What makes Switzerland so competitive?

For the sixth consecutive edition, Switzerland tops the rankings of the World Economic Forum’s Global Competitiveness Report. Since 1979, this annual study has helped to pinpoint the reasons behind the differing fortunes of the countries studied – 144 economies in the 2014-2015 edition. For example, it helps explain Switzerland’s remarkable resilience throughout the Great Recession. Since 2007, the country experienced only a brief episode of recession in 2009. During that same period, Greece – ranked 81st in the report – has not seen a single year of growth and GDP shrank by some 25%, with disastrous social consequences. At the end of 2013, Greece’s unemployment rate was 27% in comparison to 4% in Switzerland. Switzerland owes its success to a combination of factors. Among these are its stable, transparent and effective institutions; sound and healthy public finances; an attractive tax regime; excellent infrastructure and connectivity; a world-class education system; relatively peaceful relations among social actors within a flexible labour market; the highest level of business sophistication; and, most importantly, an exceptional capacity for innovation. In advanced countries, innovation is the main source of long-term growth. However, few countries can pride themselves on being global innovation powerhouses. With the highest international patent application rate per inhabitant in the world, Switzerland is certainly entitled to make this claim. After decades of visionary policies and smart investment, Switzerland has created a conducive ecosystem that favours innovation. Talent is at the heart of this ecosystem and powers it. Several indicators in our competitiveness index show that Switzerland makes good use of human capital – its greatest asset. For instance, the country ranks first for the quality of the education system, the collaboration between employees and employers, as well as for the capacity to retain and attract talent, while numerous European economies face a “brain drain” challenge. Switzerland also possesses a dual vocational and education training system, in which apprenticeship is promoted and valued. The world now seeks to emulate this approach because it is considered an effective remedy to the problem of youth unemployment, which reaches 25% in Europe and exceeds 50% in some countries, compared with 8% in Switzerland. Indeed, the Swiss Confederation is organizing the first International Congress on Professional Training in Winterthur mid-September. It is vital for Switzerland to ensure that its main source of competiveness does not dry up. And there are some worrying signs. First, tendencies towards isolationism and withdrawal could affect the limit the immigration of foreign workers who contribute to the country’s success on all levels. That said, in the context of the prevailing flexible immigration policy, tighter controls to prevent wage abuses and dumping are necessary. Second, youngsters must be equipped with the skills required by the economy. In Switzerland, business executives who participated in our annual survey cited the shortage of qualified labour as the most problematic factor for doing business in the country. At the end of June 2014, there were more than 52,000 vacancies in Switzerland. The public and private sectors must collaborate even more closely to ensure a better fit between supply and demand. Third, Switzerland’s demographics are not particularly favorable. The population is ageing and the “age pyramid” now resembles more a trapezoid. In such a context, rethinking social policies is required to foster a better work-life balance and encourage the participation of women in the labour force. In Switzerland, only 17% of mothers work full time. Neither can Switzerland avoid lengthening the duration of social security contributions and making the conditions of retirement more flexible. Finally, a more positive attitude towards “ageing” workers and greater willingness to employ and train them are warranted. These measures would help preserve and possibly enlarge the talent pool, and address the looming pension crisis. Will Switzerland top the ranking again next year? To do so it must continue to invest in its human capital, and avoid pitfalls. It must also respond to rampant populism. The population needs to be clairvoyant when faced with demagogues and false good ideas. It must not be complacent. Finally, Switzerland needs to ensure that everyone, including the most vulnerable, can both contribute to and benefit from its success. Read the Global Competitiveness Report 2014-15. See how well different countries perform on our latest Global Competitiveness Index: Author: Thierry Geiger, Associate Director, Economist, Global Benchmarking Network, Global Competitiveness and Risk, World Economic Forum Image: A woman has a painted Swiss flag on her face as Swiss National Day is celebrated at the House of Switzerland in London August 1, 2012. REUTERS/Neil Hall