Why the Swiss economy hums so smoothly. Steady money supply, a hands-off policy, and free trade are key reasons

What makes Switzerland an economic success? Asked this question, Swiss economists and officials offer several reasons that this Alpine nation has probably the world's highest living standard (private consumption per person, $9,244 in 1981, compared with $8,085 for the United States), both low inflation (3 percent) and unemployment (1 percent), modern industry, and a relatively stable economy.

A key element, many agree, is a conservative monetary policy.

The Swiss National Bank maintains a slow, steady growth of the money supply, thereby keeping inflation down and dampening the business cycle. It attempts to some degree to peg the Swiss franc to the West German mark. Since West Germany follows a stable monetary policy, this further prevents wide swings in the Swiss economy.

Swiss fiscal policy is also cautious, at least by comparison with other nations. Last year more-rapid economic expansion than expected brought the budget of the confederation into virtual balance.

``Our budget policy is aimed to be as neutral as possible,'' noted Daniel Kaeser, head of the Treasury service of the Department of Finance.

The total national debt amounts to some 25 billion francs ($9.46 billion), and the debt of the cantons and communities 78 billion ($29 billion) more.

``That is not little,'' Mr. Kaeser conceded. It was equivalent to about 11.8 percent of total national product in 1983, down from 13.8 percent in 1980 and 40 percent at the end of World War II. Nonetheless, because of the government's limited borrowing needs and the ample supply of capital in Switzerland, the government pays only 4.62 percent, on average, on its outstanding debt.

``We have no big problem in financing our deficit,'' Kaeser noted.

``Our main advantage in economic policy is that we do not do too much economy policy,'' noted Volker Kind, an official in the federal office for industry and labor.

The Swiss see other factors contributing to their success:

The relatively small size of government. Expenditures of all levels of government, including social security costs, amount to about 31 percent in Switzerland, about the same as in the US and slightly higher than in Japan (27.2 percent), but well below those in West Germany (37 percent), the United Kingdom (39 percent), France (42 percent), Belgium (46 percent), and Sweden (50 percent). The central government has not been allowed to increase the number of civil servants for 10 years. ``If you have a ceiling, it is difficult to spend more money,'' maintains Mr. Kaeser.

The openness of the economy to world trade. Some 35 percent of gross national product (GNP -- the total output of goods and services) is exported. This permits Switzerland to concentrate on activities it does best (banking and finance, machinery, chemicals and pharmaceuticals, food products, tourism) and import other needs (cars, airplanes, oil, etc.). A low level of protectionism has also forced Swiss industry to adjust rapidly to change. ``We put our firms bluntly into world market competition,'' said Mr. Kind.

As a result, according to a new study by the Organization for Economic Cooperation and Development in Paris, manufacturing as a share of gross domestic product (GDP, about the same as GNP) has fallen more rapidly in Switzerland than in most other European countries, dropping 8.3 percent between 1960 and 1980, compared with only 3.7 percent in other West European countries. Still, the share of manufacturing in highly industrialized Switzerland, at about 28 percent of GDP, remains higher than in Europe as a whole.

Rapid growth in services, particularly banking and finance, has offset the decline in manufacturing share. This transition, the OECD study says, has occurred ``relatively smoothly.''

High expenditures on research and development. The Swiss spend 2.3 percent of GNP on this in 1983, putting them among the leaders in this ratio among the industrial nations.

``Switzerland,'' the OECD study notes, ``is still one of the [industrialized] countries with the greatest degree of specialization in the most advanced technologies. However, it would seem to have a somewhat less strong position than 20 years ago, with the rapid development of the new technologies.''

To deal with this problem, the Swiss government launched a program in 1978 to promote industrial adjustment. It spent 60 million francs ($22.7 million) over four years to establish a software development school; fund a joint program to improve electronic watch components and encourage other research and development for the troubled watch industry; support microtechnology research; and so on. And 50 million francs was approved in 1982 to set up a school of computerized management, aid computer-assisted construction techniques, and carry out other projects. These are modest sums. But the OECD study figures they remedied certain short-term deficiencies in the education system.

A superb education and apprenticeship system. Ten percent of Swiss young people go on to universities. The rest benefit from what the OECD study terms ``a remarkably comprehensive apprenticeship scheme comprising large in-firm training.'' In the West German apprenticeship system, trade unions have a major voice, and there is much emphasis on theory. Under the Swiss system, parents, employer, and school have an agreement that the ``boss'' may discipline an apprentice. This has encouraged Swiss companies to take on apprentices (160,000 in 1983). One result is a low rate of just over 1 percent unemployment among young adults under age 25.

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