Economy of Switzerland
Encyclopedia
The economy of Switzerland is one of the world's most stable economies. Its policy of long-term monetary security and political stability has made Switzerland
a safe haven for investors, creating an economy that is increasingly dependent on a steady tide of foreign investment. Because of the country's small size and high labor specialisation, industry and trade are the keys to Switzerland's economic livelihood. Switzerland has achieved one of the highest per capita incomes in the world with low unemployment rates and a low budget deficit. The service sector has also come to play a significant economic role.
During World War I, Switzerland suffered an economic crisis. It was marked by a decrease in energy consumption, energy being mostly produced by coal in the 1910s, 1920s, 1930s and 1940s. The war tax was introduced. As imports were difficult, attempts were made to strengthen the Swiss economy. The cultivation of grain was promoted, and the Swiss railway became the first to use electric instead of coal-burning, steam-driven engines.
In the 1920s Switzerland's energy consumption increased.
Throughout the 1930s Switzerland's energy consumption stagnated.
In the 1940s, particularly during World War II the economy profited from the increased export and delivery of weapons to the German Reich. However, Switzerland's energy consumption decreased rapidly. The conduct of the banks cooperating with the Nazis and the commercial relations with the axis powers during the war became the subject of sharp criticism, resulting in a short period of international isolation
of Switzerland from the world. After World War II, Switzerland's production facilities remained to a great extent undamaged which facilitated the country's swift economic resurgence.
In the 1950s, annual GDP growth averaged 5% and Switzerland's energy consumption doubled. Coal lost its rank as Switzerland's primary energy source, as other fossil fuels such as crude and refined oil and natural and refined gas imports increased. This decade also marked the transition from an industrial economy to a service economy. Since then the service sector has been growing faster than the agrarian and industrial sectors.
In the 1960s, annual GDP growth averaged 4% and Switzerland's energy consumption doubled. By the end of the decade oil was Switzerland's primary energy source.
In the 1970s GDP growth rates gradually declined from a peak of 6.5% in 1970 until contracting 7.5% in 1975 and 1976. Switzerland became increasingly dependent on oil imported from its main supplier, the OPEC cartel. The 1973 international oil crisis caused Switzerland's energy consumption to decrease from 1973 to 1977. In 1974 there were three nationwide car-free Sundays when private transport was prohibited as a result of the oil supply shock. From 1977 onwards GDP grew, however Switzerland was also affected by the 1979 energy crisis
which resulted in a short term decrease of Switzerland's energy consumption.
In the 1980s, Switzerland was affected by the hike in oil prices which resulted in a decrease of energy consumption until 1982 when the economy contracted by 1.3%. From 1983 on both GDP and energy consumption grew.
In the 1990s, Switzerland's economy was marred by slow growth, having the weakest economic growth in Western Europe
. The economy was affected by a 3-year-recession from 1991 to 1993 when the economy contracted by 2%, which also became apparent in Switzerland's energy consumption and export growth rates. Switzerland's economy averaged no appreciable increase (only 0.6% annually) in gross domestic product
(GDP). After having unemployment rates lower than 1% prior to 1990, the 3-year-recession also caused the unemployment rate to rise to its all-time-peak of 5.3% in 1997. And thus, as of 2008, Switzerland is at the second place among European countries with populations above one million in terms of nominal and purchasing power parity
Gross Domestic Product
per capita, behind Norway
(see list). On numerous occasions in the 1990s real wages decreased since nominal wages couldn't keep up with inflation. However, beginning in 1997, a global resurgence in currency movement provided the necessary stimulus to the Swiss economy. It slowly gained momentum and peaked in the year 2000 with 3.6% growth in real terms.
In the early 2000s recession
, being so closely linked to the economies of Western Europe and the United States
, Switzerland was not able to escape the slowdown felt in these countries. After the worldwide stock market crashes in the wake of the 9/11 terrorism attacks there were more announcements of false enterprise statistics and exaggerated managers' wages. In 2001 the rate of growth dropped to 1.2%, to 0.4 % in 2002 and in 2003 the real GDP contracted by 0.2%. That economic slowdown had a noticeable impact on the labour market. Many companies announced mass dismissals and thus the unemployment rate rose from its low of 1.9% in June 2000 to its peak of 3.9% in October 2004, although well below the European Union
(EU) unemployment average of 8.9%. The consumer mood worsened and domestic consumption decreased.
The exports of goods and services in the EU and the USA decreased as a result of the Swiss Franc's appreciation in value which caused an increase in prices of exported goods and services. On the other hand Switzerland's tourism sector slumped and room occupation rates by foreign guests decreased. Besides that a deficit of market competition in many branches of Switzerland's economy persisted.
