The secret of Switzerland’s competitiveness

The World Economic Forum’s Global Competitiveness Report has long singled out Switzerland for its extraordinary competitiveness. This is Switzerland’s fifth year at the top of the rankings, marking a propitious time to take a closer look at what makes this small European country so successful.

Switzerland does consistently well across the many areas that make a country productive and economically resilient. Indeed, compared with the challenges being faced by many advanced economies in Europe and elsewhere, and despite being surrounded by countries struggling with managing the euro’s difficulties, Switzerland has maintained an impressive growth performance and enviably low unemployment of just 4.2%. While many qualities drive this exceptional performance, three of the most important drivers can be singled out:  the excellence of its institutions, the dynamism of its markets and its strong capacity for innovation.

Public institutions in Switzerland are among the most effective and transparent in the world. One thing that sets the country apart from any other is its unique governance structure. With seven members of the Federal Council acting more or less as a collective head of state, and the country being run under a highly decentralized form of federalism that is able to achieve high degrees of engagement among voters, the political system lends itself well to formulating and implementing long-term economic agendas.

Switzerland’s enduring competitiveness is further explained by its highly sophisticated business environment. This is supported by well-functioning labour and financial markets, which help Swiss companies offer high-quality products and compete across a very sophisticated product range. From financial and insurance services and watchmaking to industrial machines and pharmaceuticals, Swiss companies have been successful in maintaining the market share of Swiss goods despite the strong appreciation of the Swiss franc in recent years.

Switzerland further boasts a top-notch labour market that is flexible and efficient in deploying its talent. Employee protection and the interest of employers are well aligned and conflict resolution rests on social dialogue rather than responding with strikes (“industrial peace”). Further, its educational system is perceived as outstanding, producing a highly skilled labour force that continues to benefit from vocational training.

Indeed, unlike many other countries, Switzerland’s labour force is growing, thanks to the migration of particularly skilled labour, boosted by bilateral agreements on free circulation with the European Union that entered into force in 2002.

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A well-functioning labour market and excellent educational system provide the fundamentals for innovation to prosper. These have helped Switzerland rank first globally in our report in its ability to attract top talent. But what helps Switzerland stand out further is the quality of its scientific research institutions and the strong collaboration that has been allowed to develop between academia and business. This, combined with an environment conducive to investing on research and development and the protection of intellectual property, ensures a steady pipeline of new products coming to market.

Switzerland’s highest priority today must be to resist drifting toward complacency. The country is undoubtedly a magnet for global talent and an excellent innovator but clouds loom. Its banking sector is under scrutiny and necessarily undergoing great change. The country’s very outward-looking, export-led economy that relies on highly sophisticated products and management practices stands in contrast to an inward-looking, protective sectors such as utilities and agriculture. Integrating women more fully into the labour force would also provide an important further boost going forward, ensuring that Switzerland benefits from all of its available brainpower.

Competitiveness at a glance: See how well different countries perform on our latest Global Competitiveness Index.  

Author: Caroline Ko is an economist in the World Economic Forum’s Global Competitiveness and Benchmarking Network.

Image: Alphorn blowers perform in southern Switzerland REUTERS/Denis Balibouse.