Economic Policies
#3Key Findings
With a broad set of strengths, Switzerland falls into the top ranks internationally (rank 3) with regard to economic policy. Its score on this measure has declined by 0.3 points since 2014.
The country experienced a significant decline in GDP in mid-2020, with the tourist sector feeling a particular pinch. Growth returned late in the year, and fluctuated in 2021. The economy has a dual structure, with a highly competitive and innovative export industry paired with relatively sheltered domestic industries.
The unemployment rate is very low, reaching 3% in 2021. Foreigners comprise 27% of the workforce. Employment rates are very high among men and women, though about 44% of employed women work part time. Tax rates are moderate but generate sufficient public revenue. A CO2 emissions tax was voted down by the public in a 2021 referendum.
Budgets are generally prudent. Debt rose to nearly 43% of GDP in 2021. A key issue is the unresolved trade relationship with the EU, following Switzerland’s rejection of a framework agreement updating bilateral trade treaties. Switzerland has been excluded from a key European research network as a result, hampering the country’s otherwise strong R&D system.
The country experienced a significant decline in GDP in mid-2020, with the tourist sector feeling a particular pinch. Growth returned late in the year, and fluctuated in 2021. The economy has a dual structure, with a highly competitive and innovative export industry paired with relatively sheltered domestic industries.
The unemployment rate is very low, reaching 3% in 2021. Foreigners comprise 27% of the workforce. Employment rates are very high among men and women, though about 44% of employed women work part time. Tax rates are moderate but generate sufficient public revenue. A CO2 emissions tax was voted down by the public in a 2021 referendum.
Budgets are generally prudent. Debt rose to nearly 43% of GDP in 2021. A key issue is the unresolved trade relationship with the EU, following Switzerland’s rejection of a framework agreement updating bilateral trade treaties. Switzerland has been excluded from a key European research network as a result, hampering the country’s otherwise strong R&D system.
Graph View
Graph View
How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?
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9
Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
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6
Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
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4
3
4
3
Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
2
1
1
Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
The Swiss economy is one of the most competitive economies in the world, according to rankings by the World Economic Forum (Schwab/Zah 2020) and the Lausanne based Management School (IMD, Lausanne, 2021). Switzerland has the third-highest GDP per capita (PPP), one of the highest employment rates and one of the lowest unemployment rates in the OECD (2020). This economic success story is correlated with an excellent system of public education, which includes an efficient vocational training system that also allows for students to transition into tertiary education; an expensive, but functional public healthcare system; a welfare state that provides benefits in case of unemployment, sickness, retirement and invalidity, as well as some poverty protection. The economy benefits from a social partnership, with state and employers as the main axis, while trade unions are junior partners in the system. In addition, the economic system has proven to be very resilient over recent years as well as during the pandemic.
However, productivity growth (GDP growth per capita) remains low, which is partially due to the dual structure of the Swiss economy. On the one hand, a highly competitive and innovative export industry. On the other hand, relatively sheltered domestic industries, where most employees find a job (Eberli et al. 2016; Müller 2019; OECD 2019). Finally, tourism plays a limited, but growing role in overall employment (4%). However, tourism’s contribution to gross value added was hit hard by the pandemic (3% before the pandemic, 2% in 2020). An important industry, particularly in the mountainous regions, tourism suffered from declining international demand during the pandemic (BfS 2020). In addition, critics note that most of the increase in domestic product is not due to higher productivity, but rather to the increasing volume of hours worked, which is at least partially a result of population growth (1% per year, mostly due to immigration).
The success of the Swiss economy is due to a number of factors. At the core of this success is the highly pragmatic and heterodox economic policy pursued at the federal and cantonal levels, with a tradition of successful “muddling through” (Armingeon 2017; Emmenegger 2021). In contrast to textbook economics, public policy does not care much about principles, except principles that move the economy forward and create a favorable politico-institutional context for economic development.
The major elements of the Swiss heterodoxy policy regime are protectionism, the social partnership, export-driven growth and sheltered domestic industries, a lean state and prudent fiscal policy, and hesitant active industrial policymaking.
Protectionism: Throughout the 20th century, Switzerland maintained a highly protectionist policy regime, which allowed for cartels and monopolies. The main beneficiaries of the policy regime were farmers, who were protected from global competition by high tariffs and strict non-tariff barriers, as well as small- and medium-sized businesses and service providers that produced for the domestic market. Collusive pricing was tolerated, while competition between providers and producers was limited by the diversity of cantonal regulations.
This policy of protectionism – which increasingly produced negative economic and environmental side effects – has lessened considerably since the mid-1990s due to a deliberate strategy of market liberalization, which reduced the influence of special interest groups, in particular agriculture. (Sciarini 1994).
Social partnership: Employers’ organizations and trade unions cooperate and coordinate with governments on the federal and cantonal levels, although this has varied over time (Armingeon 2011; Mach et al. 2020). This relieved the cantonal and federal states in many respects, such as mobilizing expertise, and designing and implementing labor policies. Historically, the federal government subsidized central interest organizations of capital, labor and agriculture in return for providing information and statistics, which the lean federal bureaucracy could not collect itself (Gruner 1954, 1956, 1959).
Export-driven growth and sheltered domestic industries: Like many other small nations, Switzerland opted for export-driven economic growth (Katzenstein 1985). With very few exceptions, Switzerland’s current account balance has been positive since the 1970s, implying that exports exceed imports. Until 2015, the Swiss current account balance (percentage of GDP) usually exceeded that of export-oriented Germany. In the second quarter of 2021, the balance was 5% of GDP, while Germany recorded 8% of GDP (OECD 2022). Switzerland’s main export industries are the chemical, pharmaceutical and metal industries (e.g., machines and watches). A considerable share of recent economic growth is therefore export-driven, meaning that Switzerland very dependent on export markets. However, most employees work in firms that produce for the domestic market and these domestic industries have been largely sheltered from international pressures.
A lean state that is hesitant to actively intervene in the economy, and a prudent fiscal policy that supports price stability and low debt levels: The government levies low taxes on both labor and capital, which produces relatively small tax wedges. In January 2022, the Federal Ministry of Finance reported that the tax burden at the cantonal and municipal level fell for the eighth year in a row (EFD 2022). In addition, the state generally does not intervene significantly in the business cycle. Rather, it has traditionally pursued a prudent and largely procyclical fiscal policy. The major anti-cyclical effects of public policy are due to the automatic stabilizers (in particular unemployment insurance). During the pandemic, cantonal and federal administrations provided credits to industries, which created significant anti-cyclical demand. In addition, the federal administration maintained and even expanded automatic stabilizers. For example, the federal administration supported the labor market through generous short-time work allowances and prolonged the period during which unemployment compensation could be requested. Responsibility for price stability is left to the independent National Bank, which is tasked with maintaining price stability as a primary goal, and has the tools of monetary and interest-rate policy at its disposal.
Hesitant to pursue active industrial policies: Rather than actively influencing the structure of industry, the government has restricted itself to facilitating the modernization of industries by creating favorable conditions for economic activity. In the financial industry, Switzerland has improved its surveillance of banks and set prudential banking regulations since the onset of the Great Recession in 2008.
The Switzerland’s economic policy regime has changed somewhat in recent years due to international pressure for liberalization, EU pressure to adopt European Single Market rules, rising tensions within the policy regime, Switzerland’s rocky relationship with the European Union, and the fact that the country’s welfare state is based on economic growth and immigration.
