I would add one piece - which may sound small, but I think it matters.
The Swiss - by and large - respect the rules, rules large and small. You do not throw garbage on the street, you do not drive like crazy and you respect the rules of the road, you respect private property rights, you respect the privacy of others, you respect the "institutions", you train the foreigners living in Switzerland to do the same, have respect for the rules (large and small) and the country you live in. This goes a long way to have a nice, orderly, prosperous country.
The Germans used to be like this, somewhat, but they lost it. The Swiss still have it, the question is for how long.
People respect the rules when it works for them. One of the reasons the US has an administration that has no respect for the law is that the rules weren't working for a lot of people.
"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."
Perhaps it's my age, but I'm surprised nobody mentioned that for many many years Switzerland was famous for industrial scale money laundering. It's only when the US started to crack down on it in the 2000s that their private banking industry could no longer offer this service to crooks and dodgy politicians the world over.
The comment section is the typical la la land Europeans believe in. This comment, which is so important to understand Swiss wealth, has been ignored by most.
Please explain how a bank doing that helps the average plumber have a high standard of living? Granted, the government can in theory tax that and spend that on schools, but in practice they were not really doing so.
To what extent do you think this money laundering fueled their growth? My guess would be that the amount was negligible, because the financial sector overall is just 9% of the GDP, and their economy has grown by 236% since the 2000s.
That's the magic. Assume 100 as population, with per capita for non-bankers being 20. Over an 80 year period, assume a wealth multiplier of just 5% (it would be much larger in reality + compounding). This would give a per capita (assuming population remains unchanged for simplicity ) wealth of around 79,000 in 80 years.
Now assume 9 out of 100 are bankers, earning 2000. Rest is assumed same. Rest 91 still earn same 20 (though in reality even their incomes will go up due to these 9). This will give per capita wealth of close to 7,85,000 in 80 years.
Its very simplified (back of the envelope calculations) and very conservative, but gets the point across.
For a small population, one industry / sector can change their fortunes massively, especially over long periods. A larger population would need more such outlier industries to gain a big edge. Many Asian tigers changed their fortunes by mastering one segment of the electronics supply chain. Plus wealth helps create more wealth. South Korea's Chaebol wealth has helped make it into a cosmetics and entertainment giant. Nobody would have cared about Korean cosmetics or Korean bands if they were still dirt poor. Same worked for Swiss tourism.
The banking arrangement also ensured it remained safe through such long periods while rest of Europe fought wars regularly. Nobody wanted to become the enemy of so many powerful people who kept their money in Swiss banks.
"In 2007, the U.S. accounted for about 20% of the world economy (using purchasing power parity, the most rational metric), Europe about the same, and China around 6%. Now, the U.S. is roughly 15% and declining, Europe is about 14% and dropping faster, while China is north of 20%. This shift happened within the lifespan of a book.
Small differences in compound growth produce massive outcome differentials over time, as Warren Buffett keeps preaching. Even if you measure GDP in real dollars, the story is similar, with the same growth but different starting bases."
I don't know. I asked Grok and it came up with some sensible % estimates. I think my take would be that it gave a massive wealth management competitive advantage for generations, and that we can never know how much dodgy cash was funnelled into Switzerland and kept by the locals. But they're now smart, educated and hard working so their current success is also due to that.
Please explain how a bank doing that helps the average plumber have a high standard of living? Granted, the government can in theory tax that and spend that on schools, but in practice they were not really doing so.
Here's what happened. Swiss banks attracted billions of illicit money from around the world which meant they could dole out more loans at cheaper interest rates than other countries. So businesses flourish more easily. More money supply in the system obviously leads to higher salaries which leads to professionals like plumbers demand more and get it.
Not to be underrated: Switzerland has long been a refuge for elites out of favour, even back in the years of the Renaissance and Reformation, all the way to Lenin and Einstein in the 20th century. Only in the very late 19th and mid-to-late 20th century did the USA become a similar refuge. Even today, it's said the most desirable Google is in Zuerich. Such elites are often entrepreneurial. Swiss emigrants also often start elite schools in other nations too. Their best students can become local elites, or move back to Switzerland. Latin and Central America are examples of this.
