Innovation: Switzerland and the United States Still Top the Charts

Both countries regularly receive highest rankings in global-innovation indices—whether for business, entrepreneurship, technology, science, or education. Why?

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By Karina Rollins

Americans are known for their willingness to take risks and accept uncertainty, while the Swiss are famous for their steady course and risk aversion. What makes both countries such fertile ground for innovation? 

Switzerland. Well into the 19th century, Switzerland was known primarily for its Alps, cows, and sheep. Today, Switzerland is known for its technological, scientific, and financial innovation and strong and stable economy. Lacking natural resources, Switzerland has had no choice but to innovate. Given the country’s small and highly fragmented internal market, Swiss companies also had to seek out foreign markets for their goods, and they had to be productive enough to compete internationally.

The country was largely spared the ravages of World War II, and it was in an excellent position with intact, export-oriented production facilities, to build upon Europe’s post-war reconstruction. Also helpful were Switzerland’s stability-oriented economic policy, its traditional emphasis on hard work and education, high-skilled immigration from France and Germany, and foreign investment. (Today, Switzerland and the United States are tightly connected through intensive cross-border investments. The U.S. is Switzerland’s most important destination for foreign direct investment, and Switzerland is the sixth-largest foreign investor in America.)

Switzerland has the highest ratio of patent applications in Europe, world-class research institutions, high levels of investment by multinational companies, high-profile “green” innovation projects (such as the solar-powered plane that circled the globe), and highly skilled employees, thanks in no small part to the country’s renowned apprenticeship system.

The Swiss have demonstrated that tradition and innovation need not be mutually exclusive. In Switzerland, “slow and steady” leads to exciting developments. Market stability, excellent infrastructure, and a competitive regulation and tax system are also important features that facilitate entrepreneurship. More challenging for entrepreneurship are the relatively small Swiss market (many good inventions work on a small scale, but cannot be expanded to larger regions and markets), limited financing for start-ups, and the cultural attitude that does not accord entrepreneurs a high status (most Swiss are not comfortable with the prospect of failure—which often goes hand in hand with being an entrepreneur).

United States. The United States did not start out as a scientific powerhouse. In the 19th century, it was Britain and Germany who dominated the world of science. British engineers laid the foundation of the Industrial Revolution largely through their invention of the steam engine, while German scientists developed key principles in physics. After its Civil War, the U.S. was able to build on this European framework—and the rest is history. “No other nation has displayed such inventive power and produced such brilliant innovators as the United States during the half-century that began around 1870,” writes historian of technology Thomas Hughes.

Americans did indeed seem to be naturals at applied science, improving upon many existing ideas and bringing them to life with resources that became newly available during the Industrial Revolution—such as Samuel Morse and the telegraph, Thomas Edison and the light bulb, and the Wright brothers and their flying contraption. America has been a country of innovation ever since. It was a combination of science and the American can-do spirit that put the first human being on the Moon.

The U.S. files the most international patent applications in the world (Switzerland is in the top ten), has research institutions that attract students and academics from around the world, and is regularly the source of top medical and technological innovation.

When it comes to entrepreneurship, Americans are more comfortable than the Swiss with taking risks, entrepreneurs are generally held in high esteem in the U.S., start-up financing often flows freely—and initial failure is almost a badge of honor.

Regulatory Environment

Few dispute that some amount of industry and financial regulation is needed. What is in high and constant dispute, however, is the amount of regulation, as well as the source of regulation—international, federal, state, county, municipal, local, private, or self-regulation? Furthermore, many businesspeople—from bankers to small-business owners to entrepreneurs—complain that much existing regulation hinders starting and expanding a business.

The regulatory environment sends certain signals, and the particular characteristics of the regulatory context can hinder or contribute to the creation and early-stage growth of new businesses as well as to the innovation process within a market.

Entrepreneurial activity is central for economic growth and job creation, and the regulatory framework is a critical factor in entrepreneurial performance. Entrepreneurs are particularly affected by administrative regulation that creates entry barriers, and disadvantaged members of society may have especially much to gain from deregulation.

