What Makes Switzerland Such a Rich Country? (Updated)
The reason Switzerland is such a wealthy nation, in my opinion, lies in the structure of its government. Unlike most countries where power is concentrated in a central federal authority, Switzerland empowers its member states—known as Cantons—with far more autonomy than you’ll typically see elsewhere in the world. The closest comparable system is that of the United States, and interestingly, both the U.S. and Switzerland boast two of the most respected central banks and stable fiat currencies.
If You Want a Rich Country, Never Allow the Federal Government to Rule Like Dictators
To be clear, my praise for Switzerland doesn’t imply it’s a perfect country. However, when a federal government is allowed to accumulate unchecked power, it often leads to economic destruction. By contrast, when states, provinces, or Cantons are empowered to keep the federal government in check, it prevents centralized, one-size-fits-all mandates from dominating local economies.
Federal governments frequently lack insight into what’s happening on the ground in specific municipalities or regions. So if, for example, a Prime Minister or federal authority imposes a nationwide mandate that is unpopular or inappropriate in certain areas, the ability of local governments to resist or ignore that mandate becomes vital. This structure prevents bad policies from being applied across the entire country.
State Rights, Cantons, and Canada’s Federal–Provincial Arrangements Act
Consider the United States: during the period from 2020 to 2022, the State of Florida experienced strong economic growth while much of the country struggled. This was largely due to the federal government’s inability to impose all of its anti-growth policies on Florida. The state’s autonomy allowed it to operate more freely and protect its economy.
On the flipside is a country like Canada, where the federal government, using laws like the “Federal–Provincial Arrangements Act,” can punish a prosperous province by redistributing its wealth to provinces that implemented poor economic policies.
When the federal government is permitted to redistribute wealth, it allows bad political and economic ideas to survive and even flourish. In Switzerland, you’ll notice how difficult it is to even name the current President. That’s because their system of government de-emphasizes the role of a central federal leader.
Federal overreach doesn’t exist in Switzerland the way it does in many other countries—and that structural difference is a key reason why Switzerland stands today as the wealthiest democracy on the planet.
Price Controls and Central Banks!
Modern fiat currencies are supported by the stability and integrity of a nation’s democracy. Switzerland has built such a robust democratic system that its central bank has had to implement policies to discourage people from hoarding Swiss Francs. Why? Because Switzerland includes some socialist Cantons—and if you understand socialism, you know it typically depends on a debased currency to function in international trade.
Socialist-leaning regions often advocate for price controls and unearned benefits for the unproductive. If the Swiss Franc were allowed to rise to its true global value, many socialist voters and businesses would be exposed as economically unsustainable. Public benefits might collapse, and politically supported businesses could fail if the Swiss National Bank didn’t intervene.
Price controls can distort wages. If government agencies fix wages during a period of deflation—which naturally occurs from time to time—businesses may be forced to shut down or lay off workers. The central bank steps in to manipulate currency valuation, preventing the Franc from soaring and shielding local economies from harsh corrections that could devastate social safety nets.
As I mentioned earlier, Switzerland is not a perfect country. But understanding the structure behind its wealth offers useful insight into why it has outperformed most Western nations.
Interesting times ahead!