International pressure for liberalization: In general, decision-makers have pursued a very pragmatic and heterodox economic policy approach, and shown themselves willing to disregard liberal norms of policymaking if the need arises. This policy regime, which has been both liberal and protectionist, has come under pressure due to globalization and the increasing importance of international organizations, such as the WTO. Given its reliance on the export of goods and services, Switzerland has had to acquiesce to liberalization.
EU pressure to adopt European Single Market rules: Liberalization has been accelerated by bilateral treaties with the European Union. Almost all new economic policies have followed EU standards. As a consequence of globalization and Europeanization, most sectors increasingly liberalized, particularly between the mid-1990s and 2005. Agriculture offers a major case in point, though Switzerland’s agricultural sector remains one of the most subsidized in Europe.
Rising tensions within the policy regime: As a result of liberalization, one of the drivers of Switzerland’s postwar economic success – the complementarity of protected domestic-oriented industries and liberal export-oriented industries – has been weakened. The increase in tensions between the export- and domestic-oriented sectors has generally not resulted in open conflict. These developments have, however, increasingly undermined the country’s system of interest representation and the corporatist structure of interest intermediation. Interest organizations, in particular employers’ groups, have lost support and their members have increasingly turned to lobbying at the level of the individual firm.
Switzerland’s rocky relationship with the European Union: Switzerland has not yet determined its long-term relationship with the European Union. While its export-oriented economy is heavily dependent on the European Single Market and hence has to obey its rules, the majority of Swiss citizens and politicians insist on national sovereignty. In this regard the bilateral arrangement with the European Union faces major challenges. The European Union has requested new institutional structures to complement and support the bilateral relationship. It argues that the implementation and updating of bilateral agreements has become too costly as a result of delays generated by domestic conflicts. Specifically, the European Union has insisted on the creation of independent authorities to settle disputes as well as mechanisms for updating bilateral agreements without having to resort to full-scale renegotiations. In November 2018, the negotiators on both sides finished their draft of an institutional agreement. However, it turned out that there is no majority for this agreement in parliament. In May 2021, the Federal Council declined to accept this draft agreement. The European Union retaliated by cancelling research cooperation, cutting Swiss exports of medical products to the European Union and withdrawing its recognition of the Swiss stock market equivalence. In addition, negotiations to update current and future bilateral agreements (e.g., in the field of electricity markets) have basically stalled, except these updates are in the obvious interests of the European Union. Given the country’s close integration with the European Single Market, which accounts for 48% of Swiss exports and 66% of imports (2020), Switzerland is highly dependent on a well-functioning relationship with its much larger economic partner. In contrast, the European Union is much less dependent on Switzerland.
A welfare state that is based on economic growth and immigration: Broadly perceived as a laggard in the development of its welfare state, Switzerland caught up in the postwar period. Today it has a mature and generous welfare state. In a time of demographic change, this welfare state will only remain sustainable through high rates of economic growth. It is far from clear whether these high rates of growth will be realized in the future, in particular if the inflow of foreign labor from and trade with the European Union is constrained.
Citations:
ARMINGEON, K. 2011. A prematurely announced death? Swiss corporatism in comparative perspective. In: TRAMPUSCH, C. & MACH, A. (eds.) Switzerland in Europe: Continuity and Change in the Swiss Political Economy. London/New York: Routledge.
ARMINGEON, K. 2017. Wirtschafts- und Finanzpolitik. In: PETER KNOEPFEL, YANNIS PAPADOPOULOS, PASCAL SCIARINI, VATTER, A. & HÄUSERMANN, S. (eds.) Handbuch der Schweizer Politik. 6. Auflage. Zürich NZZ.
BfS 2021: Bundesamt für Statistik: https://www.bfs.admin.ch/bfs/de/home/statistiken/tourismus/monetaere-aspekte/jaehrliche-indikatoren.assetdetail.19784621.htm
EBERLI, A., EMMENEGGER, M., GRASS, M., HELD, N. & RUFER, U. R. 2015. Beitrag branchenspezifischer Effekte zum Wachstum der Schweizer Arbeitsproduktivität. Schwerpunktthema: Wachstum der Schweizer Volkswirtschaft. Strukturberichterstattung Nr. 54/1, Bern, Staatssekretariat für Wirtschaft.
EFD (Eidgenössisches Finanzdepartement) 2022: Medienmitteilung 6. Januar 2022, Bern: EFD.
EMMENEGGER, P. 2021. Wirtschafts- und Finanzpolitik. In: YANNIS PAPADOPOULOS, PASCAL SCIARINI, VATTER, A., HÄUSERMANN, S., EMMENEGGER, P. & FOSSATI, F. (eds.) Handbuch der Schweizer Politik. 7. Auflage. Zürich NZZ Libro.
GRUNER, E. (1954): Wirtschaftsverbände und Staat. Das Problem der wirtschaftlichen Interessenvertretung in historischer Sicht, in: Schweizerische Zeitschrift für Volkswirtschaft und Statistik 90, 1-27.
GRUNER, E. (1956): Die Wirtschaftsverbände in der Demokratie. Vom Wachstum der Wirtschaftsorganisationen im schweizerischen Staat. Erlenbach: Eugen Rentsch.
GRUNER, E. (1959): Der Einbau der organisierten Interessen in den Staat, in: Schweizerische Zeitschrift für Volkswirtschaft und Statistik 95, 59-79.
IMD 2021: World Competitiveness Ranking. Lausanne: IMD, https://www.imd.org/centers/world-competitiveness-center/rankings/world-competitiveness/
KATZENSTEIN, P. (1985): Small States in World Markets. Industrial Policy in Europe. Ithaca/London: Cornell University Press
MACH, A., VARONE, F. & EICHENBERGER, S. 2020. Transformations of Swiss neo-corporatism: From pre-parliamentary negotiations toward privileged pluralism in the parliamentary venue. In: CAREJA, R., EMMENEGGER, P. & GIGER, N. (eds.) The European Social Model under Pressure: Liber Amicorum in Honour of Klaus Armingeon. (Wiesbaden: Springer Fachmedien Wiesbaden, 51-68.https://doi.org/10.1007/978-3-658-27043-8_4
OECD 2019: Economic Survey Switzerland, November 2019, Paris: OECD
OECD 2022; https://data.oecd.org/trade/current-account-balance.htm
SCHWAB, K. / ZAH, S: 2020: The Global Competitiveness Report. Special edition 2020. How Countries are Performing on the Road to Recovery, Geneva: World Economic Forum, https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2020.pdf
SCIARINI, P. 1994. La Suisse face à la Communauté Européenne et au GATT: Le cas test de la politique agricole, Genève, Éditions George.
However, productivity growth (GDP growth per capita) remains low, which is partially due to the dual structure of the Swiss economy. On the one hand, a highly competitive and innovative export industry. On the other hand, relatively sheltered domestic industries, where most employees find a job (Eberli et al. 2016; Müller 2019; OECD 2019). Finally, tourism plays a limited, but growing role in overall employment (4%). However, tourism’s contribution to gross value added was hit hard by the pandemic (3% before the pandemic, 2% in 2020). An important industry, particularly in the mountainous regions, tourism suffered from declining international demand during the pandemic (BfS 2020). In addition, critics note that most of the increase in domestic product is not due to higher productivity, but rather to the increasing volume of hours worked, which is at least partially a result of population growth (1% per year, mostly due to immigration).