On the 10.11.2002 the economics magazine Cash published 5 measures which political and economic actors were suggested to implement so that Switzerland would once again experience an economic revival:
1. Private consumption should be promoted with decent wage increases. In addition to that families with children should get discounts on their health insurances.
2. Switzerland's national bank should revive investments by lowering interest rates. Besides that monetary institutes should increasingly credit consumers and offer cheaper land zones which are to be built on.
3. Switzerland's national bank is asked to devalue the Swiss Franc, especially compared to the Euro.
4. The government should implement the anti-cyclical measure of increasing budget deficits. Government spending should increase in the infrastructural and educational sectors. Lowering taxes would make sense in order to promote private household consumption.
5. Flexible work schedules should be instituted, thus avoiding low demand dismissals.
These measures were applied with successful results along with the government's policy of the Magical Hexagon which consists of full employment, social equality, economic growth, environmental quality, positive trade balance and price stability. The rebound which started in mid 2003 saw growth rate growth rate averaging 3% (2004 and 2005 saw a GDP growth of 2.5% and 2.6% respectively; for 2006 and 2007, the rate was 3.6%). In 2008, GDP growth was modest in the first half of the year while declining in the last two quarters. Because of the base effect, real growth came to 1.9%. While it contacted 1.9% in 2009, the economy started to pick up in Q3 and by the second quarter of 2010, it had surpassed its previous peak. Growth for 2010 stood at 2.6% The stock market collapse has deeply affected investment income earned abroad. This has translated to a substantial fall in the surplus of the current account balance. In 2006, Switzerland recorded a 15.1% per GDP surplus. It went down to 9.1% in 2007 and further dropped to 1.8% in 2008. It recovered in 2009 and 2010 with a surplus of 11.9% and 14.6% respectively. As of the frist quarter 2010, Switzerland house prices are still edging up.
This is a chart of trend of gross domestic product of Switzerland at market prices estimated by the Swiss Government with figures in millions of Swiss Francs.
model with respect to the economic sectors. Only a small minority of the workers are involved in the Primary or Agricultural sector (3.8% of the population) while a larger minority is involved in the Secondary or Manufacturing sector (23% ). The majority of the working population are involved in the Tertiary or Services sector of the economy (73.2% ). While most of the Swiss economic practices have been brought largely into conformity with the European Union
's policies, some trade protectionism remains, particularly for the small agricultural sector.
, chemical for industrial and construction use like Sika AG
, pharmaceutical like Novartis
, roof coating Sarnafil, among many others.
Switzerland is extremely protective of its agricultural industry. High tariffs and extensive domestic subsidisations encourage domestic production, which currently produces about 60% of the food consumed in the country.
According to the Organisation for Economic Co-operation and Development
(OECD), Switzerland is subsidising more than 70% of its agriculture compared to 35% in the EU. The 2007 Agricultural Program, recently adopted by the Swiss Federal Assembly, will increase subsidies by CHF 63 million to CHF 14.092 billion.
Protectionism acts to promote domestic production, but not to reduce prices or the cost of production, and there is no guarantee the increased domestic production is actually consumed internally; it may simply be being exported, to the profit of the producers. 90 to 100% of potatoes, pork, veal, cattle and most milk products, are produced in the country. Beyond that, Swiss agriculture meets sixty-five per cent of the domestic food demand.
Prices are not reduced because, in the absence of import tariffs, the price of food would settle to that of the cheapest provider (which would often be external to Switzerland thus more costly in food miles
). Import tariffs raise the price of imported food and Swiss domestic production only has to be cheaper than these artificially raised prices. The consumer pays more than they otherwise would.
The cost of production is not reduced by subsidy; it merely makes the final point-of-sale price lower than it would otherwise be, since some of the cost of production is borne by the State. However, the State obtains the money for the subsidy by taxation, which falls ultimately on the consumer. Subsidy merely alters who pays for what (although in this case it now pays for farming practices that are environmentally respectful). Furthermore, if the food products produced are in fact being exported, the subsidy of their production costs makes them unusually competitive in the world market, which increases the profits of the producers; in other words, the State is in fact taxing the local population with an outcome which is actually merely to increase the profit of food producers.
The stringent policy of agricultural protectionism is generally harmful to the workforce . Domestic agriculture acts as a shield against beneficial import of labour . Some people assert that Switzerland has a high cost of living not only in food but also rents, since much land needed for human occupation is retained by farms, but this is easily countered by statistics. About 40% of Switzerland is used for agricultural purposes, alpine pasture
s included, and the surface of arable
and permanent cropland is 10.6 percent of total land area (Europe 13.4%, world 11.3% - 1998 survey). This corresponds with 61 hectares of cropland per 1,000 people (Europe 422 ha/1000 people, world 251 ha/1000 people) Thus the high rents are probably caused primarily by other factors such as the high population density and the tiny size of the country.
