The Swiss Economic Miracle
27 June 2022
A small question about a small country in the Alps with no direct access to the sea, no colonies, no natural resources or raw materials (apart from water, granite, wood and stone), largely uninhabitable, inaccessible and infertile territory and, until 1848, with a medieval, chaotic state system of almost entirely sovereign cantons surrounded by powerful expansionist monarchies. How can a country become one of the most prosperous globally under such conditions?
John King ( 1788-1847), Sir John Bowring, 1826. National Portrait Gallery London.
The tremendous increase in prosperity in the second half of the 20th century is often associated with banking secrecy and accounts of less bona fide clients, (Jewish) assets, gold reserves from plundered countries or trade with Germany in the Second World War. The role of Swiss traders and entrepreneurs at the time of slavery is a recent focus of attention.
These factors played a role pecunia non olet. However, they only partly explain today’s prosperity, if at all. The social welfare state did not appear out of thin air, nor is it a direct result of the above factors, however morally reprehensible they may be in certain circumstances with today’s knowledge, laws and morals.
Fleurier, canton of Neuchâtel, Watchmaker Parmigiani
The age-old economic success
The basis of Swiss economic success goes back several centuries. The decentralised state system with small political units by and for citizens and no aristocratic dynasties arose in the late thirteenth to early sixteenth centuries in the thirteen (German-speaking, only Fribourg is also Freiburg) cantons and their allied territories (Zugewandte Orte), including today’s Graubünden, Geneva, (Upper) Valais, St. Gallen and Neuchâtel.
The unique Landsgemeinde arose in eight cantons in the thirteenth and fourteenth centuries. They are the forerunners of what today is called direct democracy. In the other cantons, the guilds and the regent-merchants were in power.
Trogen, village centre (Canton of Appenzell Ausserrhoden). Photo: TES
The Orte, called cantons from the sixteenth century onwards, focused on trade and industry, and after 1515 (Marignano), Swiss neutrality prevented expensive foreign conflicts and expeditions.
The Swiss soldier, however, was not absent from the European battlefields. He was a sought-after export product from which the local canton elites made a good living. Moreover, it was a way to do away with poor men and potential troublemakers.
These decentralised structures encouraged entrepreneurship, trade, innovation, legal security, conflict management, and dispute resolution. The cantons were, in fact, sovereign republics after 1499 (Treaty of Basel) and under international public law after 1648 (Peace of Westphalia), with no foreign, imperial, royal or judicial authority above them.
These (relatively) democratic structures without foreign interference were an advantage during the religious wars in the 16th and 17th centuries. Apart from some relatively minor wars (the Kappelerkriege of 1529 and 1531 and the Villmergerkriege of 1656 and 1712), there were no significant (religious) conflicts, apart from the peasant revolt of 1653.
The cantons voted on the choice of religion. The Appenzeller split peacefully in 1597, Glarus recognised the two faiths and even the sharing of churches (Simultaneum). Some cantons were reformed, and others remained loyal to the old faith. Freiburg (catholic) and Bern (protestant) were allies in their foreign policy and shared in the booty from the Duke of Savoy in 1536 (conquest of Waadt).
The religious question provoked conflicts in the private sphere and alliances with countries of the right faith. However, Switzerland’s human and material damage was limited, and this stability was good for trade, business, and industry.
Glarus, textile industry
Specialisation, trade and niches
Furthermore, the towns and cantons specialised at an early stage. Cattle and dairy products in one canton, watchmaking or textiles in another and global and European trade in silk, cotton, wool, linen, coffee, tea, and spices in large urban centres.
The centres of trade, industry and export flourished as early as the sixteenth to the eighteenth centuries, two centuries before the Industrial Revolution. For example, St. Gallen, Glarus, Zurich, the Appenzeller, Basel, and other areas dominated the textile industry.
The basis was the Verlagsystem. The entrepreneur provided the raw materials and simple production facilities for home labour. Wages and investments were low; production was mainly manual labour by (house) women and children.