The success of the Swiss economy is due to a number of factors. At the core of this success is the highly pragmatic and heterodox economic policy pursued at the federal and cantonal levels, with a tradition of successful “muddling through” (Armingeon 2017; Emmenegger 2021). In contrast to textbook economics, public policy does not care much about principles, except principles that move the economy forward and create a favorable politico-institutional context for economic development.
The major elements of the Swiss heterodoxy policy regime are protectionism, the social partnership, export-driven growth and sheltered domestic industries, a lean state and prudent fiscal policy, and hesitant active industrial policymaking.
Protectionism: Throughout the 20th century, Switzerland maintained a highly protectionist policy regime, which allowed for cartels and monopolies. The main beneficiaries of the policy regime were farmers, who were protected from global competition by high tariffs and strict non-tariff barriers, as well as small- and medium-sized businesses and service providers that produced for the domestic market. Collusive pricing was tolerated, while competition between providers and producers was limited by the diversity of cantonal regulations.
This policy of protectionism – which increasingly produced negative economic and environmental side effects – has lessened considerably since the mid-1990s due to a deliberate strategy of market liberalization, which reduced the influence of special interest groups, in particular agriculture. (Sciarini 1994).
Social partnership: Employers’ organizations and trade unions cooperate and coordinate with governments on the federal and cantonal levels, although this has varied over time (Armingeon 2011; Mach et al. 2020). This relieved the cantonal and federal states in many respects, such as mobilizing expertise, and designing and implementing labor policies. Historically, the federal government subsidized central interest organizations of capital, labor and agriculture in return for providing information and statistics, which the lean federal bureaucracy could not collect itself (Gruner 1954, 1956, 1959).
Export-driven growth and sheltered domestic industries: Like many other small nations, Switzerland opted for export-driven economic growth (Katzenstein 1985). With very few exceptions, Switzerland’s current account balance has been positive since the 1970s, implying that exports exceed imports. Until 2015, the Swiss current account balance (percentage of GDP) usually exceeded that of export-oriented Germany. In the second quarter of 2021, the balance was 5% of GDP, while Germany recorded 8% of GDP (OECD 2022). Switzerland’s main export industries are the chemical, pharmaceutical and metal industries (e.g., machines and watches). A considerable share of recent economic growth is therefore export-driven, meaning that Switzerland very dependent on export markets. However, most employees work in firms that produce for the domestic market and these domestic industries have been largely sheltered from international pressures.
A lean state that is hesitant to actively intervene in the economy, and a prudent fiscal policy that supports price stability and low debt levels: The government levies low taxes on both labor and capital, which produces relatively small tax wedges. In January 2022, the Federal Ministry of Finance reported that the tax burden at the cantonal and municipal level fell for the eighth year in a row (EFD 2022). In addition, the state generally does not intervene significantly in the business cycle. Rather, it has traditionally pursued a prudent and largely procyclical fiscal policy. The major anti-cyclical effects of public policy are due to the automatic stabilizers (in particular unemployment insurance). During the pandemic, cantonal and federal administrations provided credits to industries, which created significant anti-cyclical demand. In addition, the federal administration maintained and even expanded automatic stabilizers. For example, the federal administration supported the labor market through generous short-time work allowances and prolonged the period during which unemployment compensation could be requested. Responsibility for price stability is left to the independent National Bank, which is tasked with maintaining price stability as a primary goal, and has the tools of monetary and interest-rate policy at its disposal.
Hesitant to pursue active industrial policies: Rather than actively influencing the structure of industry, the government has restricted itself to facilitating the modernization of industries by creating favorable conditions for economic activity. In the financial industry, Switzerland has improved its surveillance of banks and set prudential banking regulations since the onset of the Great Recession in 2008.
The Switzerland’s economic policy regime has changed somewhat in recent years due to international pressure for liberalization, EU pressure to adopt European Single Market rules, rising tensions within the policy regime, Switzerland’s rocky relationship with the European Union, and the fact that the country’s welfare state is based on economic growth and immigration.
International pressure for liberalization: In general, decision-makers have pursued a very pragmatic and heterodox economic policy approach, and shown themselves willing to disregard liberal norms of policymaking if the need arises. This policy regime, which has been both liberal and protectionist, has come under pressure due to globalization and the increasing importance of international organizations, such as the WTO. Given its reliance on the export of goods and services, Switzerland has had to acquiesce to liberalization.
EU pressure to adopt European Single Market rules: Liberalization has been accelerated by bilateral treaties with the European Union. Almost all new economic policies have followed EU standards. As a consequence of globalization and Europeanization, most sectors increasingly liberalized, particularly between the mid-1990s and 2005. Agriculture offers a major case in point, though Switzerland’s agricultural sector remains one of the most subsidized in Europe.
Rising tensions within the policy regime: As a result of liberalization, one of the drivers of Switzerland’s postwar economic success – the complementarity of protected domestic-oriented industries and liberal export-oriented industries – has been weakened. The increase in tensions between the export- and domestic-oriented sectors has generally not resulted in open conflict. These developments have, however, increasingly undermined the country’s system of interest representation and the corporatist structure of interest intermediation. Interest organizations, in particular employers’ groups, have lost support and their members have increasingly turned to lobbying at the level of the individual firm.
Switzerland’s rocky relationship with the European Union: Switzerland has not yet determined its long-term relationship with the European Union. While its export-oriented economy is heavily dependent on the European Single Market and hence has to obey its rules, the majority of Swiss citizens and politicians insist on national sovereignty. In this regard the bilateral arrangement with the European Union faces major challenges. The European Union has requested new institutional structures to complement and support the bilateral relationship. It argues that the implementation and updating of bilateral agreements has become too costly as a result of delays generated by domestic conflicts. Specifically, the European Union has insisted on the creation of independent authorities to settle disputes as well as mechanisms for updating bilateral agreements without having to resort to full-scale renegotiations. In November 2018, the negotiators on both sides finished their draft of an institutional agreement. However, it turned out that there is no majority for this agreement in parliament. In May 2021, the Federal Council declined to accept this draft agreement. The European Union retaliated by cancelling research cooperation, cutting Swiss exports of medical products to the European Union and withdrawing its recognition of the Swiss stock market equivalence. In addition, negotiations to update current and future bilateral agreements (e.g., in the field of electricity markets) have basically stalled, except these updates are in the obvious interests of the European Union. Given the country’s close integration with the European Single Market, which accounts for 48% of Swiss exports and 66% of imports (2020), Switzerland is highly dependent on a well-functioning relationship with its much larger economic partner. In contrast, the European Union is much less dependent on Switzerland.
A welfare state that is based on economic growth and immigration: Broadly perceived as a laggard in the development of its welfare state, Switzerland caught up in the postwar period. Today it has a mature and generous welfare state. In a time of demographic change, this welfare state will only remain sustainable through high rates of economic growth. It is far from clear whether these high rates of growth will be realized in the future, in particular if the inflow of foreign labor from and trade with the European Union is constrained.
Citations:
ARMINGEON, K. 2011. A prematurely announced death? Swiss corporatism in comparative perspective. In: TRAMPUSCH, C. & MACH, A. (eds.) Switzerland in Europe: Continuity and Change in the Swiss Political Economy. London/New York: Routledge.