The first reform in agricultural policies was in 1993. Among other changes, since 1998 Switzerland has linked the attribution of farm subsidies with the strict observance of good environmental practice. Before farmers can apply for subsidies, they must obtain certificates of environmental management systems (EMS) proving that they: “make a balanced use of fertilizers; use at least 7% of their farmland as ecological compensation areas; regularly rotate crops; adopt appropriate measures to protect animals and soil; make limited and targeted use of pesticides.” 1,500 farms are driven out of business each year. But the number of organic farms increased by 3.3 percent between 2003 and 2004, and organic sales increased by 7 percent to $979 million. Moreover, Swiss consumers consider less important the drawback of higher prices for organic food compared to locally produced, conventional food.
has been the key to prosperity in Switzerland.
and cities, making it a good market for tourism-related equipment and services. Tourism contributes about SF 1.5 billion to the Swiss economy every year.
Swiss neutrality
and national sovereignty
, long recognized by foreign nations, have fostered a stable environment in which the banking sector was able to develop and thrive. Switzerland has maintained neutrality through both World War
s, is not a member of the European Union
, and was not even a member of the United Nations
until 2002.
Currently an estimated 28 percent of all funds held outside the country of origin (sometimes called "offshore
" funds) are kept in Switzerland. In 2009 Swiss banks managed 5.4 trillion Swiss Francs.
The Bank of International Settlements, an organization that facilitates cooperation among the world's central bank
s, is headquartered in the city of Basel
. Founded in 1930, the BIS chose to locate in Switzerland because of the country's neutrality, which was important to an organization founded by countries that had been on both sides of World War I
.
Foreign banks operating in Switzerland manage 870 billion Swiss francs worth of assets .
. Labour and management relations are amicable, characterised by a willingness to settle disputes instead of resorting to labour action. About 600 collective bargaining agreements exist today in Switzerland and are regularly renewed without major problems.
With the peak of the number of bankruptcies in 2003, however, the mood was pessimistic. Massive layoffs and dismissals by enterprises resulting from the global economic slowdown, major management scandals and different foreign investment attitudes have strained the traditional Swiss labour peace. Swiss trade unions have encouraged strikes against several companies, including Swiss International Air Lines
, Coca-Cola, and Orange. Total days lost to strikes, however, remain among the lowest in the OECD.
in Switzerland was an estimated 107,748 CHF
, or USD 137,094 at purchasing power parity
. The median income after social security, taxes and mandatory health insurance was 75,312 CHF, or USD 95,824 at purchasing power parity
.
accounts. Continued relationship with the United States through the JEC has brought the Swiss economy into closer proximity with that of the Western world, with mutualistic goals in terrorism prevention providing the impetus.
Agreement in 1992, the Swiss Government set its sights on negotiating bilateral economic agreements with the EU. Four years of negotiations culminated in Bilaterals, a cross-platform agreement covering seven sectors: research, public procurement, technical barriers to trade, agriculture, civil aviation, land transport, and the free movement of persons. Parliament officially endorsed the Bilaterals in 1999 and it was approved by general referendum in May 2000. The agreements, which were then ratified by the European Parliament and the legislatures of its member states, entered into force on June 1, 2002. The Swiss government has since embarked on a second round of negotiations, called the Bilaterals II, which will further strengthen the two organisations' economic ties.
Switzerland has since brought most of their practices into conformity with European Union policies and norms in order to maximise the country's international competitiveness. While most of the EU policies are not contentious, police and judicial cooperation to international law enforcement and the taxation of savings are controversial, mainly because of possible side effects on bank secrecy.
Swiss and EU finance ministers agreed in June 2003 that Swiss banks would levy a withholding tax on EU citizens' savings income. The tax would increase gradually to 35% by 2011, with 75% of the funds being transferred to the EU. Recent estimates value EU capital inflows to Switzerland to $8.3 billion.
, the World Trade Organization
, the International Monetary Fund
, the World Bank
, and the Organisation for Economic Co-operation and Development
.
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
a safe haven for investors, creating an economy that is increasingly dependent on a steady tide of foreign investment. Because of the country's small size and high labor specialisation, industry and trade are the keys to Switzerland's economic livelihood. Switzerland has achieved one of the highest per capita incomes in the world with low unemployment rates and a low budget deficit. The service sector has also come to play a significant economic role.