Suchard, Neuchâtel, the first chocolate multinational
The Protestant contribution
Like other protestant regions, Switzerland benefited greatly from the arrival of tens of thousands of Huguenots and other Protestant refugees in the sixteenth and seventeenth centuries. They took their knowledge, experience and commercial mentality with them. The trade and watch- and textile industries benefited from it in particular.
The pioneers of the watchmaking industry quickly conquered Europe with global networks. The banking industry proliferated. Not England, but Switzerland was the leading textile producer in the eighteenth century.
This situation changed from 1780 onwards due to (English) inventions during the Industrial Revolution and the Napoleonic Wars. Afterwards, the cantons in the new Confederation of 1815 were too divided to build, for example, cross-canton railways. The new Constitution and Confederation of 1848 changed this division and created new powers for the central government (der Bund, la Fédération).
Solothurn, Attisholz complex, paper industry
The country had a dense railway network and stations in 1875, and tourism was booming. Engineers produced masterpieces in tunnelling, viaducts, bridges, railways, waterways, the first hydroelectric power stations, and water management (the “Delta Works” of the Juragewässerkorrektion 1868-1891, for example), mountain passes and later motorways, mechanical engineering, electronics and even shipbuilding.
The shipbuilder Escher Wyss from Zurich was the most significant European producer of steamships for a long time. The ships were assembled elsewhere, or the shipbuilder established shipyards abroad.
Around 1900, Switzerland was a leading tourist, financial, industrial and trading nation. Multinationals such as Hoffmann La Roche, Nestlé, ABB and the chemical, insurance and banking giants, and multinationals in various other sectors, were founded. The beau monde of Europe and the world met in the Swiss Grand Hotels and Spas.
Basel, Roche Towers. Photo: TES
The disadvantage became an advantage.
The Alps, once a disadvantage, were now an advantage. Good infrastructure, confirmed once again in 2016 by the new Gotthard tunnel, building materials in abundance (granite and many types of stone), creative and innovative use of water (and wood), and tourism characterise the (transit) country. The farms are kept relatively small (by subsidies), guaranteeing high-quality meat and milk products and exemplary nature conservation.
The lack of raw materials inspires innovations. Raw materials such as wool, cotton, linen or ores were imported and re-exported in high-quality products (machines, watches, stationery, and electronics, for example). The lack of raw materials became an advantage. Entrepreneurs and traders had to rely mainly on their creativity, innovation, and high-quality ‘niche’ products to become market leaders.
Switzerland experienced no wars, revolutions or costly colonial or foreign expeditions in the 19th and 20th centuries. The political system was stable and economically liberal, and socially inclusive.
The last armed conflicts were the Basler Wirren (1831-1833) and the Sonderundskrieg of 1847, a brief civil war. Religious and economic motives and especially the constitution of the state (decentralised confederation or more power for the federation) were at the basis of this conflict of 26 mainly marching days and a few casualties.
From 1880 to 1890, water became an essential natural resource for generating electricity and using the chemical land pharmaceutical industry.
Powerplant (Kraftwerk) Whylen-Augst. Photo: TES
Stable social and economic development, the political system, excellent education, labour morale and innovation are the basis of financial success.
This situation is particularly evident in the vital small and medium-sized enterprises, the excellent education for trades and crafts and the world’s best engineering schools and research institutes. The strength of small and medium-sized enterprises is, in turn, linked to legal structures, legal certainty, a mercantile spirit and the involvement and respect of citizens for each other, their environment, the municipality, the canton and the federal system.
Decentralisation is the magic word for a bottom-up society, economy and politics. The so-called Militia system (Milizsystem, système de milice) in the army, politics and civil society also reflects this principle. In which country do ‘captains of industry have a seat in the parliament? It is only possible if there is trust in the system and each other.
Switzerland has no better or worse people, traders, entrepreneurs, and industrialists. It combines several factors that underpin its success and its centuries-old continuity. Banking secrecy, black or dirty money and bad trade in times of war are certainly not the basis of the success of the age-old Swiss model.
(Source: Markus Somm, Warum die Schweiz reich geworden ist. Bern, 2022; Joseph Jung, Das Laboratorium des Fortschritts. Die Schweiz im 19. Jahrhundert, Zürich, 2019).