ARMINGEON, K. 2017. Wirtschafts- und Finanzpolitik. In: PETER KNOEPFEL, YANNIS PAPADOPOULOS, PASCAL SCIARINI, VATTER, A. & HÄUSERMANN, S. (eds.) Handbuch der Schweizer Politik. 6. Auflage. Zürich NZZ.
BfS 2021: Bundesamt für Statistik: https://www.bfs.admin.ch/bfs/de/home/statistiken/tourismus/monetaere-aspekte/jaehrliche-indikatoren.assetdetail.19784621.htm
EBERLI, A., EMMENEGGER, M., GRASS, M., HELD, N. & RUFER, U. R. 2015. Beitrag branchenspezifischer Effekte zum Wachstum der Schweizer Arbeitsproduktivität. Schwerpunktthema: Wachstum der Schweizer Volkswirtschaft. Strukturberichterstattung Nr. 54/1, Bern, Staatssekretariat für Wirtschaft.
EFD (Eidgenössisches Finanzdepartement) 2022: Medienmitteilung 6. Januar 2022, Bern: EFD.
EMMENEGGER, P. 2021. Wirtschafts- und Finanzpolitik. In: YANNIS PAPADOPOULOS, PASCAL SCIARINI, VATTER, A., HÄUSERMANN, S., EMMENEGGER, P. & FOSSATI, F. (eds.) Handbuch der Schweizer Politik. 7. Auflage. Zürich NZZ Libro.
GRUNER, E. (1954): Wirtschaftsverbände und Staat. Das Problem der wirtschaftlichen Interessenvertretung in historischer Sicht, in: Schweizerische Zeitschrift für Volkswirtschaft und Statistik 90, 1-27.
GRUNER, E. (1956): Die Wirtschaftsverbände in der Demokratie. Vom Wachstum der Wirtschaftsorganisationen im schweizerischen Staat. Erlenbach: Eugen Rentsch.
GRUNER, E. (1959): Der Einbau der organisierten Interessen in den Staat, in: Schweizerische Zeitschrift für Volkswirtschaft und Statistik 95, 59-79.
IMD 2021: World Competitiveness Ranking. Lausanne: IMD, https://www.imd.org/centers/world-competitiveness-center/rankings/world-competitiveness/
KATZENSTEIN, P. (1985): Small States in World Markets. Industrial Policy in Europe. Ithaca/London: Cornell University Press
MACH, A., VARONE, F. & EICHENBERGER, S. 2020. Transformations of Swiss neo-corporatism: From pre-parliamentary negotiations toward privileged pluralism in the parliamentary venue. In: CAREJA, R., EMMENEGGER, P. & GIGER, N. (eds.) The European Social Model under Pressure: Liber Amicorum in Honour of Klaus Armingeon. (Wiesbaden: Springer Fachmedien Wiesbaden, 51-68.https://doi.org/10.1007/978-3-658-27043-8_4
OECD 2019: Economic Survey Switzerland, November 2019, Paris: OECD
OECD 2022; https://data.oecd.org/trade/current-account-balance.htm
SCHWAB, K. / ZAH, S: 2020: The Global Competitiveness Report. Special edition 2020. How Countries are Performing on the Road to Recovery, Geneva: World Economic Forum, https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2020.pdf
SCIARINI, P. 1994. La Suisse face à la Communauté Européenne et au GATT: Le cas test de la politique agricole, Genève, Éditions George.
Graph View
How effectively does labor market policy address unemployment?
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9
9
Successful strategies ensure unemployment is not a serious threat.
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7
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Labor market policies have been more or less successful.
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3
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Strategies against unemployment have shown little or no significant success.
2
1
1
Labor market policies have been unsuccessful and rather effected a rise in unemployment.
The Swiss labor market is very liberal, which translates into a high degree of flexibility in terms of hiring and firing. Trade unions and their representatives or allies on the firm level also have no legal ability to interfere with employers’ human-resources decisions (in contrast to Germany), and there is no minimum wage. Swiss voters rejected the establishment of a minimum wage in 2014. A particularity of the Swiss labor market is the large share of foreign workers. Foreigners comprise 27% of the labor force (2020), with an even higher share in dependent employment.
Although the “golden age” of containing unemployment by managing the flow of labor from other countries is past, the achievements of Swiss labor market policy remain remarkable. Despite the pandemic, the unemployment rate stood at 3% in 2021. Youth unemployment (i.e., unemployment among 15 to 24 year olds) is even lower than the overall unemployment rate (2.5% in 2021). The share of long-term (i.e., more than 12 months) unemployed persons in total unemployment has increased from around 15% before the pandemic to 23% in 2021.
In the third quarter of 2021, the employment rate (the ratio of employed to the working-age population) stood at 80%, which was the third highest in Europe (behind Iceland and the Netherlands) (OECD 2022a). In addition, the overall employment rate of women has increased dramatically in recent decades. In 2021, Switzerland had a female employment rate of 76%. In the OECD, only Iceland and the Netherlands report a higher female employment rate. Likewise, Switzerland was successful in keeping older age groups in employment, avoiding major exits due to early retirement. A report on the effects of the free movement of labor between the European Union and Switzerland found that in general strong immigration from the European Union did not endanger the employment prospects of domestic workers. Most EU immigrants from northern, western and eastern Europe are highly skilled, with two-thirds having finished tertiary education compared to 37% of Swiss citizens. (Observatorium zum Freizügigkeitsabkommen Schweiz-EU 2019). During the pandemic, it became obvious that the Swiss healthcare sector critically depends on the immigration of healthcare professionals from EU member states (Observatorium zum Freizügigkeitsabkommen Schweiz-EU 2021). There is a very strong bimodal distribution of foreign labor by education. The share of immigrants with tertiary and very low educational achievement is far higher than in the Swiss labor force. The recent increase in the immigration of highly qualified labor from the European Union is dramatic.
Nevertheless, several major challenges are evident. The high employment rate is due to a particularly high share of part-time work. In 2020, about 11% of employed men and 44% of employed women worked part-time (i.e., less than 30 hours a week). Only the Netherlands has a higher rate of female part-time employment (OECD 2022b). Unemployment rates are highest among low-skilled foreign workers. Also, there remains considerable wage inequality between men and women. The median wage of female workers is 88% (2016) of their male counterparts. Some studies arrive at the conclusion that only 57% of this difference is due to objective aspects such as education.
Highly skilled workers from EU member states pose few challenges for Swiss labor market policy, particularly since these employees are quite likely to return to their native country after a period of employment in Switzerland. In contrast, low-skilled foreign workers tend to stay in the country even if they become unemployed.
Citations:
Combe, B. & Oesch, Daniel 2019: Die Lohnungleichheit zwischen Frauen und Männern beginnt lange vor der Familiengründung, Lausanne: NCCR Lives
CUENI, D. & SHELDON, G. 2011. Arbeitsmarktintegration von EU/EFTA-Bürgerinnen und Bürgern in der Schweiz. Schlussbericht zu einer Studie im Auftrag des Bundesamtes für Migration (BFM), Basel, FORSCHUNGSSTELLE FÜR ARBEITSMARKT – UND INDUSTRIEÖKONOMIK (FAI).
FELFE, Christina et al. 2015. Studie zu den statistischen Analysen der Eidgenossenschaft betreffend die Lohngleichheit von Frau und Mann, im Auftrag des Eidgenössischen Büros für die Gleichstellung von Frau und Mann, St. Gallen: Universität St. Gallen.