History
Switzerland's agrarian sector shrank during the Industrial Revolution. Its industrial sector began to grow in the mid-19th century, and had become the largest in Europe by the beginning of the 20th century. At this point, Switzerland was the wealthiest country in Europe.During World War I, Switzerland suffered an economic crisis. It was marked by a decrease in energy consumption, energy being mostly produced by coal in the 1910s, 1920s, 1930s and 1940s. The war tax was introduced. As imports were difficult, attempts were made to strengthen the Swiss economy. The cultivation of grain was promoted, and the Swiss railway became the first to use electric instead of coal-burning, steam-driven engines.
In the 1920s Switzerland's energy consumption increased.
Throughout the 1930s Switzerland's energy consumption stagnated.
In the 1940s, particularly during World War II the economy profited from the increased export and delivery of weapons to the German Reich. However, Switzerland's energy consumption decreased rapidly. The conduct of the banks cooperating with the Nazis and the commercial relations with the axis powers during the war became the subject of sharp criticism, resulting in a short period of international isolation
International isolation
International isolation is a penalty applied by the international community or a sizeable or powerful group of countries, like the United Nations, towards one nation, government or people group...
of Switzerland from the world. After World War II, Switzerland's production facilities remained to a great extent undamaged which facilitated the country's swift economic resurgence.
In the 1950s, annual GDP growth averaged 5% and Switzerland's energy consumption doubled. Coal lost its rank as Switzerland's primary energy source, as other fossil fuels such as crude and refined oil and natural and refined gas imports increased. This decade also marked the transition from an industrial economy to a service economy. Since then the service sector has been growing faster than the agrarian and industrial sectors.
In the 1960s, annual GDP growth averaged 4% and Switzerland's energy consumption doubled. By the end of the decade oil was Switzerland's primary energy source.
In the 1970s GDP growth rates gradually declined from a peak of 6.5% in 1970 until contracting 7.5% in 1975 and 1976. Switzerland became increasingly dependent on oil imported from its main supplier, the OPEC cartel. The 1973 international oil crisis caused Switzerland's energy consumption to decrease from 1973 to 1977. In 1974 there were three nationwide car-free Sundays when private transport was prohibited as a result of the oil supply shock. From 1977 onwards GDP grew, however Switzerland was also affected by the 1979 energy crisis
1979 energy crisis
The 1979 oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil...
which resulted in a short term decrease of Switzerland's energy consumption.
In the 1980s, Switzerland was affected by the hike in oil prices which resulted in a decrease of energy consumption until 1982 when the economy contracted by 1.3%. From 1983 on both GDP and energy consumption grew.
In the 1990s, Switzerland's economy was marred by slow growth, having the weakest economic growth in Western Europe
Western Europe
Western Europe is a loose term for the collection of countries in the western most region of the European continents, though this definition is context-dependent and carries cultural and political connotations. One definition describes Western Europe as a geographic entity—the region lying in the...
. The economy was affected by a 3-year-recession from 1991 to 1993 when the economy contracted by 2%, which also became apparent in Switzerland's energy consumption and export growth rates. Switzerland's economy averaged no appreciable increase (only 0.6% annually) in gross domestic product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
(GDP). After having unemployment rates lower than 1% prior to 1990, the 3-year-recession also caused the unemployment rate to rise to its all-time-peak of 5.3% in 1997. And thus, as of 2008, Switzerland is at the second place among European countries with populations above one million in terms of nominal and purchasing power parity
Purchasing power parity
In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...
Gross Domestic Product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
per capita, behind Norway
Norway
Norway , officially the Kingdom of Norway, is a Nordic unitary constitutional monarchy whose territory comprises the western portion of the Scandinavian Peninsula, Jan Mayen, and the Arctic archipelago of Svalbard and Bouvet Island. Norway has a total area of and a population of about 4.9 million...
(see list). On numerous occasions in the 1990s real wages decreased since nominal wages couldn't keep up with inflation. However, beginning in 1997, a global resurgence in currency movement provided the necessary stimulus to the Swiss economy. It slowly gained momentum and peaked in the year 2000 with 3.6% growth in real terms.
In the early 2000s recession
Early 2000s recession
The early 2000s recession was a decline in economic activity which occurred mainly in developed countries. The recession affected the European Union mostly during 2000 and 2001 and the United States mostly in 2002 and 2003. The UK, Canada and Australia avoided the recession for the most part, while...