For 2017, the renowned Index of Economic Freedom rated the United States as the 18th-freest economy in the world, and Switzerland as the fourth-freest in the world, and the very freest in Europe. As the Index demonstrates, there is a heavy correlation between innovation and economic freedom, along with strong protection of property rights, rule of law, and government spending. Perhaps reflecting the United States’ lower ranking for economic freedom, the U.S. public sector consumes more than 40 percent of GDP, while the Swiss public sector consumes about 33 percent of GDP.

Global Rankings

  • Switzerland keeps its spot in the 2017 Global Innovation Index as the world’s most innovative economy, and the U.S. remains in fourth place.
  • The World Economic Forum’s Global Competiveness Report 2017-2018 places Switzerland in the top spot for global competitiveness for the ninth time in a row. The U.S. moves up from third to second place
  • In IMD’s 2017 World Competitiveness Ranking, Switzerland continues to shine at No. 2 (after Hong Kong), while the U.S. moves to No. 4 (being displaced by Singapore as No. 3).
  • In 2017 and 2018, of the top ten universities for technology and engineering in the world, four are in the U.S. and one—ETH Zurich—is in Switzerland: Times Higher Education World University Rankings
  • In 2017, Switzerland ranked eighth in international patent applications, and second in design applications; the U.S. remained in first place: World Intellectual Property Organization
  • The World Economic Forum’s Human Capital Index ranks Switzerland and the U.S. in places three and four, respectively for skills and education; and Switzerland in third place for global performance (making the most of human capital): Global Human Capital Report 2017
  • In 2016, Zurich ranks as No. 1 city in the world for “the three dimensions of sustainability”—people, planet, and profit: Lonely PlanetSustainable Cities Index
  • Best countries for business in the world in 2018: Switzerland is in10th place, the U.S. in 12th place: Forbes
  • Best and worst countries in which to be a CEO—highest pay in the U.S. and Switzerland: Bloomberg
  • The 2017 Universitas 21 ranking of national higher education systems one again placed the U.S. in first place, and Switzerland in second place, of 50 countries: Universitas 21

 

Recent Innovative Developments and Ideas in Switzerland

  • Switzerland is the first country to implement U-space—Europe’s drone traffic control system: Swissinfo.ch The launch of the system is a collaboration between the Swiss air navigation service provider Skyguide, and the Californian drone airspace manager AirMap.
  • Switzerland’s Federal Office of Topography, swisstopo, created a new 3D  model of the geological features of central Switzerland—the new model will help with mineral extraction and planning underground disposal of radioactive waste: Swissinfo.ch
  • International scientists led by the University of Bern find new information on the seven exoplanets (planets outside the solar system) around the TRAPPIST-1 star, 40 lights years from Earth. One of the exoplanets is more similar to Earth than any other discovered so far: University of Bern
  • Swiss researchers added a twist to 3D printing: infusing their ink with living bacteria to create “minifactories” for biomedical uses: ETH Zurich with video
  • A 19-year-old Zurich university student conducted award-winning research on antibiotic resistance, a growing public health concern: Swissinfo.ch
  • Swiss-led research team identified 16 genetic markers—that are directly linked to shorter lifespans: Swiss Institute of Bioinformatics
  • Researchers at ETH Zurich created a beating heart made of silicone: ETH ZurichSwissinfo.ch with  video
  • Swiss university students won the international competition sponsored by U.S. Department of Energy to build the  most futuristic solar-powered building: Swissinfo.chSolar Decathlon 2017
  • The 2017 Nobel Prize in Chemistry went to three scientists—one from Switzerland, one from the U.S., and one from the U.K.: Nobelprize.org

 

Additional reading:

Boring but important—regulatory developments in Switzerland, SIX

Banking Regulation 2017, Switzerland, Global Legal Insights

Doing Business: Switzerland, World Bank

Doing Business: United States, World Bank

Financial market regulation in Switzerland, Swiss State Secretariat for International Finance