Observatorium zum Freizügigkeitsabkommen Schweiz-EU (2019): 15. Bericht des Observatoriums zum Freizügigkeitsabkommen Schweiz-EU. Auswirkungen der Personenfreizügigkeit auf den Schweizer Arbeitsmarkt, Bern: Schweizerische Eidgenossenschaft.
Observatorium zum Freizügigkeitsabkommen Schweiz-EU (2021): 17. Bericht des Observatoriums zum Freizügigkeitsabkommen Schweiz-EU. Auswirkungen der Personenfreizügigkeit auf den Schweizer Arbeitsmarkt, Bern: Schweizerische Eidgenossenschaft.
OECD 2022a: https://data.oecd.org/emp/employment-rate.htm
OECD 2022b:https://data.oecd.org/emp/part-time-employment-rate.htm.
SECO 2021: Die Lage auf dem Arbeitsmarkt (December ), Bern: SECO https://www.newsd.admin.ch/newsd/message/attachments/69848.pdf, see also : https://www.newsd.admin.ch/newsd/message/attachments/69854.pdf; https://www.seco.admin.ch/seco/de/home/seco/nsb-news.msg-id-86721.html
Wanner P. and I. Steiner (2018). Ein spektakulärer Anstieg der hochqualifizierten Zuwanderung in die Schweiz. Social Change in Switzerland No 16. Retrieved from https://wwww.socialchangeswitzerland.ch DOI: 10.22019/SC-2018-00008
Although the “golden age” of containing unemployment by managing the flow of labor from other countries is past, the achievements of Swiss labor market policy remain remarkable. Despite the pandemic, the unemployment rate stood at 3% in 2021. Youth unemployment (i.e., unemployment among 15 to 24 year olds) is even lower than the overall unemployment rate (2.5% in 2021). The share of long-term (i.e., more than 12 months) unemployed persons in total unemployment has increased from around 15% before the pandemic to 23% in 2021.
In the third quarter of 2021, the employment rate (the ratio of employed to the working-age population) stood at 80%, which was the third highest in Europe (behind Iceland and the Netherlands) (OECD 2022a). In addition, the overall employment rate of women has increased dramatically in recent decades. In 2021, Switzerland had a female employment rate of 76%. In the OECD, only Iceland and the Netherlands report a higher female employment rate. Likewise, Switzerland was successful in keeping older age groups in employment, avoiding major exits due to early retirement. A report on the effects of the free movement of labor between the European Union and Switzerland found that in general strong immigration from the European Union did not endanger the employment prospects of domestic workers. Most EU immigrants from northern, western and eastern Europe are highly skilled, with two-thirds having finished tertiary education compared to 37% of Swiss citizens. (Observatorium zum Freizügigkeitsabkommen Schweiz-EU 2019). During the pandemic, it became obvious that the Swiss healthcare sector critically depends on the immigration of healthcare professionals from EU member states (Observatorium zum Freizügigkeitsabkommen Schweiz-EU 2021). There is a very strong bimodal distribution of foreign labor by education. The share of immigrants with tertiary and very low educational achievement is far higher than in the Swiss labor force. The recent increase in the immigration of highly qualified labor from the European Union is dramatic.
Nevertheless, several major challenges are evident. The high employment rate is due to a particularly high share of part-time work. In 2020, about 11% of employed men and 44% of employed women worked part-time (i.e., less than 30 hours a week). Only the Netherlands has a higher rate of female part-time employment (OECD 2022b). Unemployment rates are highest among low-skilled foreign workers. Also, there remains considerable wage inequality between men and women. The median wage of female workers is 88% (2016) of their male counterparts. Some studies arrive at the conclusion that only 57% of this difference is due to objective aspects such as education.
Highly skilled workers from EU member states pose few challenges for Swiss labor market policy, particularly since these employees are quite likely to return to their native country after a period of employment in Switzerland. In contrast, low-skilled foreign workers tend to stay in the country even if they become unemployed.
Citations:
Combe, B. & Oesch, Daniel 2019: Die Lohnungleichheit zwischen Frauen und Männern beginnt lange vor der Familiengründung, Lausanne: NCCR Lives
CUENI, D. & SHELDON, G. 2011. Arbeitsmarktintegration von EU/EFTA-Bürgerinnen und Bürgern in der Schweiz. Schlussbericht zu einer Studie im Auftrag des Bundesamtes für Migration (BFM), Basel, FORSCHUNGSSTELLE FÜR ARBEITSMARKT – UND INDUSTRIEÖKONOMIK (FAI).
FELFE, Christina et al. 2015. Studie zu den statistischen Analysen der Eidgenossenschaft betreffend die Lohngleichheit von Frau und Mann, im Auftrag des Eidgenössischen Büros für die Gleichstellung von Frau und Mann, St. Gallen: Universität St. Gallen.
Observatorium zum Freizügigkeitsabkommen Schweiz-EU (2019): 15. Bericht des Observatoriums zum Freizügigkeitsabkommen Schweiz-EU. Auswirkungen der Personenfreizügigkeit auf den Schweizer Arbeitsmarkt, Bern: Schweizerische Eidgenossenschaft.
Observatorium zum Freizügigkeitsabkommen Schweiz-EU (2021): 17. Bericht des Observatoriums zum Freizügigkeitsabkommen Schweiz-EU. Auswirkungen der Personenfreizügigkeit auf den Schweizer Arbeitsmarkt, Bern: Schweizerische Eidgenossenschaft.
OECD 2022a: https://data.oecd.org/emp/employment-rate.htm
OECD 2022b:https://data.oecd.org/emp/part-time-employment-rate.htm.
SECO 2021: Die Lage auf dem Arbeitsmarkt (December ), Bern: SECO https://www.newsd.admin.ch/newsd/message/attachments/69848.pdf, see also : https://www.newsd.admin.ch/newsd/message/attachments/69854.pdf; https://www.seco.admin.ch/seco/de/home/seco/nsb-news.msg-id-86721.html
Wanner P. and I. Steiner (2018). Ein spektakulärer Anstieg der hochqualifizierten Zuwanderung in die Schweiz. Social Change in Switzerland No 16. Retrieved from https://wwww.socialchangeswitzerland.ch DOI: 10.22019/SC-2018-00008
Graph View
How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?
10
9
9
Taxation policy fully achieves the objectives.
8
7
6
7
6
Taxation policy largely achieves the objectives.
5
4
3
4
3
Taxation policy partially achieves the objectives.
2
1
1
Taxation policy does not achieve the objectives at all.
The Swiss tax ratio is significantly below the OECD average, and tax rates, particularly for business, are moderate. Tax burdens are declining (EFD 2022). Taxation policies are competitive and generate sufficient public revenues. Nonetheless, it is important to note that due to the principle of federalism, tax rates can differ substantially between regions, as individual cantons and local communities have the power to set regional tax levels.
It should be noted that Switzerland’s apparently small government revenue as a percent of GDP can be attributed in part to the way in which the statistics are calculated. Contributions to the occupational pension system (the so-called second pillar) and the health insurance program – which are non-state organizations – are excluded from government revenue calculations. The share of government revenue as a percent of GDP would be about ten percentage points higher if contributions to these two programs were included. This would bring Switzerland up to the OECD average in terms of public revenue.
Tax policy does not impede competitiveness. Switzerland ranks at the top of competitiveness indexes, and given its low level of taxation is highly attractive for corporate and personal taxpayers both domestically and internationally. Tax policy has contributed to a balance between revenues and expenditures.