There is something that you mention in passing that you should have emphasized more: the extreme decentralization of Swiss politics and the role this plays in both maintaining liberal policies and promoting state capacity. Switzerland is what the US was intended to be: a very limited federal government and with most of the taxation/spending occuring at the state/cantonal level. The consequence of this is to create a large amount of competition among the cantons for people and businesses. The cantons respond with pro-business policies and with maximizing the quality of cantonal services for the taxation charged. The USA has some of this with the exodus, for example, of businesses and wealthy people from places like Illinois, New York and California. But the competition here is much more attenuated - the ratio of federal/state taxation and expenditure is probably the reverse of the much heavier taxation and expenditure in the cantons.
According to your article, in 1848 the Swiss learned from the US government structure. We should return the favor these days and fight hard to copy the Swiss into much more decentralization.
Switzerland is the birthplace of Calvinism. If Max Weber’s theories about the Protestant (or more specifically, the Calvinist) work ethic have any validity, the country’s Calvinist past may explain a great deal about its prosperity.
We should not overlook the excess capital in Switzerland and how that has led to low cost of capital for Swiss borrowers.
The CHF and Swiss banks have long been a safe haven. This has allowed Swiss banks to accumulate huge reserves ranging from Gold in the WWI-WWII era, to general European wealth and estate planning, to Russian assets (Putin's daughter lives in Switzerland, for example), to now Chinese assets. This huge surplus of reserves has bid up the price of CHF - creating massive purchasing power for the Swiss through no real productivity leaps of their own - and created a huge private wealth industry with very low hurdle rates. This then allows access to cheap capital for domestic enterprises and institutions.
Perhaps this point also matters: the conviction among the Swiss that work remains the primary driver of progress.
Switzerland has had the “fortune” of being, among European countries, one of the least endowed with natural resources. This constraint has shaped a deep belief: the Swiss person’s main asset is work.
Maybe that is, indeed, one of the keys to Switzerland’s performance in Europe: a culture of work deeply rooted in the collective mindset, where labor is seen as a path to fulfillment. Other countries share this conviction too, though few have turned it into such a lasting engine of prosperity.
Unfortunately Swiss capitalist instincts are slipping. The 2012 vote was years ago. More recently the Swiss voted themselves a large unfunded increase in state pensions, a massive reduction in Zurich public transport ticket costs, and various other huge unfunded welfare expansions.
They are also currently negotiating a new deal with the EU that would see them mostly borged, with their unique model made illegal. It's basically membership but without being called that and with no actual power. If it goes through then Switzerland will be gone as an example of European exceptionalism and go the same way as Germany
EconomieSuisse is representing the businesses that would happily join the EU if they could. It's quite a biased source.
For example they try to claim that it only affects 6 of 140 bilateral agreements. But those six cover nearly everything relevant to the EU including huge areas like free movement and "technical barriers to trade".
The EU has a long, long history of massively abusing every single provision of any treaty or sometimes outright ignoring the treaties to extend its own power. The British became very familiar with that game which is one reason they left. If you let the EU regulate "technical barriers to trade" and "freedom of movement" then that grants their courts total control over all of Switzerland because there is nearly nothing that they won't argue falls under these rubrics.
For the foreign judges aspect, in practice the Swiss Federal courts loooooove applying foreign law. It's staffed by the kind of judges the UK has so many problems with, where they think foreign law is inherently civilized and just. So the moment they have an excuse to resolve conflicts between Swiss and EU law, they will always pick the EU side and even referendums won't be enough to stop it.
These issues are explained in much more detail in various discussions hosted by the NZZ. But really, the British experience is salient. The EU cannot be trusted, ever, on anything. The best deal with them is no deal. They need to be treated as hostile at all times, for that's how they act.
Look, countries are like individuals - only the disciplined can deal with freedom well. Freedom destroys the undisciplined.
And you know what Swiss culture is like - it is the kind of culture where people complain if people flush the toilet at night. Hence the German nickname "Schwitzer" - because they seem to be "sweating" about unimportant things all the time. It is one of the most neurotic cultures in the world, where everything must be done by the book and by tradition, too, all these banking houses are intensely traditional, and they exercise heaps of self-control, avoiding anything slightly risky. So it seems like a culture that can afford freedom, because people control themselves all the time, and also informally "police" each other. They are so much traditionalist, kindergartens are very expensive because their general expectation is still that mothers stay home with kids. They only gave women the vote in the 1970's. This is why they can afford freedom - few would ever think to abuse it.
