country has been able to weather political and economic challenges because of a solid democratic government and an efficient work culture. 

 

Because of this stability, investors and wealthy foreigners regard the nation as a secure location to save and spend their money.

 

 

5. Avoiding War:

 

A war utterly devastates a country's economy. Not only is the nation destroyed during the battle, but the process of reconstructing the nation also causes significant harm. 

 

The Swiss were wise enough to see that war is terrible for business. This is why they have stayed out of all wars. They have no significant political allegiances to any country. 

 

The Swiss government is friendly to everyone who wants to conduct business with them. This is why Switzerland has continued on its road to progress, whereas other European countries have experienced ruin and had to rebuild their economies over and again.

 

It must be known that Switzerland does not completely disregard its defense. All of its inhabitants are required to serve in the military. Their military, on the other hand, is purely for defense. They do not actively participate in conflicts, as do other European nations.

 

 

6. Direct Democracy:

 

Switzerland practices a type of democracy known as "direct democracy." This system works well in Switzerland because the citizenry is educated and knows the difficulties that affect the country. 

 

Swiss people above the age of 18 are required to vote on a variety of subjects under this system. It's worth noting that the votes aren't being cast to choose a candidate. Instead, votes are cast to make policy decisions. This is why Swiss citizens must vote many times a year. 

 

People are frequently required to vote up to four times a year on various economic and foreign policy topics.

 

 To guarantee that people's valuable time is not squandered throughout this procedure, the option of postal voting is also provided. And since the voters of Switzerland take their government seriously, they elect better Governments.

 

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7. Inheritance:

 

One of the main causes for rich Swiss residents is inheritance. Many of the country's wealthiest citizens inherited money through long-standing family companies. 

 

In comparison to other European nations, Switzerland has a favorable inheritance tax regime, making it easier for the wealthy to keep and pass on the money. 

 

Conclusion:

 

Switzerland has long been accused of profiting from its neutrality during World war 2— by enabling the Nazis to put massive amounts of seized gold into Swiss bank accounts. Switzerland has long been accused of profiting from its neutrality during WWII by enabling the Nazis to put massive amounts of seized gold into Swiss bank accounts. 

 

According to a Bergier Commission inquiry conducted in 1997, 76% of German gold transactions traveled through Switzerland. According to the Commission, the Swiss National Bank purchased over $400 million in Nazi gold, which is worth billions in today's money. This factor also plays a role along with the factors mentioned above in this article. 

 

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There are some indications that Switzerland's tax haven status may be eroding. Following protests from the European Union, the Swiss government ended special treatment for multinational corporations, tightened residence regulations, and tightened rules for foreigners opening bank accounts.