, being so closely linked to the economies of Western Europe and the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, Switzerland was not able to escape the slowdown felt in these countries. After the worldwide stock market crashes in the wake of the 9/11 terrorism attacks there were more announcements of false enterprise statistics and exaggerated managers' wages. In 2001 the rate of growth dropped to 1.2%, to 0.4 % in 2002 and in 2003 the real GDP contracted by 0.2%. That economic slowdown had a noticeable impact on the labour market. Many companies announced mass dismissals and thus the unemployment rate rose from its low of 1.9% in June 2000 to its peak of 3.9% in October 2004, although well below the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
(EU) unemployment average of 8.9%. The consumer mood worsened and domestic consumption decreased.
The exports of goods and services in the EU and the USA decreased as a result of the Swiss Franc's appreciation in value which caused an increase in prices of exported goods and services. On the other hand Switzerland's tourism sector slumped and room occupation rates by foreign guests decreased. Besides that a deficit of market competition in many branches of Switzerland's economy persisted.
On the 10.11.2002 the economics magazine Cash published 5 measures which political and economic actors were suggested to implement so that Switzerland would once again experience an economic revival:
1. Private consumption should be promoted with decent wage increases. In addition to that families with children should get discounts on their health insurances.
2. Switzerland's national bank should revive investments by lowering interest rates. Besides that monetary institutes should increasingly credit consumers and offer cheaper land zones which are to be built on.
3. Switzerland's national bank is asked to devalue the Swiss Franc, especially compared to the Euro.
4. The government should implement the anti-cyclical measure of increasing budget deficits. Government spending should increase in the infrastructural and educational sectors. Lowering taxes would make sense in order to promote private household consumption.
5. Flexible work schedules should be instituted, thus avoiding low demand dismissals.
These measures were applied with successful results along with the government's policy of the Magical Hexagon which consists of full employment, social equality, economic growth, environmental quality, positive trade balance and price stability. The rebound which started in mid 2003 saw growth rate growth rate averaging 3% (2004 and 2005 saw a GDP growth of 2.5% and 2.6% respectively; for 2006 and 2007, the rate was 3.6%). In 2008, GDP growth was modest in the first half of the year while declining in the last two quarters. Because of the base effect, real growth came to 1.9%. While it contacted 1.9% in 2009, the economy started to pick up in Q3 and by the second quarter of 2010, it had surpassed its previous peak. Growth for 2010 stood at 2.6% The stock market collapse has deeply affected investment income earned abroad. This has translated to a substantial fall in the surplus of the current account balance. In 2006, Switzerland recorded a 15.1% per GDP surplus. It went down to 9.1% in 2007 and further dropped to 1.8% in 2008. It recovered in 2009 and 2010 with a surplus of 11.9% and 14.6% respectively. As of the frist quarter 2010, Switzerland house prices are still edging up.
This is a chart of trend of gross domestic product of Switzerland at market prices estimated by the Swiss Government with figures in millions of Swiss Francs.
| Year | Gross Domestic Product | US Dollar Exchange |
|---|---|---|
| 1980 | 184,080 | 1.67 Francs |
| 1985 | 244,421 | 2.43 Francs |
| 1990 | 330,925 | 1.38 Francs |
| 1995 | 373,599 | 1.18 Francs |
| 2000 | 422,063 | 1.68 Francs |
| 2005 | 463,799 | 1.24 Francs |
| 2006 | 490,545 | 1.25 Francs |
| 2007 | 521,068 | 1.20 Francs |
| 2008 | 547,196 | 1.08 Francs |
| 2009 | 535,282 | 1.09 Francs |
| 2010 | 546,245 | 1.04 Francs |
| 2011 | in progress | 0.75 Francs |
Sectors
The Swiss economy follows the typical First WorldFirst World
The concept of the First World first originated during the Cold War, where it was used to describe countries that were aligned with the United States. These countries were democratic and capitalistic. After the fall of the Soviet Union and the end of the Cold War, the term "First World" took on a...
model with respect to the economic sectors. Only a small minority of the workers are involved in the Primary or Agricultural sector (3.8% of the population) while a larger minority is involved in the Secondary or Manufacturing sector (23% ). The majority of the working population are involved in the Tertiary or Services sector of the economy (73.2% ). While most of the Swiss economic practices have been brought largely into conformity with the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
's policies, some trade protectionism remains, particularly for the small agricultural sector.
Industrial
Switzerland has an extensive industrial sector, it is not very well known around the world but present with companies in different industrial sectors such as food processing like NestléNestlé
Nestlé S.A. is the world's largest food and nutrition company. Founded and headquartered in Vevey, Switzerland, Nestlé originated in a 1905 merger of the Anglo-Swiss Milk Company, established in 1867 by brothers George Page and Charles Page, and Farine Lactée Henri Nestlé, founded in 1866 by Henri...
