The Swiss Confederation Institute 

Why Switzerland?
by Ronald Holland

It is often said that Switzerland lies in the heart of Europe. Geographically that is not true however Switzerland is the meeting point for three of Europe's cultures: German, French, and Italian. This landlocked mountainous country is quite small - comparable in size to the state of South Carolina -  but is home to over 7 million people, including some 1 ½ million foreign nationals residing or working there.   Switzerland has four official languages that reflect neighboring cultures.  Some two-thirds of the Swiss speak German dialects, while 19% speak French, 8% Italian, and 1% Romanisch, a dialect similar to Latin.  Roman Catholics account for 48% of the population and Protestants some 44%.  Yet these people with such diverse backgrounds have learned to live together, and they’ve built and maintained a country that emphasizes real freedom and prosperity.

A Government by the People – for the People 

Despite the diversity in languages and cultures, Switzerland remains a stable and unified society with the world’s oldest surviving democracy.  Through a direct participatory form of government, ordinary Swiss decide on important constitutional issues as well as local ordinances.  Every Swiss citizen has a direct say on how the government is run, thereby showing the support for the government, or keeping it in line.  The Swiss have in practice  -  not just in theory  -  a government controlled by the people. 

An often overlooked point of history is that the Swiss Confederation form of government strongly influenced America’s founding fathers and the structure of American government.  In fact, our first governing document,  The Articles of Confederation, closely resembled the governmental design of the Swiss Helvetian Confederation 

The Swiss political structure is specifically designed to prevent the development of an all-powerful central government like what has occurred in the United States.  It delicately balances the rights of the individual with the interests of the communes (villages), the city, the canton (state), and the federal government.  Parliament is comprised of two chambers, with representatives from each of the 26 cantons representing a dozen different political parties.  The rights of the individual Swiss citizens are further protected by three political safeguards built into the system assuring that the people rule the government, and not the other way around. 

<   A Weak Chief Executive.    Can you name the President of Switzerland?   Probably not.  In fact, very few Swiss citizens would be able to give the correct answer.  In contrast to the United States, where our Chief Executive is constantly surrounded by secret service protection, the President of Switzerland can often be found riding to work on the public street cars in Berne.  The Swiss do not make a profession out of politics.  Their executive branch is a collegial system, which prevents the rise of a strong chief executive and strives for political consensus rather than confrontation.  The Swiss federal government is weak by design  --  just the way the Swiss want to keep it. 

<   The Referendum.     The Swiss people have a Right of Referendum that gives them an opportunity to oppose any law passed.  If 50,000 voters, a little more than 1% of the electorate, sign a petition questioning a particular law passed by the government, the law must by submitted to a popular vote for final approval.  The law is rescinded if more than 50% of the voters oppose it.  Any proposed change in the Swiss Constitution requires a referendum.  

Harry Browne, a financial writer and former resident of Switzerland, notes that referenda occur much more frequently that the two-year election cycle found in many states of the U.S:  “Once a matter qualifies for a referendum, the vote will be taken soon afterward.  So these votes are sprinkled throughout the year, and they happen not only at the federal level, but at the cantonal and city levels as well.”  This is also in direct contrast to the U.S. where public pressure against legislation must be directed through elected representatives which are subject to massive pressure by special interest groups. 

<   The Initiative.   Switzerland’s concept of the right of initiative is unique in the world today.  It allows Swiss citizens the opportunity to actually initiate legislation directly.  When 100,000 signatures are obtained for a particular proposal a national election is held to approve or reject the proposed law, assuming the proposed law meets certain legal standards. 

 Benefiting from Swiss Neutrality 

An important cornerstone in Swiss history involves national security.  Switzerland places its safety and security above all other considerations.  Switzerland is not a member of the United Nations or NATO, nor a member of the European Union, and more importantly not directly influenced by the political decisions of these international bodies.  But as a neutral country, Switzerland plays an important role in world politics as a site for diplomatic negotiations and as a base for international agencies such as the International Labor Organization and the World Health Organization.   

 Neutrality Combined with Military Strength 

The Swiss people have guarded their national independence through a strict policy of armed neutrality.  This policy has produced the largest (mostly civilian) army in Western Europe and has saved Switzerland from de-stabilizing involvement in two major 20^th century wars. 