Despite the language differences, it is a very homogeneous place. Everyone goes through the same education system with close to 75% going through the apprentice system. The apprentice system is definitely beneficial to both the companies and the students.
There are tensions as the education system is slipping thanks to overly liberal instincts. Also, the increased immigration is straining the social system and the transport system too. 50% population growth this century will do that.
While housing is an issue, the cooperative housing system is a great model for providing affordable housing - just not wealth through housing ownership.
Overall, Switzerland is in a strong position. Still, there are challenges that will see tensions between the liberals, the conservatives and the EU in the next decade.
The wealth of Switzerland is not at all enigmatic and in my opinion is not related to the reasons mentioned here. The index with the highest correlation to a country's wealth is the PISA math score. That is, the mathematical IQ of the residents. Switzerland has a much higher score than any other country in Europe. This is also reflected in the productivity of the scientific community in Switzerland.
Location surely should come high on that list? Right in the middle of the banana is not a bad place. And I second the point about the work culture, it's real
Perhaps this point also matters: the conviction among the Swiss that work remains the primary driver of progress. Switzerland has had the “fortune” of being, among European countries, one of the least endowed with natural resources. This constraint has shaped a belief: the Swiss person’s main asset is work.
Maybe that is, indeed, one of the keys to Switzerland’s performance in Europe: a culture of work deeply rooted in the collective mindset, where labor is not seen as a constraint, but as a path to fulfillment. Other countries share this conviction too, though few have turned it into such a lasting engine of prosperity.
I would add one piece - which may sound small, but I think it matters.
The Swiss - by and large - respect the rules, rules large and small. You do not throw garbage on the street, you do not drive like crazy and you respect the rules of the road, you respect private property rights, you respect the privacy of others, you respect the "institutions", you train the foreigners living in Switzerland to do the same, have respect for the rules (large and small) and the country you live in. This goes a long way to have a nice, orderly, prosperous country.
The Germans used to be like this, somewhat, but they lost it. The Swiss still have it, the question is for how long.
People respect the rules when it works for them. One of the reasons the US has an administration that has no respect for the law is that the rules weren't working for a lot of people.
"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."
Perhaps it's my age, but I'm surprised nobody mentioned that for many many years Switzerland was famous for industrial scale money laundering. It's only when the US started to crack down on it in the 2000s that their private banking industry could no longer offer this service to crooks and dodgy politicians the world over.
The comment section is the typical la la land Europeans believe in. This comment, which is so important to understand Swiss wealth, has been ignored by most.
Please explain how a bank doing that helps the average plumber have a high standard of living? Granted, the government can in theory tax that and spend that on schools, but in practice they were not really doing so.
Well rich bankers need their plumbing done and can afford to pay high prices.
To what extent do you think this money laundering fueled their growth? My guess would be that the amount was negligible, because the financial sector overall is just 9% of the GDP, and their economy has grown by 236% since the 2000s.
That's the magic. Assume 100 as population, with per capita for non-bankers being 20. Over an 80 year period, assume a wealth multiplier of just 5% (it would be much larger in reality + compounding). This would give a per capita (assuming population remains unchanged for simplicity ) wealth of around 79,000 in 80 years.
Now assume 9 out of 100 are bankers, earning 2000. Rest is assumed same. Rest 91 still earn same 20 (though in reality even their incomes will go up due to these 9). This will give per capita wealth of close to 7,85,000 in 80 years.
Its very simplified (back of the envelope calculations) and very conservative, but gets the point across.
For a small population, one industry / sector can change their fortunes massively, especially over long periods. A larger population would need more such outlier industries to gain a big edge. Many Asian tigers changed their fortunes by mastering one segment of the electronics supply chain. Plus wealth helps create more wealth. South Korea's Chaebol wealth has helped make it into a cosmetics and entertainment giant. Nobody would have cared about Korean cosmetics or Korean bands if they were still dirt poor. Same worked for Swiss tourism.
