The Economy of Switzerland

by Suhas Rachaveti

Many people know Switzerland for its wealth and beauty, however, they fail to acknowledge the factors that allowed for Switzerland’s growth. In this article, I will talk about how Switzerland became rich and how its present economy ensures wealth stability.



Switzerland gained its official independence in 1648 through the Treaty of Westphalia. However, it was not until 1848, after the Napoleonic Wars and the Swiss civil war, that the economy was able to boom.


While the rest of Europe was engaged in international or domestic warfare, Swiss people, no matter their background, were able to come together peacefully and create a new government of a national assembly split between 2 parties. As early as 1850, the Swiss Franc was established as the national currency; this currency is still used in Switzerland today.



Geography also played a role in making Switzerland rich. Due to the lack of coal mines and the abundance of rivers, Switzerland relied heavily on water power to run factories during the industrial revolution. This resulted in less pollution, leading to a spike in tourism.


Switzerland has received around 35.5 billion dollars CHF (Swiss Franc) from tourism. From the pristine clean water to the snow-capped mountains, Switzerland is one of the most popular destinations for any tourist.


Due to many visitors coming in from foreign nations and spending on luxury resorts and expensive gifts to take home, the Swiss economy has seen a huge economic profit. Also, many people visit this country in order to purchase luxury chocolates.


Neutrality during the world wars was another key factor in developing a wealthy Swiss economy. Switzerland was one of the only nations not involved in the world wars and it maintained neutrality.


As a result, they traded openly with both the axis and allied powers. In fact, the Swiss economy was doing so well that after the wars ended, the Swiss helped provide funds towards the Marshall Plan which helped boost economies throughout Western Europe.



Being surrounded by axis powers wasn’t easy for this small nation and it has even been proven in recent times that the swiss weren’t as neutral as they seemed they were. This was largely due to the huge profits made in selling weapons to the axis powers in order to give their economy a boost.


However, in times they also supported the allies when they let them for some time openly bomb their own country. The origins of swiss neutrality lie with the first world war in which they were neutral and after with the creation of the league of nations, their capital, geneva, was considered the global capital. Therefore, they were in a way obligated to remain neutral.

Switzerland has a GDP per capita of around $82,000. In comparison, the United States’ GDP per capita is currently around $62,000, and therefore we can safely assume that the Swiss people have a higher standard of living.



Although the Swiss economy is currently doing well, there have been a few setbacks. These can be seen through the terrorist attacks that happened in the early 2000s, which had a negative impact on the GDP and the Swiss economy as a whole.


The main reason behind Switzerland’s economic prosperity is the ability to produce premium products. We can see this through the many premium brands originating in Switzerland such as Rolex as well as premium chocolate brands such as Lindt, Toblerone, and Nestle.


These brands sell normal products for very expensive prices. The belief that more expensive items are better quality is seen in the economic concept of a Veblen good. As a result, exports from Switzerland have soared ever since the creation of these ‘luxury’ brands.



Another reason behind this surge in Swiss economic growth is the banking industry. A series of Swiss banking chains have now formed the UBS group, a multinational investment, and financial services bank. This bank was previously known as the Swiss bank, the biggest and richest bank during the 20th century.


This long history of the banking industry has a sizable contribution to making Switzerland one of the richest economies in the world. The banking industry creates wealth for Switzerland through increasing the money supply in the country, therefore, increasing the value of the money. It also attracts more visitors who are wealthier to visit the banks and this will lead to an increase in the tourism industry as well.


The banks in turn use this money to also help the Swiss economy to grow through giving loans out to businesses and the government which raises the wealth created in the country. As a result, the banking industry is a huge component of why Switzerland is so rich today.


In conclusion, Switzerland has become one of the richest economies in the world owing to the prosperous banking industry, a thriving tourism sector, and a huge number of exports from luxury brands. Other factors that have also contributed to Switzerland’s growth are a stable government, lower tax rates, and educated people (the literacy rate is 99%).



Sources


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