, chemical for industrial and construction use like Sika AG
Sika AG
- Introduction :Sika AG is a company headquartered in Baar, Switzerland. The company operates in two business areas:*Construction and...
, pharmaceutical like Novartis
Novartis
Novartis International AG is a multinational pharmaceutical company based in Basel, Switzerland, ranking number three in sales among the world-wide industry...
, roof coating Sarnafil, among many others.
Agriculture
Switzerland is extremely protective of its agricultural industry. High tariffs and extensive domestic subsidisations encourage domestic production, which currently produces about 60% of the food consumed in the country.
According to the Organisation for Economic Co-operation and Development
Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...
(OECD), Switzerland is subsidising more than 70% of its agriculture compared to 35% in the EU. The 2007 Agricultural Program, recently adopted by the Swiss Federal Assembly, will increase subsidies by CHF 63 million to CHF 14.092 billion.
Protectionism acts to promote domestic production, but not to reduce prices or the cost of production, and there is no guarantee the increased domestic production is actually consumed internally; it may simply be being exported, to the profit of the producers. 90 to 100% of potatoes, pork, veal, cattle and most milk products, are produced in the country. Beyond that, Swiss agriculture meets sixty-five per cent of the domestic food demand.
Prices are not reduced because, in the absence of import tariffs, the price of food would settle to that of the cheapest provider (which would often be external to Switzerland thus more costly in food miles
Food miles
Food miles is a term which refers to the distance food is transported from the time of its production until it reaches the consumer. Food miles are one factor used when assessing the environmental impact of food, including the impact on global warming....
). Import tariffs raise the price of imported food and Swiss domestic production only has to be cheaper than these artificially raised prices. The consumer pays more than they otherwise would.
The cost of production is not reduced by subsidy; it merely makes the final point-of-sale price lower than it would otherwise be, since some of the cost of production is borne by the State. However, the State obtains the money for the subsidy by taxation, which falls ultimately on the consumer. Subsidy merely alters who pays for what (although in this case it now pays for farming practices that are environmentally respectful). Furthermore, if the food products produced are in fact being exported, the subsidy of their production costs makes them unusually competitive in the world market, which increases the profits of the producers; in other words, the State is in fact taxing the local population with an outcome which is actually merely to increase the profit of food producers.
The stringent policy of agricultural protectionism is generally harmful to the workforce . Domestic agriculture acts as a shield against beneficial import of labour . Some people assert that Switzerland has a high cost of living not only in food but also rents, since much land needed for human occupation is retained by farms, but this is easily countered by statistics. About 40% of Switzerland is used for agricultural purposes, alpine pasture
Pasture
Pasture is land used for grazing. Pasture lands in the narrow sense are enclosed tracts of farmland, grazed by domesticated livestock, such as horses, cattle, sheep or swine. The vegetation of tended pasture, forage, consists mainly of grasses, with an interspersion of legumes and other forbs...
s included, and the surface of arable
Arable land
In geography and agriculture, arable land is land that can be used for growing crops. It includes all land under temporary crops , temporary meadows for mowing or pasture, land under market and kitchen gardens and land temporarily fallow...
and permanent cropland is 10.6 percent of total land area (Europe 13.4%, world 11.3% - 1998 survey). This corresponds with 61 hectares of cropland per 1,000 people (Europe 422 ha/1000 people, world 251 ha/1000 people) Thus the high rents are probably caused primarily by other factors such as the high population density and the tiny size of the country.
The first reform in agricultural policies was in 1993. Among other changes, since 1998 Switzerland has linked the attribution of farm subsidies with the strict observance of good environmental practice. Before farmers can apply for subsidies, they must obtain certificates of environmental management systems (EMS) proving that they: “make a balanced use of fertilizers; use at least 7% of their farmland as ecological compensation areas; regularly rotate crops; adopt appropriate measures to protect animals and soil; make limited and targeted use of pesticides.” 1,500 farms are driven out of business each year. But the number of organic farms increased by 3.3 percent between 2003 and 2004, and organic sales increased by 7 percent to $979 million. Moreover, Swiss consumers consider less important the drawback of higher prices for organic food compared to locally produced, conventional food.
Trade
Apart from industry, tradeTrade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
has been the key to prosperity in Switzerland.
Tourism
Switzerland has a highly developed tourism infrastructure, especially in the mountainous regionsSwiss Alps
The Swiss Alps are the portion of the Alps mountain range that lies within Switzerland. Because of their central position within the entire Alpine range, they are also known as the Central Alps....
and cities, making it a good market for tourism-related equipment and services. Tourism contributes about SF 1.5 billion to the Swiss economy every year.
