Is Neutrality the Answer? Switzerland’s economy in the aftermath of the World Wars (War creatures, great and small [II])
Ever since before the establishment of the first settlements, people engaged in wars for various reasons, at first for survival and territorial expansion and then out of economic, political, religious and ideological reasons. When talking about war, one would automatically think of its destructive repercussions in terms of the human, cultural and economic losses suffered by the belligerent states and less to their supposed gains. Thus, in the light of the negative consequences brought by armed conflicts over the course of history, it is only natural that some countries decide to avoid war, step aside and choose neutrality.
A Legacy of Neutrality
One of the most relevant examples of countries with a long tradition in terms of neutrality is, beyond doubt, Switzerland and, certainly, both the First and the Second World War were no exceptions to that rule. The Final Act of the Congress of Vienna, signed in 1815, officialized Switzerland’s legal status as a country following an active policy of “perpetual neutrality” at the international level. Its provisions included an “eternal peace” clause regarding the relations and the military international conflicts concerning Switzerland and France (Andrews, 2018). This treaty was perceived by Switzerland as a declaration of its sustained efforts to prevent and avoid any actions that might lead to its involvement in armed conflicts and of its refusal to participate in any future wars that might arise (Schandler, 2005). By taking a closer look at the historical background of Switzerland, it can be observed that this country assumed its permanent neutrality even in the face of wars with an imminent disastrous impact on the worldwide welfare, more precisely the World Wars.
WWI and Switzerland
During World War I, Switzerland undertook a firm neutral position and refused to participate or side with any of the two rival powers. Since it was surrounded by states from both the Central Powers and the Entente, it mobilized its army and protected its borders in order to prevent an invasion from the neighboring countries. However, this mobilization of forces caused a wave of complaints and distress among the deployed citizens because they were not granted any compensation for the income they lost during their military service (Diem, 2022). Despite being condemned by the countries who were actively involved in the war, neutrality brought benefits for the Swiss farmers and the industries involved in the production and supply of military goods. The service, industrial and agricultural sectors enjoyed a continuous increase in profits due to the high demand for military equipment, the diminishing competition at the world level and the high prices determined by the lack of food imports.
Although Switzerland managed to avoid the destruction caused by the World War I as a result of its neutral position, the economy began to be affected after the first part of the conflagration. Switzerland was not able to satisfy the demand of its citizens solely through domestic production, so it was heavily dependent on the neighboring states from both rival powers for the supply of raw materials, grains and sugar (Stovall, 1922). The tension within the Swiss borders began to rise due to the economic measures taken by the government to finance the country’s defense, mainly printing more currency. This move caused a spike in the inflation level which in turn led to a decrease in the welfare of Switzerland and the purchasing power of its people who were already hit by the shortages of supplies and the increasing living costs (Diem, 2022). Despite its military neutrality, the negative effects of WWI reached Switzerland indirectly through the disruption generated at international level. This is why, at the end of the war, Switzerland was facing strikes and demonstrations throughout its whole territory due to the worsening of the social and political tense situation (Straumann, 2015).
What about WWII?
Having the experience of the previous World War, after the outbreak of the World War II, Switzerland opted once again for neutrality and mobilized its troops with the sole aim of defending its independence and territorial integrity. This time around, Switzerland learned from its previous mistakes and mitigated the social and economic issues by rationalizing food, establishing price controls, providing the mobilized soldiers with the proper compensation and managing to maintain a moderate inflation during the war (Diem, 2022).
Switzerland’s economy followed the same trend as in WWI: in the first three years of the war, the agricultural sector was the most profitable and increased its profits by 40%, while by the end of the war, all economic sectors suffered important losses (Schandler, 2005). By 1943, the war had slowed the GDP growth by around 4%, as compared to the 1938 levels. However, there was a significant 24% gain in GDP in 1945, when the war was finally over. Trade decreased from 16% of GDP before the war to 12% in 1945, which may be one of the reasons for the initial decline in the Switzerland’s GDP (Golson, 2011).
