Few natural resources, a landscape unsuited to large farms, and a central position on trade routes encouraged the Swiss to develop manufacturing and services early, and to revere open markets. The federal constitution emphasizes independence and autonomy. The central government oversees foreign affairs, defense, trade, and monetary policy, while individual cantons maintain control in other areas.
As World War I envelops Europe, Switzerland maintains armed neutrality, a hallmark of the country for centuries. Many sectors of the economy suffer, but some thrive, including machine manufacturing, watch-making, textiles, and food processing. At war's end, Swiss neutrality is recognized by both the Treaty of Versailles and the new League of Nations, which Switzerland joins after a public vote.
As a member of the League of Nations, Switzerland won't take part in military operations, but it does participate in economic sanctions imposed upon other states. When the League dissolves in the '30s, the Swiss return to absolute neutrality and prepare for the possibility of war. The nation declares neutrality when World War II begins, but Swiss citizens must take part in a mandatory militia system.
After the war, Switzerland enters a quarter century of economic growth. The Swiss formula hinges on high-quality, often high-priced products that require a skilled workforce. The small domestic market makes access to foreign markets crucial and strengthens dedication to liberal trade policies. An exception is agriculture, which is fiercely protected from foreign competition.
Switzerland's unique system of government, headed by a seven-member Federal Council, undergoes one of the few changes in the country's history. The two houses of parliament devise a "magic formula" for choosing councilors, assuring that major political parties and German, French, and Italian linguistic groups will share power. Councilors govern by consensus and rotate the presidency annually.
Slow population growth and a surplus of jobs have long attracted economic immigrants. But when recession hits in the '70s, some Swiss call for the departure of foreign workers. The nation loses 400,000 jobs between 1973 and 1976. Switzerland and the European Community agree to the gradual introduction of free trade in manufactured goods, giving Switzerland access to a market of 325 million people.
Strong growth resumes, and the Swiss economy is the envy of Western Europe as per capita income consistently ranks among the highest in industrialized nations; by 2000 it will top $28,000. But the economy shows early signs of change. Jobs in farms, construction, and engineering decline, while the service sector grows. In 1986 voters overwhelmingly reject entry into the United Nations.
The nation enters a recession caused in part by a strong Swiss franc and overall slow growth in Europe. Tourism and exports suffer. In 1992 the nation joins the World Bank and International Monetary Fund. But Swiss voters, dubious of the benefits of closer economic ties to their neighbors, reject joining the European Economic Area, a free-trade zone seen as a possible precursor to EU membership.
The recession continues, and the Swiss economy is Western Europe's weakest. Growth is almost flat and unemployment tops 5 percent -- high for Switzerland. Budget deficits climb. Companies begin restructuring to improve competitiveness. The federal government begins to negotiate bilateral agreements with the EU and slowly moves toward changes in the heavily regulated agriculture sector.
As the European economy speeds up and the Swiss franc weakens, the nation emerges from recession with annual growth rates of 1 to 2 percent. Unemployment drops below 3 percent by 1999. The government reduces its role in setting agricultural prices, but continues a high level of support for production through import barriers and direct payments to farmers.
GDP growth is 3.4 percent, the highest in 10 years. Unemployment drops below 2 percent, and immigrants make up about 20 percent of the population. Voters reject a proposal to cap the foreign population, but many fear an influx from poorer countries. Still opposed to joining the European Union, the electorate nevertheless backs the government's bilateral agreements with the EU.
The weakening global outlook is expected to hold GDP growth to under 2 percent. The government aims for EU membership in the long run, as voters in March 2001 reject the idea of moving quickly toward membership. After terrorist attacks in the United States, Swissair goes bankrupt and is relaunched as Swiss. Voters agree in 2002 to decriminalize abortion and, narrowly, to join the United Nations.
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