Banking
In 2003, the financial sector comprised an estimated 11.6% of Switzerland's GDP and employed approximately 196,000 people (136,000 of whom work in the banking sector); this represents about 5.6% of the total Swiss workforce.Swiss neutrality
Neutral country
A neutral power in a particular war is a sovereign state which declares itself to be neutral towards the belligerents. A non-belligerent state does not need to be neutral. The rights and duties of a neutral power are defined in Sections 5 and 13 of the Hague Convention of 1907...
and national sovereignty
National sovereignty
National sovereignty is the doctrine that sovereignty belongs to and derives from the nation, an abstract entity normally linked to a physical territory and its past, present, and future citizens. It is an ideological concept or doctrine derived from liberal political theory...
, long recognized by foreign nations, have fostered a stable environment in which the banking sector was able to develop and thrive. Switzerland has maintained neutrality through both World War
World war
A world war is a war affecting the majority of the world's most powerful and populous nations. World wars span multiple countries on multiple continents, with battles fought in multiple theaters....
s, is not a member of the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
, and was not even a member of the United Nations
United Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...
until 2002.
Currently an estimated 28 percent of all funds held outside the country of origin (sometimes called "offshore
Offshore bank
An offshore bank is a bank located outside the country of residence of the depositor, typically in a low tax jurisdiction that provides financial and legal advantages. These advantages typically include:...
" funds) are kept in Switzerland. In 2009 Swiss banks managed 5.4 trillion Swiss Francs.
The Bank of International Settlements, an organization that facilitates cooperation among the world's central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
s, is headquartered in the city of Basel
Basel
Basel or Basle In the national languages of Switzerland the city is also known as Bâle , Basilea and Basilea is Switzerland's third most populous city with about 166,000 inhabitants. Located where the Swiss, French and German borders meet, Basel also has suburbs in France and Germany...
. Founded in 1930, the BIS chose to locate in Switzerland because of the country's neutrality, which was important to an organization founded by countries that had been on both sides of World War I
World War I
World War I , which was predominantly called the World War or the Great War from its occurrence until 1939, and the First World War or World War I thereafter, was a major war centred in Europe that began on 28 July 1914 and lasted until 11 November 1918...
.
Foreign banks operating in Switzerland manage 870 billion Swiss francs worth of assets .
Workforce
The Swiss economy is characterised by a skilled and generally 'peaceful' workforce. One quarter of the country's full-time workers are unionisedTrade unions in Switzerland
Compared with other Western European countries, Trade unions play a rather minor role in Switzerland with only every fourth employee organized in a union or confederation. The most important organization is the Swiss Trade Union Confederation with approximately 385,000 members and 16 individual...
. Labour and management relations are amicable, characterised by a willingness to settle disputes instead of resorting to labour action. About 600 collective bargaining agreements exist today in Switzerland and are regularly renewed without major problems.
With the peak of the number of bankruptcies in 2003, however, the mood was pessimistic. Massive layoffs and dismissals by enterprises resulting from the global economic slowdown, major management scandals and different foreign investment attitudes have strained the traditional Swiss labour peace. Swiss trade unions have encouraged strikes against several companies, including Swiss International Air Lines
Swiss International Air Lines
Swiss International Air Lines AG is the principal airline of Switzerland operating scheduled services in Europe and to North America, South America, Africa and Asia. Its main hub is Zurich Airport...
, Coca-Cola, and Orange. Total days lost to strikes, however, remain among the lowest in the OECD.
Income
Switzerland is among the world's most prosperous countries in terms of private income. In 2007 the gross median household incomeMedian household income
The median household income is commonly used to generate data about geographic areas and divides households into two equal segments with the first half of households earning less than the median household income and the other half earning more...
in Switzerland was an estimated 107,748 CHF
Swiss franc
The franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there...
, or USD 137,094 at purchasing power parity
Purchasing power parity
In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...
. The median income after social security, taxes and mandatory health insurance was 75,312 CHF, or USD 95,824 at purchasing power parity
Purchasing power parity
In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...
.
Terrorism
Through the United States-Swiss Joint Economic Commission (JEC), Switzerland has passed strict legislation covering anti-terrorism financing and the prevention of terrorist acts, marked by the implementation of several anti-money laundering procedures and the seizure of al-QaedaAl-Qaeda
Al-Qaeda is a global broad-based militant Islamist terrorist organization founded by Osama bin Laden sometime between August 1988 and late 1989. It operates as a network comprising both a multinational, stateless army and a radical Sunni Muslim movement calling for global Jihad...
accounts. Continued relationship with the United States through the JEC has brought the Swiss economy into closer proximity with that of the Western world, with mutualistic goals in terrorism prevention providing the impetus.
