Innovation: Switzerland and the United States Top the Charts

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

While the two “sister republics” share a deep political and philosophical history, 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 breeding grounds for innovation? 

Switzerland. Well into the 18th century, Switzerland was still known primarily for its Alps, cows, and sheep. Referring to Switzerland, famed German poet and playwright Friedrich Schiller wrote in his play William Tell: “O learn to know this shepherd people, boy!” Today, Switzerland is known for its innovation and strong 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.)

The Swiss have demonstrated that tradition and innovation need not be mutually exclusive. In that vein, when Nestlé celebrated 150 years in Switzerland with a new discovery center and festivities attended by Swiss president Johann Schneider-Ammann, he stated that: “Switzerland is proud to host a company like Nestlé. Dynamic and ambitious, it has a global vision, but remains firmly rooted in our country.” In Switzerland, “slow and steady” leads to exciting developments.

United States. Americans have long prized themselves on their ingenuity and can-do spirit, and enjoy this very reputation around the world. How did the United States come by its reputation for innovation? 

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 lightbulb, and the Wright brothers and their flying contraption. America has been a country of innovation ever since.

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 level from which the regulation should stem—international, federal, state, county, municipal, local, private, or self-regulation? Furthermore, many businesspeople—from bankers to company owners to start-up entrepreneurs—complain that much existing regulation hinders starting and expanding a business.

Around the world, awareness of the effects of regulation on innovation and entrepreneurship is increasing. The regulatory environment send 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.

Regulatory policies all over the world are increasingly including these considerations in their regulatory process. The 2012 Recommendation of the Council on Regulatory Policy and Governance of the OECD even encouraged governments to “commit to apply regulatory policy principles when preparing regulations that implement sectoral policies, and strive to ensure that regulations serve the public interest in promoting and benefitting from trade, competition and innovation while reducing system risk to the extent practicable.”

For 2016, the renowned Index of Economic Freedom rated the United States as the 11th 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.

And, there remains a tug of war between the instinct to allow freedom of business and exploration, and the instinct to regulate business and exploration. In Switzerland, for instance, which has been ranked the top global competitor for the eighth time in a row by the World Economic Forum, the parliament nevertheless has agreed to subject all Swiss online purchases from abroad to the value-added tax (VAT)—in order to protect Swiss firms from lower-priced competitors abroad. In the U.S., the urge to regulate what is unregulated shows itself, for instance, in the debate over “net neutrality”—which is a proposal for regulation of the Internet by the Federal Communications Commission.

Global Rankings

Recent Innovative Developments and Ideas in Switzerland

  • Swiss solar plane flies around the world: The Atlantic
  • In 2016, three scientists won the Nobel Prize in chemistry for developing the world’s tiniest machines (“nanocars”—with wheels)—1,000 times thinner than a human hair: New York Times
  • Swiss scientists played a role by providing the “scanning tunneling microscope” that powered the molecular-level cars: Swissinfo.ch
  • The Swiss–US Energy Innovation Days 2016—featuring “the brightest minds in energy from Switzerland and the US”—took place August 22–24 in San Francisco. Energy Innovation Days
  • The CHUV hospital in Lausanne started a global Zika register to keep track of pregnant women exposed to the virus. CHUV will need the cooperation of doctors in affected countries and has sent requests to 4,000 obstetricians: The Local
  • Deep inside the Swiss Alps, a new system is storing electricity as compressed air—a world-first enormous “battery made of air”: Swissinfo.ch
  • The Swiss Federal Institute of Technology, using the only synthetic gel system that allows growth of human cells in a lab, is growing mini organs and cancers in vials to determine the best treatment: Swissinfo.ch
  • University of Bern researchers believe that insecticide is harming the reproductive ability of honey bees: Swissinfo.ch
  • Switzerland has lower numbers of antibiotic resistance (a growing problem around the world) than the EU—thanks to advanced research and patient monitoring: Swissinfo.ch
  • A 2016 robotic creation from the École Polytechnique Fédérale de Lausanne in Switzerland—the Pleurobot—will allow researchers to learn more about how salamanders and other vertebrates walk, crawl, and swim, to develop better treatments for human paraplegics and amputees: The Verge
  • A special type of clay—formed in Switzerland 175 million years ago—has such a low degree of permeability that researchers are now exploring it as an option for storing nuclear waste: Swissinfo.ch

Additional reading and viewing:

Bettina Rutschi, “How Did Switzerland Become the World’s Most Innovative Country?” Credit Suisse, April 3, 2016.

Thomas P. Hughes, American Genesis: A Century of Invention and Technological Enthusiasm, 1870–1970 (University of Chicago Press, 2004).

James Jay Carafano et al., “Science Policy: Priorities and Reforms for the 45th President,” Heritage Foundation Backgrounder No. 3128, June 13, 2016.

Switzerland says goodbye to light touch regulation

World Bank, Doing Business: Switzerland

World Bank, Doing Business: United States

Swiss labor regulation

Financial market regulation in Switzerland

Swiss and American Banks: Differences in Corporate Culture

The American Petroleum Institute’s Karen Moreau explains how innovation is key for the energy industry and energy consumers: Wall Street Journal video

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