V.

Economy

Switzerland has a highly developed industrialized economy and one of the highest standards of living in the world. Gross domestic product (GDP) in 2005 totaled $367 billion. Services constitute the dominant sector of the Swiss economy, with banking, insurance, tourism, government administration, and other services accounting for 72 percent of all employment. Industry, primarily manufacturing and construction, employs 24 percent. Switzerland’s domestic market is small, and most Swiss manufacturing is geared to the production of high-quality goods for export. Key exports include machinery and electronics; chemicals and pharmaceuticals; and watches, musical instruments, and jewelry. Agriculture, forestry, and fishing employ 4 percent of Swiss workers.

A.

Labor

In 2005 the Swiss labor force was made up of 4.2 million people. Switzerland’s excellent educational system produces large numbers of young people with academic, technical, and vocational training for the job market. Progressive employment legislation ensures that workers are well paid and well cared for. By federal law, men and women who perform the same work must receive the same pay. Imbued with a strong work ethic, the Swiss are among the world leaders in number of hours worked per year and in the least amount of time lost to labor strikes and other disruptions. Foreigners comprise about one-quarter of the labor force. The leading labor group is the Swiss Federation of Trade Unions.

B.

Agriculture

Because cultivation is difficult on the steep slopes that characterize so much of Switzerland, a majority of the country’s arable land is devoted to pasture for grazing animals. The dairy cow was domesticated in Switzerland in prehistoric times, and dairying has long dominated the agricultural sector of the Swiss economy. Today, dairy products account for about 35 percent of the value of all Swiss agricultural activity; livestock accounts for another 28 percent. Cheese and milk chocolate—two quintessential Swiss products—are derived from the dairy industry. Dozens of varieties of cheese are produced and exported, including the world-famous Swiss cheese, also known as Emmentaler because it is produced in the valley of the Emme River. Almost equally famous is Gruyère, produced in and around the town of the same name. Milk chocolates are made in considerable quantity. Nestlé S.A., Switzerland’s largest single employer, and Lindt, are major manufacturers of chocolate products. Dozens of other Swiss chocolate manufacturers are known regionally and internationally.

Dairying has given rise to some of Switzerland’s most enduring practices and symbols. Among the most important is the transhumance, the seasonal movement of livestock between lowland pastures and alpine meadows. The cycle begins in spring with the alpaufzug, in which herders and their animals move up into alpine meadows as the snow retreats. During this time of year, cows are fitted with bells of different size and pitch so they can be found more easily in severe weather; the bells produce a pleasant clanging across the alps. In the fall, before the snow returns, herders and their animals return to lower elevations in a movement called the alpabfahrt. Both the ascent and descent are cause for local celebration and are marked by the donning of traditional costume.

Cultivation of grapes for wine began in Switzerland during Roman times. Today, the production of grapes, and other fruits, accounts for about 11 percent of the value of the country’s agricultural output. Warm, south-facing slopes are favored for grape cultivation. The land that rises above Lake Geneva between Lausanne and Montreux (locally called Corniche de Lavaux) is an important center of grape production and is especially picturesque.

Employment in the agricultural sector has dropped significantly in recent decades, declining 25 percent between the years 1985 and 1995. At the same time, the value of Switzerland’s agricultural production has risen. The employment loss is principally a result of the mechanization of agriculture and land consolidation, as many small, family-owned farms are replaced by larger agribusinesses.

C.

Forestry and Fishing

About 31 percent of Switzerland is forested. For centuries timber was one of Switzerland’s most important sources of raw material and fuel. Today, Swiss forests are carefully managed to prevent any net loss of woodlands, which are vital to preserving Switzerland’s water quality, wildlife, and scenic beauty, as well as to help protect against landslides and avalanches. Reforestation of cleared areas is required under Swiss law. Most timber is harvested in small, selective cuttings. Production of timber in Switzerland was 5 million cu m (178 million cu ft) in 2005.

Fishing is a minor industry in Switzerland, with catches of fish such as salmon and trout totaling about 2,807 metric tons in 2004. Most fishing takes place on Lakes Geneva and Neuchâtel and Bodensee and their tributary rivers.

D.

Mining

The Swiss mining industry is not of major importance. Mineral production mainly involves rock salt and cement.

E.

Manufacturing

Although raw materials are scarce in Switzerland, the country has a well-developed manufacturing sector. Switzerland’s skilled workers convert imported raw materials into high-value exports.

Historically, manufacturing in Switzerland stems from the country’s abundant sources of waterpower. For centuries the physical energy of falling water turned water wheels that powered mills and machinery of all sorts, especially those involved in textile manufacturing. Textiles, in turn, created demand for dyes, which stimulated development of a chemical industry. The country’s engineering, machinery, electrical, and metal industries also can trace their origins in part to the age of water wheels. Because potential waterpower exists throughout the country, Switzerland never developed a manufacturing belt or industrial heartland. Instead, industrial production is geographically dispersed.

