Why is Switzerland so rich?

Thoughts on a prosperous and well-run nation

This summer, I visited Switzerland with my partner. Throughout our trip, we noticed many ways in which the country differs from the rest of Europe: driving from Lake Constance to the Alps, road infrastructure is in great shape. Passing through well-kept rural towns, you see precision tool plants alongside small, picturesque farms. State capacity lurks everywhere: leaving our car near the remote Gantrisch mountain range, we got a parking ticket after a mere three-hour hike.

Statistics support first impressions: Switzerland is far wealthier than most of Europe.

The country has a median household income higher than that of the United States, a life expectancy similar to Japan, and the world’s highest share of Fortune 500 companies relative to its GDP. All this wealth creates plenty of surplus: a strong welfare state, decent public schools, and some of the most advanced animal welfare laws in the world.

Switzerland’s success should be interesting to anyone who cares about European prosperity. But the country is rarely discussed; I see an in-depth piece on Switzerland maybe once every two years. Given Europe’s stagnant economies and increasing debt burden, this seems like an oversight—we urgently need ideas for increasing European wealth, if only to fund our defense.

Switzerland could serve as an example that pro-growth advocates can point to. But to do so, we need an explanation of how the country got so affluent in the first place.

Explanations for Swiss wealth

When I returned from Switzerland, I asked people about the origins of the nation’s wealth. A small set of explanations frequently come up. Many note the country’s banks. But while the financial sector profited from the country’s previously lax financial regulation, banking and insurance make up only 9% of its GDP.

Some mention neutrality: ever since the Vienna Congress in 1815, Switzerland has not participated in any foreign wars, sparing its destruction in both World Wars and plausibly increasing investor confidence. Others note the country’s stable institutions—the country’s modern nation-state has existed since 1848 and has seen no major political upheaval since then.

Neutrality and institutional stability surely explain part of Switzerland’s long-run growth. But there is another axis along which Switzerland differs from most of Europe: its economic governance is far more liberal. All else being equal, this should explain a large part of Switzerland’s economic success. Now, all things are very much not equal, but Switzerland is really very liberal!

The country has low corporate taxes, flexible labor laws, and a large number of free trade agreements¹. Unlike France or Germany, income taxes are mostly levied on the state level, incentivizing local administrations to run efficiently for fear that citizens will move to low-tax states. This provides the country both with a debt-to-GDP-ratio of only 38% and some of the lowest income taxes in Europe²:

Is Switzerland just an economic free-rider, harming its neighbors by pulling in wealthy foreigners and multinational companies? Swiss policies do attract plenty of foreign companies and workers (25% of its population is foreign-born). But I don’t think they are free-riding: workers in Switzerland put in plenty of hours—around 200 more than workers in Germany—and Swiss companies are productive: across various innovation rankings, Switzerland often ranks first. I think an easy heuristic on free-riding goes as follows: Do you think Europe would lose out on growth and innovation if Swiss taxation and regulation were raised to the European average? I’d certainly think so.

Global Innovation Index 2025 (World Intellectual Property Organization)

Ultimately responsible for the liberal policies outlined above is a populace that is majority pro-market. Relatively liberal parties always make up a majority of the government, which regularly passes free trade agreements, e.g., with China (2013), Indonesia (2021), and India (2024). Voters reject nearly all ballot initiatives that might threaten Switzerland’s economic position: a 2012 referendum increasing the number of mandatory holidays was rejected by 66% of voters.

Explaining a country’s wealth by pointing to its people being pro-market seems ideologically convenient. But economics is a science with many clear findings: high taxes can reduce government income; making it harder to fire people increases unemployment; tariffs are inefficient and lead to cronyism. It wouldn’t be surprising if a country following economists’ recommendations turns out to be fairly prosperous.

However, it’s still somewhat surprising that the Swiss hold these views. Many other countries could enact more liberal policies, but they do not. What made Switzerland so liberal in the first place?

1848: Liberal lock-in

To understand the onset of liberalism, we can review past Swiss elections. Regular elections date back to 1848; reviewing vote shares from then on, Liberal parties (“Freisinn”) dominated the legislative and executive for the first 70 years of the country’s existence.