The banking arrangement also ensured it remained safe through such long periods while rest of Europe fought wars regularly. Nobody wanted to become the enemy of so many powerful people who kept their money in Swiss banks.
This is from Nassim Taleb:
"In 2007, the U.S. accounted for about 20% of the world economy (using purchasing power parity, the most rational metric), Europe about the same, and China around 6%. Now, the U.S. is roughly 15% and declining, Europe is about 14% and dropping faster, while China is north of 20%. This shift happened within the lifespan of a book.
Small differences in compound growth produce massive outcome differentials over time, as Warren Buffett keeps preaching. Even if you measure GDP in real dollars, the story is similar, with the same growth but different starting bases."
I don't know. I asked Grok and it came up with some sensible % estimates. I think my take would be that it gave a massive wealth management competitive advantage for generations, and that we can never know how much dodgy cash was funnelled into Switzerland and kept by the locals. But they're now smart, educated and hard working so their current success is also due to that.
Please explain how a bank doing that helps the average plumber have a high standard of living? Granted, the government can in theory tax that and spend that on schools, but in practice they were not really doing so.
Here's what happened. Swiss banks attracted billions of illicit money from around the world which meant they could dole out more loans at cheaper interest rates than other countries. So businesses flourish more easily. More money supply in the system obviously leads to higher salaries which leads to professionals like plumbers demand more and get it.
Not to be underrated: Switzerland has long been a refuge for elites out of favour, even back in the years of the Renaissance and Reformation, all the way to Lenin and Einstein in the 20th century. Only in the very late 19th and mid-to-late 20th century did the USA become a similar refuge. Even today, it's said the most desirable Google is in Zuerich. Such elites are often entrepreneurial. Swiss emigrants also often start elite schools in other nations too. Their best students can become local elites, or move back to Switzerland. Latin and Central America are examples of this.
There is something that you mention in passing that you should have emphasized more: the extreme decentralization of Swiss politics and the role this plays in both maintaining liberal policies and promoting state capacity. Switzerland is what the US was intended to be: a very limited federal government and with most of the taxation/spending occuring at the state/cantonal level. The consequence of this is to create a large amount of competition among the cantons for people and businesses. The cantons respond with pro-business policies and with maximizing the quality of cantonal services for the taxation charged. The USA has some of this with the exodus, for example, of businesses and wealthy people from places like Illinois, New York and California. But the competition here is much more attenuated - the ratio of federal/state taxation and expenditure is probably the reverse of the much heavier taxation and expenditure in the cantons.
According to your article, in 1848 the Swiss learned from the US government structure. We should return the favor these days and fight hard to copy the Swiss into much more decentralization.
Thank you! For once an article that actually tries to ANSWER the question it asks. And does a pretty good job. Well done!! RK
Switzerland is the birthplace of Calvinism. If Max Weber’s theories about the Protestant (or more specifically, the Calvinist) work ethic have any validity, the country’s Calvinist past may explain a great deal about its prosperity.
The Swiss never FA, so they never have to FO.
We should not overlook the excess capital in Switzerland and how that has led to low cost of capital for Swiss borrowers.
The CHF and Swiss banks have long been a safe haven. This has allowed Swiss banks to accumulate huge reserves ranging from Gold in the WWI-WWII era, to general European wealth and estate planning, to Russian assets (Putin's daughter lives in Switzerland, for example), to now Chinese assets. This huge surplus of reserves has bid up the price of CHF - creating massive purchasing power for the Swiss through no real productivity leaps of their own - and created a huge private wealth industry with very low hurdle rates. This then allows access to cheap capital for domestic enterprises and institutions.
Perhaps this point also matters: the conviction among the Swiss that work remains the primary driver of progress.
Switzerland has had the “fortune” of being, among European countries, one of the least endowed with natural resources. This constraint has shaped a deep belief: the Swiss person’s main asset is work.
Maybe that is, indeed, one of the keys to Switzerland’s performance in Europe: a culture of work deeply rooted in the collective mindset, where labor is seen as a path to fulfillment. Other countries share this conviction too, though few have turned it into such a lasting engine of prosperity.
