The gravity pull of economic “soft power”

The increasing number of developing economies lining up to join the BRICS bloc raises questions on whether this appeal is transitory or based on long-term fundamental factors. At this stage one would struggle to come up with a unifying theme in the pattern of economic policies pursued by BRICS that would serve as a point of attraction for other developing economies – some of the individual economic policies that may be considered potentially as elements of BRICS soft power could be China’s success in poverty-reduction or the current activism of Brazil in advancing stronger environmental standards. In contrast to the large economies, both developing and advanced small economies appear to be increasingly active in emulating each other’s success in the economic policy domain with one of the focal points of such imitation being the Swiss economic model. The gravity pull of Switzerland’s “soft power” has been reflected in the patterns of economic policies pursued across the globe in various continents and regions of the world economy.

In Latin America one of the prime examples of Swiss-like economic models is Uruguay that is often referred to as the “Switzerland of South America”. Like Switzerland, Uruguay has one of the highest GDP per capita levels in its region, with significant emphasis placed on human capital development, most notably education. Uruguay is also actively working to position itself as a key regional hub for wealth management, with elements similar to the Swiss banking model being replicated for the benefit of greater dynamism of the financial sector and services as a driver of GDP[1]. According to the Swiss Federal Department of Foreign Affairs, the two countries cooperate in multilateral organizations in a range of areas, including in the environmental sphere. These linkages between Switzerland and Uruguay are further reinforced by historical ties as Uruguay became a popular destination for Swiss migrants in the 19th century: “In 1862 and 1863, farmers from the German-speaking part of Switzerland founded the ‘Nueva Helvecia’ community, bringing cheese-making and other agricultural innovations to Uruguay. Migrants from Ticino became successful architects, artists and sportspeople in Uruguay”[2].

In the MENA region, the UAE has also declared itself to be a follower of the Swiss model, with the country’s AI and Digital Economy Minister Al Olama Minister declaring in a 2022 interview to CNN that his country was striving to become the “Switzerland of the Middle East”[3]: “From a diplomacy perspective, we are trying to become the Switzerland of the Middle East. What that entails is we work with everyone, we ensure that we provide value for everyone as well”[4]. Furthermore, in 2024 UAE’s Minister of Economy Abdulla bin Touq referred to his country as the new “Swiss” of the Gulf that is “striving to be an ally to both old and new trade partners in an age marked by “friend-shoring”[5].

In South-East Asia another case of a country pursuing Swiss-inspired economic policies is Singapore. The country’s founding father Lee Kuan Yew explored the models of small countries surrounded by large economies to “observe the methods used to ensure their survival”, with three of these success cases considered inspirational: Israel, Finland and Switzerland.[6] As noted by researchers from Singapore Gillian Koh and Yvonne Guo, “Switzerland has long served as a model for Singapore. In 1984, then Deputy Prime Minister Goh Chok Tong promised that Singaporeans would achieve a “Swiss standard of living” by 1999. Indeed, the similarities between both countries have inspired Singapore to see Switzerland as a model of how to grow the economy and develop a world-class workforce. Both countries are small, multi-ethnic and multi-linguistic, with one of the highest percentages of foreign inhabitants of any country in the world. They are resource-poor, and have had to rely on ingenuity, talent and constant reinvention to remain at the top of their game”[7].

There are number of core features that may be associated with the Swiss economic model, of which one of the key is the emphasis on “human capital development”. Neutrality on the international arena creates favourable conditions for positioning the economy as a “safe haven” and focusing efforts on economic modernization at the expense of defense spending. The development of the financial sector, most notably the wealth management segment, is a way to capitalize on the high standard of living and the “safe haven” status of the economy in the region. Economic openness, including through the conclusion of FTAs across the world economy, strengthens the capability of producers to export goods and services abroad. Overall, the Swiss model creates a framework where all of the main drivers of GDP growth – consumption (high standard of living), investment (capital inflows), government spending (“peace dividend”) and net exports – reinforce each other to generate a competitive economic system.  

Of the above features, one that is key in the midst of rampant global protectionism is the creation of trade alliances to facilitate export growth. Switzerland together with its EFTA partners is among the most active in the world in concluding trade alliances, including with other regional integration blocs. Similarly, nearly all of the economies inspired by Switzerland are seeking to conclude trade agreements via their respective regional trade arrangements as well as individually. In Latin America Uruguay has been an active proponent of the MERCOSUR-EU trade deal[8]. At the same time, it has also pushed for the conclusion of a bilateral FTA with China independently from the rest of the MERCOSUR peers[9]. A similar pattern is observed with respect to the United Arab Emirates (UAE) that has participated in the regional liberalization initiatives of the Gulf Cooperation Council (GCC), while also increasingly attempting to conclude economic agreements (in the form of comprehensive economic partnership agreements (CEPAs)) bilaterally with economies such as Indonesia, Turkey and India[10]. Singapore is very much in the same vein securing bilateral digital economic accords (DEAs) with the likes of Australia, the UK and others while also working together with ASEAN partners on a common framework of free-trade and liberalization vis-à-vis other blocs and regions.

In conclusion, there are important qualitative features that distinguish the Swiss economic model and make it appealing to other small and open economies across the globe. A platform for such small economies across continents may take the value appeal of superior economic policies to a global level. The attraction of large developing economies within the BRICS circle thus far mostly resides in the possibility of offering alternative tracks of modernization and greater global stature for developing economies, but in terms of qualitative economic policies the BRICS are yet to make their mark. Could it be the use of macroeconomic policy rules, leadership in investments into AI and “human capital” or the creation of new types of platforms of economic cooperation – the field of development economics is wide open for the BRICS to make their choice. The latter will determine the longer term economic appeal of the bloc to the Global South and the broader international community. With economies inspired by the Swiss model such as the UAE joining the BRICS and Uruguay becoming a member of the BRICS New Development Bank (NDB), there may be gateways for high-quality economic policies to be taken on board by the BRICS bloc.

Image by Werni via Pixabay





[5] Davos Day 3: UAE new ‘Swiss’ and MBS ‘bullish’ on AI. Al-Monitor. January 18, 2024. Davos 2024 Newsletter.