Today, heavy engineering and machine building, especially the manufacture of top-quality custom-built equipment, accounts for a significant portion of Swiss exports. Switzerland is the largest producer of textile machinery in the world, and one of the world’s top manufacturers of weighing and printing machines. Switzerland remains a world leader in the production of dyestuffs, and the Swiss pharmaceutical industry ranks among the top producers of specialized drugs.

Also important to the economy are smaller products of precision engineering, especially watches, chronometers, and clocks—an industry that dates to the 16th century in Switzerland. Most important developments in watchmaking since that time have come from Switzerland, whose manufacturers have earned world renown for their expertise, workmanship, and inventiveness. Switzerland has been the world’s dominant producer of watches and chronometers since the 19th century. The contemporary Swiss watch industry is concentrated in cities and towns throughout the Jura region. Hundreds of Swiss firms annually produce some 1.5 billion watches, movements, basic parts, and other watchmaking products—95 percent of which are exported. Famous for its exquisitely engineered luxury timepieces, Switzerland is also known for making the world’s bestselling plastic watch, the Swatch.

Not all products manufactured for export have their origins in modern factories and workshops. Switzerland also has a long tradition of producing high-quality handicrafts. Most important among these are music boxes, embroideries, laces, and carved wooden objects.

F.

Services

F.1.

Currency and Banking

The unit of currency is the Swiss franc, divided into 100 centimes (1.20 francs equal U.S.$1; 2005 average). The semiprivate Swiss National Bank, the nation’s central bank, is the bank of issue. Shares in the bank are held by the cantons, other banks, and the public.

Switzerland is a major international financial center, and private banking is one of the country’s principal employers and sources of income. Leading commercial banks are the Union Bank of Switzerland (UBS AG) and the Credit Suisse (Swiss Credit Bank). The Zürich Stock Exchange is one of the most important in Europe, and the city is also a major trade center for gold.

International depositors and financiers have long favored Swiss banks because of Switzerland’s political and monetary stability, experience in financial matters, and banking secrecy laws. The Swiss banking industry rose to international prominence after World War I (1914-1918), when inflation eroded the currencies of many war-damaged European countries. A neutral nation, Switzerland emerged from the war with a strong economy and stable currency. Foreign money deposited in Swiss banks, and accounted for in Swiss francs, stood little chance of being lost to inflation. The advent of the banking secrecy laws largely coincided with the rise of German dictator Adolf Hitler in the years preceding World War II (1939-1945). Fearful of Hitler’s intentions, many Europeans—especially Jewish people—began transferring personal and commercial assets to Swiss banks. Hitler, angered that assets in Germany had been sent abroad, dispatched agents to Switzerland to investigate. In response, Swiss authorities enacted secrecy laws shielding the accounts from scrutiny.

In recent decades Switzerland’s banking secrecy laws have drawn criticism. A frequent complaint is that such secrecy has helped criminals to hide their ill-gotten gains. In the mid-1990s, in response to domestic and international pressure, Switzerland agreed to relax banking secrecy laws when accounts are the subject of criminal investigations. During the same period, a growing controversy emerged over funds in unclaimed accounts of victims of the Nazi Holocaust. In 1995 the Swiss Banking Association (SBA), under pressure from leading Jewish organizations, consented to search its vaults for such accounts. A survey of the largest Swiss banks revealed $34 million in dormant accounts opened before 1945. Jewish groups disputed the findings, claiming the search should have turned up billions of dollars in lost assets. Subsequent investigations confirmed the existence of thousands of additional accounts. In 1998 Swiss banks agreed to a global settlement of all claims and suits against them. This led to the creation of a $1.25 billion fund to compensate Holocaust victims and their descendants. Not everyone considers the matter closed, however, and investigations and legal maneuverings continue.

F.2.

Foreign Trade

Switzerland is highly dependent on foreign trade, both for imports and exports. Swiss trade policy is marked by a strong preference for free trade, low import duties, and few import quotas, apart from limited quotas applied to some agricultural goods. The vast majority of Switzerland’s foreign trade is with its industrialized neighbors in western Europe, in addition to the United States, Japan, and China. In 2000 Switzerland’s chief trading partners for exports were, in order of importance, Germany, the United States, France, Italy, the United Kingdom, Japan, and China. Leading partners for imports were Germany, France, Italy, the United States, and the United Kingdom.

Switzerland generally earns less from exports than it spends on imports. Despite this deficit in foreign trade, Switzerland maintains a positive balance of international payments because of the large income it receives from other sources, mainly payments for services. These include international banking, insurance, and tourism.

F.3.

Tourism

The tourism industry is a leading source of foreign exchange and employment in Switzerland. Tourism has been important in Switzerland since the Enlightenment, when writers, artists, and scientists found inspiration in the majestic pinnacles of the Alps. Picturesque lakeside towns, including Interlaken, Lausanne, Lucerne, Montreux, and Vevey, were the initial centers of the Swiss tourism industry. In the 19th century, during the early era of mountain climbing, foreign adventurers flocked to high-altitude towns, such as Zermatt.