European Union
Apart from agriculture, there are minimal economic and trade barriers between the European Union and Switzerland. In the wake of the Swiss voters' rejection of the European Economic AreaEuropean Economic Area
The European Economic Area was established on 1 January 1994 following an agreement between the member states of the European Free Trade Association and the European Community, later the European Union . Specifically, it allows Iceland, Liechtenstein and Norway to participate in the EU's Internal...
Agreement in 1992, the Swiss Government set its sights on negotiating bilateral economic agreements with the EU. Four years of negotiations culminated in Bilaterals, a cross-platform agreement covering seven sectors: research, public procurement, technical barriers to trade, agriculture, civil aviation, land transport, and the free movement of persons. Parliament officially endorsed the Bilaterals in 1999 and it was approved by general referendum in May 2000. The agreements, which were then ratified by the European Parliament and the legislatures of its member states, entered into force on June 1, 2002. The Swiss government has since embarked on a second round of negotiations, called the Bilaterals II, which will further strengthen the two organisations' economic ties.
Switzerland has since brought most of their practices into conformity with European Union policies and norms in order to maximise the country's international competitiveness. While most of the EU policies are not contentious, police and judicial cooperation to international law enforcement and the taxation of savings are controversial, mainly because of possible side effects on bank secrecy.
Swiss and EU finance ministers agreed in June 2003 that Swiss banks would levy a withholding tax on EU citizens' savings income. The tax would increase gradually to 35% by 2011, with 75% of the funds being transferred to the EU. Recent estimates value EU capital inflows to Switzerland to $8.3 billion.
Institutional membership
Switzerland is a member of a number of international economic organizations, including the United NationsUnited Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...
, the World Trade Organization
World Trade Organization
The World Trade Organization is an organization that intends to supervise and liberalize international trade. The organization officially commenced on January 1, 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade , which commenced in 1948...
, the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
, the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, and the Organisation for Economic Co-operation and Development
Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...
.
International comparison
| Countries | Agricultural sector % |
Manufacturing sector % |
Services sector % |
Unemployment rate % |
Unemployment rate (females) % |
Unemployment rate (males) % |
Average hours worked per week |
|---|---|---|---|---|---|---|---|
| Switzerland (2006) | 3.8 | 23 | 73.2 | 4.0 | 4.7 | 3.4 | 41.6 |
| European Union-25 countries (2006) | 4.7 | 27.4 | 67.9 | 8.2 | 9 | 7.6 | 40.5 |
| Germany (2006) | 2.2 | 29.8 | 68 | 10.3 | 10.1 | 10.4 | 40.3 |
| France (2006) | 3.9 | 24.3 | 71.8 | 8.8 | 9.5 | 8.1 | 39.1 |
| Italy (2006) | 4.2 | 29.8 | 66 | 6.6 | 8.5 | 5.2 | 39.3 |
| United Kingdom (2006) | 1.3 | 22 | 76.7 | 5.3 | 4.8 | 5.7 | 42.4 |
| United States (2005) | 1.6 | 20.6 | 77.8 | 5.1 | 5.6 | 5.9 | 41 |
See also
- Science and technology in SwitzerlandScience and technology in SwitzerlandScience and technology in Switzerland play an important role in economy as very few natural resources are available in the country. The Swiss National Science Foundation, mandated by the Federal government, is the most important institute promoting scientific research.The raw output of scientific...
- Merchant Marine of SwitzerlandMerchant Marine of SwitzerlandSomewhat unusually for a landlocked country, Switzerland has a long tradition of civilian navigation, both on its lakes and rivers, and on the high seas.-Swiss inland navigation:...
- Economy of EuropeEconomy of EuropeThe economy of Europe comprises more than 731 million people in 48 different states. Like other continents, the wealth of Europe's states varies, although the poorest are well above the poorest states of other continents in terms of GDP and living standards. The difference in wealth across...
- Federation of the Swiss Watch Industry FHFederation of the Swiss Watch Industry FHThe Federation of the Swiss Watch Industry FH is the Swiss watch industry's leading trade association.-History:...
- 2000 Watt society
- Swiss National BankSwiss National BankThe Swiss National Bank is the central bank of Switzerland. It is responsible for Swiss monetary policy and for issuing Swiss franc banknotes.The names of the institution in the four official languages of the country are: ; ; ; ....
- Banking in SwitzerlandBanking in SwitzerlandAll banks in Switzerland are regulated by Swiss Financial Market Supervisory Authority , which derives its authority from a series of federal statutes...