The country’s tax policy has come under scrutiny from the OECD and European Union for treating domestic and some international firms differently on the cantonal level. These international firms have their regional headquarters in Switzerland – employing more than 150,000 and contributing substantially to tax revenue – but do most of their business abroad. Examples includes Accor, Hewlett Packard, Philip Morris, C&A, Google and eBay. In response to the scrutiny, the federal government introduced a reform of corporate-taxation policy. This first reform proposal failed in a popular vote in 2017. A large share of survey respondents attributed its failure to the sense that the reform was biased in favor of large enterprises and “the rich.” In 2017, a quid pro quo was agreed to. The tax reductions of the original reform proposal have been largely retained. In order to win the support of politicians on the political left, contributions to the first pillar of the pension system (AHV) will be increased by the same amount as taxes are reduced for firms. These additional resources for the AHV will be generated through increased contributions from the federal state as well as from increased social security contributions from employers and workers. This compensation deal was accepted by popular vote in May 2019.
Another major tax issue with constitutional implications involve tax rates for married couples which, under certain circumstances, may be higher than those of unmarried couples. A popular vote for a reform of this issue in 2017 failed by a narrow margin, possibly as a result of erroneous information provided by the federal government regarding the number of persons affected. An April 2019 ruling by the Federal Supreme Court abrogated the outcome of the 2017 referendum. This marks the first time in Switzerland’s history that a popular vote was annulled by the Federal Supreme Court. The fact that specific cantons attract certain companies and wealthy foreigners by offering them preferential tax advantages is another instance of differential treatment in tax policy.
In 2021, the Swiss government agreed to cooperate with the OECD’s Inclusive Framework, which involves implementing the global minimum tax of 15% with regard to major international firms. The Swiss finance minister joined forces with other countries to keep these minimum taxes as low as possible, stating that this tax may be bearable if Switzerland successfully pursues compensatory strategies. Parliament will discuss legislation in 2023 that will be subject to popular vote most likely in 2024 (NZZ 15 October 2021).
Tax policy has been used as a leverage in environmental policy. Among OECD countries, Switzerland comes closest to aligning its pricing of CO2 emissions with international climate cost benchmarks and is making further improvements in this area. After the first chamber of parliament failed to draft new and efficient CO2 legislation in December 2018, the second chamber drafted a far-reaching law in the fall of 2019. This draft law was enacted in December 2019. However, it did not survive a popular vote in 2021. This means that, at the time of writing, a major attempt to use tax policy for environmental purposes has failed. The government proposed a new law in December 2021, substantially watering down the failed CO2 law and renouncing any new attempts to tax on CO2 emissions.
In its most recent country survey, the OECD suggested reducing direct taxes on low-income individuals as a growth-friendly strategy that would also remove disincentives for second earners. This could be financed by making greater use of value-added tax, recurrent tax on immovable property and environmental taxes. However, there are considerable doubts as to whether these reforms will find a majority in Switzerland (OECD 2019).
A major reform project concerns the abolition of taxes on owner-occupied rental value. For decades, the Homeowners Association sought to eliminate this tax, while retaining as many of the concurrent tax deductions for renovations and debt service as possible. Despite support from some politicians on the political center and right, they failed though. At the time of writing, another reform attempt has been launched. In a complex web of different political forces – cantonal ministries of finance, the political left, craftsmen in the construction sector, banks and insurance companies that issue mortgages, homeowners, and some center-right politicians – the reform may also fail.
In summary, Swiss tax policy provides sufficient financial resources for the country. With minor exceptions, it does not discriminate against economic actors with similar tax-paying abilities, and it strongly promotes the country’s competitive position. A major setback for tax policy as environmental policy happened in 2021, when the so-called CO2 law was rejected in a popular vote. Probably even more than in other democracies, tax reforms – which are set separately by municipal, cantonal and federal actors – are very hard to realize, irrespective of whether the policies are in the interest of low- or high-income groups, or in the interest of broadly accepted environmental goals. There is a multitude of decisive actors given that taxes are set separately on the municipal, cantonal and federal level, and given the reform-averse effects of direct democracy.
Citations:
EFD (Eidgenössisches Finanzdepartement) 2022: Medienmitteilung 6. Januar 2022, Bern: EFD.
OECD 2019: OECD Economic Surveys Switzerland, November 2019, Paris: OECD
https://www.bfs.admin.ch/bfs/de/home/statistiken/oeffentliche-verwaltung-finanzen/ausgaben-schulden.html
https://www.efv.admin.ch/efv/de/home/finanzberichterstattung/finanzberichte/staatsrechnung.html
It should be noted that Switzerland’s apparently small government revenue as a percent of GDP can be attributed in part to the way in which the statistics are calculated. Contributions to the occupational pension system (the so-called second pillar) and the health insurance program – which are non-state organizations – are excluded from government revenue calculations. The share of government revenue as a percent of GDP would be about ten percentage points higher if contributions to these two programs were included. This would bring Switzerland up to the OECD average in terms of public revenue.
Tax policy does not impede competitiveness. Switzerland ranks at the top of competitiveness indexes, and given its low level of taxation is highly attractive for corporate and personal taxpayers both domestically and internationally. Tax policy has contributed to a balance between revenues and expenditures.
The country’s tax policy has come under scrutiny from the OECD and European Union for treating domestic and some international firms differently on the cantonal level. These international firms have their regional headquarters in Switzerland – employing more than 150,000 and contributing substantially to tax revenue – but do most of their business abroad. Examples includes Accor, Hewlett Packard, Philip Morris, C&A, Google and eBay. In response to the scrutiny, the federal government introduced a reform of corporate-taxation policy. This first reform proposal failed in a popular vote in 2017. A large share of survey respondents attributed its failure to the sense that the reform was biased in favor of large enterprises and “the rich.” In 2017, a quid pro quo was agreed to. The tax reductions of the original reform proposal have been largely retained. In order to win the support of politicians on the political left, contributions to the first pillar of the pension system (AHV) will be increased by the same amount as taxes are reduced for firms. These additional resources for the AHV will be generated through increased contributions from the federal state as well as from increased social security contributions from employers and workers. This compensation deal was accepted by popular vote in May 2019.
Another major tax issue with constitutional implications involve tax rates for married couples which, under certain circumstances, may be higher than those of unmarried couples. A popular vote for a reform of this issue in 2017 failed by a narrow margin, possibly as a result of erroneous information provided by the federal government regarding the number of persons affected. An April 2019 ruling by the Federal Supreme Court abrogated the outcome of the 2017 referendum. This marks the first time in Switzerland’s history that a popular vote was annulled by the Federal Supreme Court. The fact that specific cantons attract certain companies and wealthy foreigners by offering them preferential tax advantages is another instance of differential treatment in tax policy.
In 2021, the Swiss government agreed to cooperate with the OECD’s Inclusive Framework, which involves implementing the global minimum tax of 15% with regard to major international firms. The Swiss finance minister joined forces with other countries to keep these minimum taxes as low as possible, stating that this tax may be bearable if Switzerland successfully pursues compensatory strategies. Parliament will discuss legislation in 2023 that will be subject to popular vote most likely in 2024 (NZZ 15 October 2021).