Swiss tourism experienced its most significant expansion in the decades after World War II. Of major importance was the advent of downhill skiing as a popular winter sport, made possible by the development of the ski lift and cable car. Dozens of resorts have since blossomed throughout the Swiss Alps, making Switzerland the skiing capital of the world. Switzerland receives tens of millions of visitors annually.

G.

Infrastructure

G.1.

Energy

Switzerland’s extensive waterpower resources account for about 54 percent of the country’s domestic electricity, or about 16 percent of its total energy needs. More than half of Switzerland’s total energy needs are met by oil and natural gas, virtually all of which is imported. During the 1970s Switzerland turned increasingly to nuclear power to meet the rising demand for energy, and today nuclear power plants generate about 41 percent of all electricity generated in Switzerland. Output from all sources in 2003 was 63.4 billion kilowatt-hours.

G.2.

Transportation

Switzerland has a highly developed transportation system, with a dense road network and comfortable, efficient trains. Hundreds of finely engineered tunnels and bridges cross the country’s rugged terrain. Especially important are the transalpine tunnels that permit year-round travel through the Alps, which were historically a formidable barrier to movement between northern and southern Europe. These include the Saint Gotthard and Lotschberg train tunnels, and the 16.3-km (10.1-mi) Saint Gotthard Road Tunnel, the world’s longest automobile tunnel and the main artery of European transalpine traffic. An immense volume of traffic traverses these routes, causing substantial air and noise pollution and leading to plans to widen existing tunnels and construct new ones. The largest of these projects is the 57-km (35-mi) Saint Gotthard Base Tunnel, a railway tunnel scheduled to open in 2014. In 1994 Swiss voters approved a controversial referendum to protect alpine areas from the negative effects of heavy traffic. The measure authorized the Swiss government to restrict traffic over transalpine roads and to shift most transalpine freight from trucks to railroad cars.

Swiss Federal Railways, owned by the federal government, operates a majority of Switzerland’s more than 5,000 km (3,000 mi) of railroad track, nearly all of which is electrified. Switzerland also has a large number of private railroads, many of which are partially owned by local governments. Few locations in Switzerland are far from a train station. To conquer Switzerland’s great heights, the railroads make ample use of switchbacks and loops. More important for high-altitude access, however, is the cog locomotive, which has a special gearlike wheel with teeth that engage a separate toothed rail. This permits steady ascent and controlled descent on steep grades. Swiss cog locomotives offer some of the world’s most spectacular train rides, including the Glacier Express, which runs between Zermatt and Saint Moritz, and the Bernese Oberland railway, which climbs from Interlaken to the Jungfraujoch, Europe’s highest train station at 3,454 m (11,332 ft). The punctuality of train service is a national hallmark.

Switzerland’s highway system is equally first-rate. Roads totaled 71,220 km (44,254 mi mi) in 2003. The rate of automobile ownership in Switzerland is high and growing; in 2000 there was one automobile for every two people. Increasing vehicular use is straining the road system, and most major roads and highways are heavily congested, especially during the summer and winter tourist seasons. Buses also are an important part of public transportation in Switzerland, especially the famous, brightly painted post buses operated by Swiss Post. The schedules of post buses are timed to coincide with the departure of trains, which serve nearly every village and town.

Waterways constitute another part of Switzerland’s transportation network. The Rhine is the largest navigable river in the country, but it is suited for commercial navigation only along the 19-km (12-mi) stretch between Basel and Rheinfelden. A canal linking the Rhine and Rhône is important for industrial shipping. Switzerland’s many lakes are used for transportation and recreation; pleasure cruises are especially popular. Although Switzerland is landlocked, the Swiss merchant marine, created by decree of the federal government in 1941, consists of 29 large oceangoing vessels and numerous river barges, which operate from foreign ports and from the port of Basel on the Rhine River.

International air transport is provided by Swiss International Air Lines, which is owned jointly by public and private investors. Switzerland’s international airports are in Zürich, Geneva, and Basel.

G.3.

Communications

The Swiss government plays a major role in the provision of postal and telecommunications services throughout Switzerland. In the late 1990s, in response to deregulation in international markets, Switzerland instituted reforms to make postal and telecommunications services more flexible and market-oriented. The Swiss Postal and Telecommunications agency was divided into two separate units. Swiss Post, which remains a federally owned institution, handles mail. Telecom PTT, which was partially privatized, oversees telecommunications services and maintains networks for sound and data transmission. The Swiss Broadcasting Corporation provides radio and television programs in German, French, and Italian, and Swiss Radio International transmits radio programs to foreign countries. In 1997 there were 979 radios and 542 television receivers in use per 1,000 people. Switzerland has 81 daily newspapers; dailies with international reputations include Neue Zürcher Zeitung, published in Zürich, and Journal de Genève, published in Geneva.