The Swiss believe neutrality is best achieved by a strong nation rather than a weak one.  Within 48 hours, the country can mobilize an army of 625,000 soldiers, 800 battle tanks, 300 jet fighters, and missiles and artillery – all stored in hundreds of defense positions and underground fortresses.  Switzerland has armed sentries at all border crossings and there are 3,000 points of demolition on bridges and tunnels to destroy paths of invasion or other access.  Most of this defense structure is invisible.  Carefully camouflaged into a mountainside are arsenals, hospitals, airplane hangers, with the highways built to serve as emergency air runways 

All able bodied men between the ages of 20 and 50 serve in the army, and are trained for specific jobs.  In the event of war or other national emergency, the Swiss can call upon 520,000 trained civil defense workers.  This program can provide protection in nuclear, biological, and chemical warfare. 

Rather than having a traditional division between military and civilian roles, Swiss defense is a community effort.  For instance, the Swiss are the only soldiers in the world who use their homes to store arms, ammunition, and other defense equipment. 

Because of their neutrality and defense capabilities, one can understand why the Swiss excel at the preservation of individual wealth.  By staying out of international conflicts and maintaining a strict policy of neutrality are contributing factors as to how Switzerland has become home to a large share of the world’s private wealth. 

An Economic Miracle 

The Swiss have a healthy regard for work, whether in harsh alpine terrain or in the modern banking sector. Due to its import needs and small domestic market, the level of foreign trade per capita is higher than in any other industrial nation.  The manufacturing sector depends on raw material imports which are processed into export products of the highest standards.  Both in the manufacturing and services areas, Switzerland depends heavily on a skilled labor force with advanced technological expertise.  Major industries are in pharmaceuticals, chemicals, watches and precision instruments, engineering, foods (e.g., chocolates), tourism and financial services.  With the majestic alpine landscape and cultural diversity, tourism revenues are second to those from manufacturing. 

The finance, banking and insurance industries benefit from the strong Swiss franc, strict regulation, and the sound fiscal and monetary environment of Switzerland.  This is why Switzerland is ranked year after year in the top 10 places in the world to live by The Economist and was recently rated number one worldwide for political, financial, and economic stability be the International Country Risk Guide. 

The Swiss Financial System – A Bedrock of Safety 

Switzerland is not only about chocolate and cheese. Their highly developed and efficient banking system makes Switzerland a leading financial marketplace. Swiss banks have existed since the Middle Ages, but Switzerland’s reputation as a world financial haven was gained during World War II.  Private and government capital fled their beleaguered national borders to find refuge in Swiss banks.  Switzerland’s neutrality and its secrecy laws provided not only a safe haven for the wealthy, but the difference between survival and extinction for countless war refugees. 

Today it is estimated that Switzerland has almost a 35% market share in the management of the world’s private wealth, exceeding $2 trillion dollars.  Switzerland attracts money from investors around the world seeking the financial security it offers.  But due to the high Swiss savings rate, financial institutions have a firm domestic base.  Again, reflecting their conservative nature, the Swiss spend more for insurance and save more of their earnings than any major industrialized nation.  Also with over 4,000 banking locations, Switzerland has, next to Belgium, one of the highest density of bank offices in the world. 

Many individuals and corporations are interested in Swiss banks as a means of establishing a strong base for global investments.  The Swiss banks combine traditional banking with international brokerage and financial management; depositors can bank in U.S. dollars, Swiss francs, or almost any other currency or combination of currencies. 

Not only do Swiss banks provide a wide range of services, they are also free from some of the banking regulations found in other countries.  There are over 500 banks and finance companies in Switzerland.  The three largest commercial banks are Union Bank of Switzerland, Swiss Bank Corporation, and Credit Suisse.  These major banks have branches throughout the world providing the same services which emphasize financial privacy, high reserves for safety, and worldwide influence. 

From a global perspective, the three largest Swiss banks are among the world’s safest.  Switzerland is also home to the world’s second largest reinsurance company.  The nation’s financial institutions are subject to the world’s toughest capital and liquidity requirements, which are set in the law.  Banks, for example, hold more capital against loans than stipulated by the Bank for International Settlements. 

The Swiss insurance industry also lays claim to being the safest and most respected in the world.  Conservative, century-old laws determine asset values in insurance companies balance sheets.  To the benefit of their customers, the Swiss insurance companies are supervised by government regulators to a degree which surpasses all other countries.  In over the 130 year history of the Swiss insurance industry, not a single Swiss insurance company has ever closed its doors, failed to meet its financial obligations, or gone bankrupt. 

This small European nation continues to define the essence of financial freedom and security for investors the world over.  Foreign assets are protected by constitutional safeguards on private property.  Although the Swiss government has waived the banking secrecy provisions for certain criminal proceedings, financial privacy is still protected by law and is unmatched elsewhere in the world.