Why were the Liberals in such a dominant position from the get-go? Without going too deep into 19th-century Swiss politics³, here’s a rough sketch.

Prior to 1848, Liberals in Switzerland already had broader support than in most other countries. Luckily, they also didn’t face a monarch with centralized power and a large army. From this position of relative strength, the Liberals won a brief civil war (with only 82 dead) against the Conservatives in 1847, giving them near-complete control of the country’s political fortunes. With this power, they gave Switzerland a government modeled after the United States: two chambers, one representing the population, the other the states, with both using first-past-the-post voting.

To my eyes, 1848 therefore looks like an important moment of political and institutional lock-in: The Liberals won a civil war and controlled the country for decades through their absolute majority, while also putting in place a fairly limited central government.

This lock-in wouldn’t matter if Switzerland’s current level of wealth were due to policies enacted in the past 70 years. But Switzerland started to outgrow Germany quickly after 1880, suggesting that Switzerland’s initial institutions and policies set the foundations for strong long-run growth.

Starting the growth flywheel

What did the Liberal government do to get Swiss growth started? Pointing to the definite sources of long-term economic growth is tricky, but we can at least make some guesses. And post-1848 events provide some good candidates. First of all, Liberals enacted the kinds of policies required to have a functioning economy by abolishing internal tariffs, setting up a nationwide currency, and enabling relatively free trade with its neighbors.

In parallel, the decades after 1848 saw a frenzy of institution-building, many downstream of the actions of Alfred Escher⁴, a major Liberal statesman/industrialist. Among many other things (he launched ETH Zurich and spearheaded the construction of the Gotthard tunnel), he strenuously lobbied for a private rather than public buildout of Swiss railways. Winning the argument, Escher himself founded a railway company, realized he needed large amounts of capital, and also created the “Schweizerische Kreditanstalt”, the progenitor of Credit Suisse. The subsequent railway buildout created one of the densest transit networks in the world.

With basic policies and institutions in place, and the subsequent adoption of hydroelectric power, the Swiss economy was able to power a rapid shift from agriculture toward industry, launching both electronics (e.g., Brown Boveri, later ABB) and chemical industries (e.g., Roche). By 1913, Swiss GDP per capita was already one of the highest in Europe. Maintaining its industrial heft until after the 2nd World War, the country then switched more and more toward services and is now a highly advanced, diversified economy.

So what should Europe do?

Throughout its modern history, Switzerland was lucky. A commitment to liberalism is easier without war—economic policies needed during crises, such as high taxes or price controls, can stick around long after, depressing long-run economic performance. Similarly, lower rates of growth can increase demands for higher taxes, which lowers future growth even further. All of this makes Switzerland an imperfect template. I certainly don’t want the rest of Europe to become neutral!

But overall, Switzerland still seems like a good example of what a century-long attachment to liberalism can yield. In the absence of catastrophe, growth has become self-reinforcing. By now, a central goal of Swiss politics is to keep the golden goose alive. While it would take a lot longer to identify all the other factors that underpin Swiss growth, liberal governance seems among the most obvious candidates.

This is useful: when arguing for liberal economic policy-making, you could now point to Switzerland, not the United States. The US has lots of dysfunctions that make it a tough sell. On the contrary, there’s much to like about Switzerland for people of most political stripes. It is economically liberal, while also having high trust in government and a working welfare state. After my visit this summer, I’ve started pointing to Switzerland as a template for a European rebound far more often. Maybe you want to do the same?

Thanks for reading! If you have thoughts, shoot me an email at simonleandergrimm@gmail.com.

1. Though Switzerland received a 39% US tariff rate; mostly because half of Swiss to US exports are gold, driving up the trade deficit and thus the tariff rate.

2. Specifically, Switzerland’s tax wedge is very low, i.e., the difference between total labor cost to an employer and employee net take-home pay.

3. Some more details: The 1830 revolution in France gave Liberals in many Swiss states the ability to pass fairly enlightened local constitutions. Liberals and Conservatives continued to squabble, as in other European countries. But Swiss liberalism was not as elitist and more widespread among the rural petty bourgeoisie, enabling them to ultimately win against the Conservatives. All very simplified of course.

4. If you can speak German, I recommend this magazine to learn more about Escher. The biography is fine, but somewhat hard to read.