Tax policy has been used as a leverage in environmental policy. Among OECD countries, Switzerland comes closest to aligning its pricing of CO2 emissions with international climate cost benchmarks and is making further improvements in this area. After the first chamber of parliament failed to draft new and efficient CO2 legislation in December 2018, the second chamber drafted a far-reaching law in the fall of 2019. This draft law was enacted in December 2019. However, it did not survive a popular vote in 2021. This means that, at the time of writing, a major attempt to use tax policy for environmental purposes has failed. The government proposed a new law in December 2021, substantially watering down the failed CO2 law and renouncing any new attempts to tax on CO2 emissions.
In its most recent country survey, the OECD suggested reducing direct taxes on low-income individuals as a growth-friendly strategy that would also remove disincentives for second earners. This could be financed by making greater use of value-added tax, recurrent tax on immovable property and environmental taxes. However, there are considerable doubts as to whether these reforms will find a majority in Switzerland (OECD 2019).
A major reform project concerns the abolition of taxes on owner-occupied rental value. For decades, the Homeowners Association sought to eliminate this tax, while retaining as many of the concurrent tax deductions for renovations and debt service as possible. Despite support from some politicians on the political center and right, they failed though. At the time of writing, another reform attempt has been launched. In a complex web of different political forces – cantonal ministries of finance, the political left, craftsmen in the construction sector, banks and insurance companies that issue mortgages, homeowners, and some center-right politicians – the reform may also fail.
In summary, Swiss tax policy provides sufficient financial resources for the country. With minor exceptions, it does not discriminate against economic actors with similar tax-paying abilities, and it strongly promotes the country’s competitive position. A major setback for tax policy as environmental policy happened in 2021, when the so-called CO2 law was rejected in a popular vote. Probably even more than in other democracies, tax reforms – which are set separately by municipal, cantonal and federal actors – are very hard to realize, irrespective of whether the policies are in the interest of low- or high-income groups, or in the interest of broadly accepted environmental goals. There is a multitude of decisive actors given that taxes are set separately on the municipal, cantonal and federal level, and given the reform-averse effects of direct democracy.
Citations:
EFD (Eidgenössisches Finanzdepartement) 2022: Medienmitteilung 6. Januar 2022, Bern: EFD.
OECD 2019: OECD Economic Surveys Switzerland, November 2019, Paris: OECD
https://www.bfs.admin.ch/bfs/de/home/statistiken/oeffentliche-verwaltung-finanzen/ausgaben-schulden.html
https://www.efv.admin.ch/efv/de/home/finanzberichterstattung/finanzberichte/staatsrechnung.html
Graph View
To what extent does budgetary policy realize the goal of fiscal sustainability?
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9
9
Budgetary policy is fiscally sustainable.
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7
6
7
6
Budgetary policy achieves most standards of fiscal sustainability.
5
4
3
4
3
Budgetary policy achieves some standards of fiscal sustainability.
2
1
1
Budgetary policy is fiscally unsustainable.
Budgetary policy in Switzerland is fiscally sustainable. According to OECD data, general government gross debt rose from a low 33% of GDP in 1990 to a peak of 58% in 2004, but fell again to 41% in 2019. During the pandemic, debt increased to almost 43% in 2021, but is expected to return to lower levels soon. Structurally adjusted budgets were balanced even during the crisis of 2008 and 2009. During the pandemic, deficits increased temporarily. It must be noted that the Swiss federal state is very slim by international comparison. Only around one-third of state expenditure is spent by the federal government. Since the turn of the century, the federal budget has almost always been in the black or at least balanced, with the government spending less than it has received – excluding 2002 to 2004 and during the pandemic (EFD 2021). Often, the federal budget surplus, as well as those of cantons and most municipalities, has been much better than anticipated.
This fiscal sustainability is mainly due to the political decision to have a low tax load and a lean state. In addition, keeping the public deficit and debt low has been a major concern of politicians at all levels of the political system. Various rules and structures have been developed to avoid the dynamics of expanding budgets. For example, on the federal level, there is the constitutional debt brake (Article 126): “The maximum of the total expenditures which may be budgeted shall be determined by the expected receipts, taking into account the economic situation.” Direct democracy offers another effective means of keeping the budget within limits. In popular votes, people have proven reluctant (compared in particular to members of parliaments when elections are drawing near) to support the expansion of state tasks with a corresponding rise in taxes and/or public debt.
In spite of the country’s very favorable fiscal position, the Federal Council pursues a very prudent fiscal policy. Even taking into account the fact that some individual cantonal and municipal governments do pursue unsustainable budgetary policies, the total (i.e., general government) budgetary policy achievement arguably puts Switzerland in the OECD’s top group in terms of fiscally sustainable national policies. In its recent country survey, the OECD praises Switzerland’s budgetary policy, but it also notes that, in the past, authorities tended to skew policy in ways tighter than intended. It suggests making greater use of available fiscal leverage in order to inter alia improve economic and social outcomes, which includes increased spending on vocational training and social inclusion (OECD 2019: 34-35).
Citations:
IMF 2021: https://www.imf.org/en/Publications/WEO/weo-database/2021/October
OECD 2019: Economic Survey Switzerland, November 2019, Paris: OECD
EFD 2021: https://www.efv.admin.ch/efv/en/home/themen/finanzstatistik/uebersicht-staatsfinanzen.html
This fiscal sustainability is mainly due to the political decision to have a low tax load and a lean state. In addition, keeping the public deficit and debt low has been a major concern of politicians at all levels of the political system. Various rules and structures have been developed to avoid the dynamics of expanding budgets. For example, on the federal level, there is the constitutional debt brake (Article 126): “The maximum of the total expenditures which may be budgeted shall be determined by the expected receipts, taking into account the economic situation.” Direct democracy offers another effective means of keeping the budget within limits. In popular votes, people have proven reluctant (compared in particular to members of parliaments when elections are drawing near) to support the expansion of state tasks with a corresponding rise in taxes and/or public debt.
In spite of the country’s very favorable fiscal position, the Federal Council pursues a very prudent fiscal policy. Even taking into account the fact that some individual cantonal and municipal governments do pursue unsustainable budgetary policies, the total (i.e., general government) budgetary policy achievement arguably puts Switzerland in the OECD’s top group in terms of fiscally sustainable national policies. In its recent country survey, the OECD praises Switzerland’s budgetary policy, but it also notes that, in the past, authorities tended to skew policy in ways tighter than intended. It suggests making greater use of available fiscal leverage in order to inter alia improve economic and social outcomes, which includes increased spending on vocational training and social inclusion (OECD 2019: 34-35).
Citations:
IMF 2021: https://www.imf.org/en/Publications/WEO/weo-database/2021/October
OECD 2019: Economic Survey Switzerland, November 2019, Paris: OECD
EFD 2021: https://www.efv.admin.ch/efv/en/home/themen/finanzstatistik/uebersicht-staatsfinanzen.html
Graph View
To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?
10
9
9
Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
8
7
6
7
6
Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
5
4
3
4
3
Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
2
1
1
Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
Switzerland’s achievement in terms of innovation is considerable. It spends 3.2% of GDP (2019) on research and development, as compared to the EU average of 2.1% (2019; OECD 2022; BfS 2021). In the period between 2000 and 2017, the growth rate of expenditures on R&D exceeded the growth rate of GDP. Standardized by the number of inhabitants, Switzerland is an international leader in patent applications, with strengths in health technologies and biotechnology. 68% of research spending is corporate spending with the direct aim of economic innovation, an important factor in the country’s strong overall competitiveness. With a share of about 29%, public research funding plays a lesser role than in other European countries, but public spending on research is increasing. It depends on five main actors: the cantonal universities, the two federal institutes of technology, the National Science Foundation, the Federal Commission for Technology and Innovation, and the academies of sciences. These actors are independent of each other but cooperate based on complementarity and (limited) competition. The various institutions are highly autonomous, and research policies and processes are driven by bottom-up operations. Thus, Swiss research policy is not centralized, but rather relies on a concept of decentralized innovation with periodic intervention by the federal government. The output of the research system is impressive. The Federal Institutes of Technology Zürich and Lausanne belong to the top-ranked universities in the world, and the universities of Basel, Bern, Geneva and Zürich regularly appear on the list of the 150 best universities worldwide.
