The Swiss model puts the middle class and diversity on center stage

By Isabella Wu

Fall has come late to Switzerland this year, hot summer temperatures lingering longer than usual, into mid-September. Even before noon, shops along the exclusive Bahnhofstrasse in Zurich put up their patio umbrellas on the sidewalk to block the sun, enticing shoppers who have built up a thirst admiring the street’s furs, luxury brand watches and jewelry to take a break and enjoy a beer. Down the Bahnhofstrasse past Hermes and Cartier stands the headquarters of Swiss financial services giant UBS AG. Passers-by occasionally check the exchange rates posted next to the bank’s main entrance to see if the Swiss franc has appreciated again. Right now, Switzerland is bursting with prosperity. Over the past year and a half, investors have viewed the Swiss franc as a safe haven as precious as gold, causing the currency to appreciate by as much as 30 percent against the U.S. dollar and euro before retreating in the past month. Swiss wealth has risen in step with its currency. The question is, how? How has Switzerland, a landlocked country with a population of under 8 million people, sustained growth as the rest of the world economy stagnates and the European debt crisis threatens to bring down the continent? How has it resisted being sucked into the sphere of its huge next-door neighbor Germany — the world’s fourth largest economic entity — and how does it continue to attract large amounts of international capital?

“Switzerland is a socially stable country with low tax rates. And the companies here in Switzerland are absolutely creative and very innovative,” says UBS Group COO Ulrich Koerner. Working at a bank that moves seamlessly between Swiss customers and international markets, Koerner points to another Swiss strength: “Having the ability to adapt successfully to the changing industrial landscape is very crucial.” These factors may seem rather straightforward, but behind each one lies a unique, non-mainstream Swiss way of thinking developed over a half century that has helped the country navigate its own, distinctive course. No Industrial Policy? No Problem Industrial development comes down to a competition of speed and scale. In many countries, the government serves as the main economic driver, setting industrial policies and creating incentives and tax breaks to support targeted sectors. That’s not the case in Switzerland. “There is no industrial policy in Switzerland. Diversity is our major advantage,” says Hans Hess, president of Swissmem (the Swiss association for mechanical and electrical engineering industries), in an interview with CommonWealth Magazine. “This might be different than other countries. The Swiss believe that competitiveness and survival is the responsibility of companies,” he stresses. To the Swiss, employment is the foundation of social stability, and good jobs are created by competitive companies rather than conjured up by a labor ministry — the government is no substitute for the private sector in a competitive environment. Because of the limited size of Switzerland’s domestic market, any successful small or medium-sized enterprise (SME) must compete in the global marketplace. At the same time, Swiss SMEs average 11 employees, so even if they go bankrupt, only a small number of people lose their jobs. They can easily be reabsorbed by other companies, minimizing the impact of business failures on social stability. So what is the government’s role in all this? “The government’s responsibility is to establish conditions that give companies competitive muscle, that is creating the environment, including low taxes, talent and good education,” says Gerold Buehrer, the president of Swiss business group Economiesuisse, flexing his bicep as he talks. Economiesuisse, the country’s biggest economic association, represents more than 30,000 companies and 1.5 million workers and serves as the main conduit between the Swiss government and the private sector.