After France’s defeat in 1940, Switzerland found itself entirely surrounded by belligerent states from the Axis Powers, namely Italy and Germany. Although Switzerland’s position had the potential to offer many benefits to the belligerents despite its neutrality, both the Axis and the Allies did not hesitate to hinder Switzerland’s trade (Schandler, 2005). On this background, Switzerland’s neutrality began to slowly erode. Switzerland was highly reliant on foreign trade for its domestic demand of food and fuel. Since it could not procure its much needed supplies from the Allies anymore, it was forced to make strategic economic concessions. As a result, Switzerland oriented itself towards Germany and, after tough negotiations, they signed a number of trade contracts and formed a controversial economic bond. Germany quickly became Switzerland’s biggest trading partner, exporting mainly raw materials for the Swiss industries. In turn, Switzerland exported to Germany machinery and tools, as well as weapons and ammunition which proved to be of real help for the Axis Powers in continuing the battle. On top of this military help, due to the Swiss banks’ problematic decision to buy the gold stolen by the Germans from the occupied European states and even from the Holocaust victims, Switzerland was accused of outright supporting Germany economically throughout the war (Diem, 2022).
To be or not to be neutral?
In the current context, we can observe how military conflicts directly affect countries that are not involved in the actual war through issues such as shortages of supply of fuel, food and raw materials and limitation of imports. In the same manner, companies from non-belligerent countries with subsidiaries in the conflict territory suffer losses and are forced to close their operations there. Considering this and the historical events, is neutrality the answer?
As an example, Germany, Italy, and Japan were defeated in World War II, their economies were destroyed, and consequently, they lost their status as economic powers at the international level. Countries involved in armed conflicts have a more difficult time recovering from the war damages. Belligerent countries start out at a disadvantage in the world market as compared to the neutral states since they have to practically and metaphorically speaking emerge from their own ashes. They redirect their efforts and remaining resources towards the reconstruction of the cities while innovation and development are overlooked. So, as a result, they lose their competitive edge at international level. Following this judgement, it can be clearly assessed that although neutrality does not guarantee sound protection against the impact of war, it is diminishing the potential losses. By choosing neutrality, countries may receive the safety and protection against the human casualties and infrastructural destruction brought by wars and Switzerland, as one of the most successful examples, stands against the test of time with a tradition of over 500 years of neutrality to prove it.
Of course, not every country is Switzerland, and other notable neutral countries like Turkmenistan and especially the Republic of Moldova have to contend with a troubled geopolitical situation. Moldova, especially, has had Russian peacekeepers on its recognized territory for decades, in fact maintaining the status quo of the unrecognized breakaway state of Transnistria. With little economic strength and next to no military one, Moldova is a far cry from Switzerland’s martial culture and the great capabilities its geography and wealth can afford it. So much so that, since the beginning of the Russian invasion of Ukraine, Moldova has consistently claimed to fear for its territorial integrity, warning against a possible invasion and suffering collateral damage as war rages in Ukraine. Through its cooperation with NATO and its plan to accede to the EU, the neutrality espoused in its constitution is a shadow of itself, sacrificed on the altar of geopolitical necessity.
Andrews, E. (2018). Why is Switzerland a neutral country? History. [Online] Available at: https://www.history.com/news/why-is-switzerland-a-neutral-country.
Diem, A. (2022). Switzerland. Britannica Encyclopedia [Online] https://www.britannica.com/place/Switzerland.
Golson, E.B. (2011). The economics of neutrality: Spain, Sweden and Switzerland in the Second World War. The London School of Economics and Political Science.
Schandler, M. (2005). The economics of neutrality: Switzerland and the United States in World War II. Louisiana State University.
Stovall, P.A. (1922). The neutrality of Switzerland. The Georgia Historical Quarterly, 6(3), pp.197-210.
Straumann, T. (2015). Wartime and post-war economies (Switzerland). International Encyclopedia of the First World War.
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