Why is Switzerland so expensive?

Question

Why is Switzerland so expensive?

In: Economics

Answer 1

At it’s core the Swiss Franc, Switzerland’s currency, is very highly valued. The reasons for it are many and their relative importance can fill whole papers, but to mention a few:

– Switzerland’s political system puts a lot of emphasise on a strong democracy, so any major change actually needs the support of a large part of the Swiss population, but people change their minds slowly. Therefore political change takes comparatively more time and is more predictable. This provides stability and can make the Swiss currency desirable as a safe deposit for wealth.

– Switzerland’s long history of neutrality reduces the risk of sanctions causing problems for investors/holders of Swiss currency.

– It’s a small country, so international demand for its currency does not need to be all that large, in order to have an impact on its valuation.

– Having been largely unaffected by the world wars has helped the Swiss economy compete with its European neighbours.

– High levels of education and desirable living conditions attract talent and allow Switzerland to compete in advanced manufacturing, research and development. This powers a strong export sector. Since the Swiss companies need to pay their costs in Swiss Francs, they usually charge their costumers in Swiss francs, therefore causing demand for the currency.

– Selling a product in Switzerland is more costly, because salaries and rents are higher. So even a very cheaply made product needs to have a heavy mark-up to pay for these costs, so ends up not being all the cheap. Yet it’s low manufacturing cost likely shows in its (lack of) quality. So consumers are willing to pay slightly more for a considerably better product, and since very cheap products usually make their money by selling in large number, this business model struggles in Switzerland. So it’s hard to come by very cheap products, hence increasing cost of living.

– Overall affluence is high, so many multi-national corporations try to squeeze extra profit out of Swiss consumers. As a result some products manufactured outside of Switzerland are sold to Swiss retailers for up to 30-50% more than to neighbouring countries, before it ever enters Switzerland, for no other reason than that they can.