In the recent tender for European Research Council grants, Switzerland was the fifth most successful nation along with Italy, winning 28 grants, behind Germany (72), France (53), the United Kingdom (46) and the Netherlands (44).
However, Switzerland was excluded from the European research agreement due to its rejection of a new framework agreement governing the updating of bilateral treaties. As such, successful Swiss researchers will not receive their grant from the European Union, although this will be compensated by Swiss sources (NZZ 12 January 2022). This decision, which was taken in 2021 to exclude Switzerland from the European research program Horizon Europe, represents a major blow to the Swiss research community, which fears not only the lack of funding but also the inability to access European networks (RTS Info, 26 January 2022). This isolation from the European research community represents a major challenge for Switzerland, which must remain competitive and attractive in terms of research and development in order to continue to attract the international talent on which its universities, federal institutes and industries depend.
A number of other deficits persist, such as coordination among universities and the new universities of applied sciences as well as the weakness in social science and humanities research relative to that conducted in the natural sciences and technologically.
In 2016, the federal government defined its research and innovation goals for the coming four years: increased support for (1) continuing education in vocational training, (2) young academics, (3) training in medicine and (4) innovation. Resources for education, research and innovation should grow by 2% annually.
Citations:
Bundesamt für Statistik 2019: Forschung und Entwicklung in der Schweiz 2017 Finanzen und Personal, Neuchatel: Bundesamt für Statistik
Bundesamt für Statistik 2021: Forschung und Entwicklung in der Schweiz. https://www.bfs.admin.ch/bfs/de/home/statistiken/volkswirtschaft/forschung-entwicklung.assetdetail.17164247.html, see also: https://www.bfs.admin.ch/bfs/de/home/statistiken/bildung-wissenschaft/technologie.html
OECD 2022: Main Science and Technology Indicators, Paris:OECD
RTS Info: Horizon Europe “Nous vivons les premiers revers,” alerte la recherche. https://www.rts.ch/info/suisse/12817546-horizon-europe-nous-vivons-les-premiers-revers-alerte-la-recherche.html
In the recent tender for European Research Council grants, Switzerland was the fifth most successful nation along with Italy, winning 28 grants, behind Germany (72), France (53), the United Kingdom (46) and the Netherlands (44).
However, Switzerland was excluded from the European research agreement due to its rejection of a new framework agreement governing the updating of bilateral treaties. As such, successful Swiss researchers will not receive their grant from the European Union, although this will be compensated by Swiss sources (NZZ 12 January 2022). This decision, which was taken in 2021 to exclude Switzerland from the European research program Horizon Europe, represents a major blow to the Swiss research community, which fears not only the lack of funding but also the inability to access European networks (RTS Info, 26 January 2022). This isolation from the European research community represents a major challenge for Switzerland, which must remain competitive and attractive in terms of research and development in order to continue to attract the international talent on which its universities, federal institutes and industries depend.
A number of other deficits persist, such as coordination among universities and the new universities of applied sciences as well as the weakness in social science and humanities research relative to that conducted in the natural sciences and technologically.
In 2016, the federal government defined its research and innovation goals for the coming four years: increased support for (1) continuing education in vocational training, (2) young academics, (3) training in medicine and (4) innovation. Resources for education, research and innovation should grow by 2% annually.
Citations:
Bundesamt für Statistik 2019: Forschung und Entwicklung in der Schweiz 2017 Finanzen und Personal, Neuchatel: Bundesamt für Statistik
Bundesamt für Statistik 2021: Forschung und Entwicklung in der Schweiz. https://www.bfs.admin.ch/bfs/de/home/statistiken/volkswirtschaft/forschung-entwicklung.assetdetail.17164247.html, see also: https://www.bfs.admin.ch/bfs/de/home/statistiken/bildung-wissenschaft/technologie.html
OECD 2022: Main Science and Technology Indicators, Paris:OECD
RTS Info: Horizon Europe “Nous vivons les premiers revers,” alerte la recherche. https://www.rts.ch/info/suisse/12817546-horizon-europe-nous-vivons-les-premiers-revers-alerte-la-recherche.html
Graph View
To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?
10
9
9
The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
8
7
6
7
6
The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
5
4
3
4
3
The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
2
1
1
The government does not contribute to improving the regulation and supervision of financial markets.
Switzerland is one of the world’s most significant financial markets. Swiss banks such as UBS and Credit Suisse are global financial players. The post-2007 global crisis and the economic problems of UBS in Switzerland – which forced the Swiss government to intervene massively in order to avoid bankruptcy of this major bank in 2008 – triggered banking reforms. The federal government, bankers and international organizations such as the OECD claim that Swiss private and public actors have been active on the global level in reforming the international banking system, in particular in interaction with regulatory bodies in the United Kingdom, United States and European Union.
After the financial crisis of 2007 and 2008, the government introduced measures to deal with the problem of banks being “too big to fail.” Though it remains unclear whether these new rules and institutions will be sufficient in the event of a major crisis, the Swiss approach numbers among the most sound and prudent systems of regulation worldwide. Switzerland proved very active in regulating new financial technologies (distributed-ledger technologies).
In September 2020, parliament passed the distributed-ledger technology (DLT) blanket act, which selectively adapts 10 existing federal laws. In June 2021, the Federal Council brought the Federal Act on the Adaptation of Federal Law to Developments in Distributed Electronic Register Technology into full force. This will allow for innovative DLT trading facilities and increase legal certainty in the event of bankruptcy (Federal Council 2021).
Citations:
Federal Council 2021: Federal Council brings DLT Act fully into force and issues ordinance, https://www.sif.admin.ch/sif/en/home/documentation/press-releases/medienmitteilungen.msg-id-84035.html
OECD 2019: Economic Surveys. Switzerland, November 2019, Paris: OECD
After the financial crisis of 2007 and 2008, the government introduced measures to deal with the problem of banks being “too big to fail.” Though it remains unclear whether these new rules and institutions will be sufficient in the event of a major crisis, the Swiss approach numbers among the most sound and prudent systems of regulation worldwide. Switzerland proved very active in regulating new financial technologies (distributed-ledger technologies).
In September 2020, parliament passed the distributed-ledger technology (DLT) blanket act, which selectively adapts 10 existing federal laws. In June 2021, the Federal Council brought the Federal Act on the Adaptation of Federal Law to Developments in Distributed Electronic Register Technology into full force. This will allow for innovative DLT trading facilities and increase legal certainty in the event of bankruptcy (Federal Council 2021).
Citations:
Federal Council 2021: Federal Council brings DLT Act fully into force and issues ordinance, https://www.sif.admin.ch/sif/en/home/documentation/press-releases/medienmitteilungen.msg-id-84035.html
OECD 2019: Economic Surveys. Switzerland, November 2019, Paris: OECD