Unfortunately Swiss capitalist instincts are slipping. The 2012 vote was years ago. More recently the Swiss voted themselves a large unfunded increase in state pensions, a massive reduction in Zurich public transport ticket costs, and various other huge unfunded welfare expansions.
They are also currently negotiating a new deal with the EU that would see them mostly borged, with their unique model made illegal. It's basically membership but without being called that and with no actual power. If it goes through then Switzerland will be gone as an example of European exceptionalism and go the same way as Germany
Unsure about Bilaterale III. I skimmed this post by EconomieSuisse, and it doesn't seem that bad? Most regulations don't apply. https://www.economiesuisse.ch/de/artikel/faktencheck-bilaterale-iii
EconomieSuisse is representing the businesses that would happily join the EU if they could. It's quite a biased source.
For example they try to claim that it only affects 6 of 140 bilateral agreements. But those six cover nearly everything relevant to the EU including huge areas like free movement and "technical barriers to trade".
The EU has a long, long history of massively abusing every single provision of any treaty or sometimes outright ignoring the treaties to extend its own power. The British became very familiar with that game which is one reason they left. If you let the EU regulate "technical barriers to trade" and "freedom of movement" then that grants their courts total control over all of Switzerland because there is nearly nothing that they won't argue falls under these rubrics.
For the foreign judges aspect, in practice the Swiss Federal courts loooooove applying foreign law. It's staffed by the kind of judges the UK has so many problems with, where they think foreign law is inherently civilized and just. So the moment they have an excuse to resolve conflicts between Swiss and EU law, they will always pick the EU side and even referendums won't be enough to stop it.
These issues are explained in much more detail in various discussions hosted by the NZZ. But really, the British experience is salient. The EU cannot be trusted, ever, on anything. The best deal with them is no deal. They need to be treated as hostile at all times, for that's how they act.
Look, countries are like individuals - only the disciplined can deal with freedom well. Freedom destroys the undisciplined.
And you know what Swiss culture is like - it is the kind of culture where people complain if people flush the toilet at night. Hence the German nickname "Schwitzer" - because they seem to be "sweating" about unimportant things all the time. It is one of the most neurotic cultures in the world, where everything must be done by the book and by tradition, too, all these banking houses are intensely traditional, and they exercise heaps of self-control, avoiding anything slightly risky. So it seems like a culture that can afford freedom, because people control themselves all the time, and also informally "police" each other. They are so much traditionalist, kindergartens are very expensive because their general expectation is still that mothers stay home with kids. They only gave women the vote in the 1970's. This is why they can afford freedom - few would ever think to abuse it.
Despite the language differences, it is a very homogeneous place. Everyone goes through the same education system with close to 75% going through the apprentice system. The apprentice system is definitely beneficial to both the companies and the students.
There are tensions as the education system is slipping thanks to overly liberal instincts. Also, the increased immigration is straining the social system and the transport system too. 50% population growth this century will do that.
While housing is an issue, the cooperative housing system is a great model for providing affordable housing - just not wealth through housing ownership.
Overall, Switzerland is in a strong position. Still, there are challenges that will see tensions between the liberals, the conservatives and the EU in the next decade.
Thanks for the article,
Nothing about migration policy?
The wealth of Switzerland is not at all enigmatic and in my opinion is not related to the reasons mentioned here. The index with the highest correlation to a country's wealth is the PISA math score. That is, the mathematical IQ of the residents. Switzerland has a much higher score than any other country in Europe. This is also reflected in the productivity of the scientific community in Switzerland.
"Voters reject nearly all ballot initiatives that might threaten Switzerland’s economic position."
They can calculate!
Location surely should come high on that list? Right in the middle of the banana is not a bad place. And I second the point about the work culture, it's real
Wallonia is in the banana as well, and it is a rust belt country.
Perhaps this point also matters: the conviction among the Swiss that work remains the primary driver of progress. Switzerland has had the “fortune” of being, among European countries, one of the least endowed with natural resources. This constraint has shaped a belief: the Swiss person’s main asset is work.
Maybe that is, indeed, one of the keys to Switzerland’s performance in Europe: a culture of work deeply rooted in the collective mindset, where labor is not seen as a constraint, but as a path to fulfillment. Other countries share this conviction too, though few have turned it into such a lasting engine of prosperity.