Mr President, Ladies and gentlemen,

Innovation and continuity, at a first glance, these two terms seem to contradict each other. But only at a first glance, because I would argue that innovation works better against a background of continuity and when innovation has that background of continuity its effects are longer lasting: Continuity acts as a baseline for innovation. Continuity promotes innovation.

Clearly, continuity can also stifle innovation. We've all heard people say: "But we've always done it like that". There is continuity in this position, but such a position obstructs change.

The problem with innovation is that it is often associated with uncertainty. It raises fears that need to be allayed. Innovation means taking risks and there is no guarantee of success. But continuity can lead to success. Innovation can flourish, given a sound foundation.

Continuity in Swiss federalism

Switzerland is a country that stands for continuity. Its political system has a long tradition: with many key features going back to 1848 when the present State was founded, and the state's structures have remained largely unchanged since then. This provides a favourable framework for innovation. Let me explain why: One of the key elements is the country's federal structure. It is firmly based on the 26 constituent states, our cantons. Together, they make up the federal state that is Switzerland. It is important to note that things are not the other way round: the federal state is not divided into subordinate entities. Things are seen from the cantons' perspective. In other words, the principle of subsidiarity is applied. To illustrate this, let me give you a few excerpts from our Federal Constitution: "The Cantons are sovereign except to the extent that their sovereignty is limited by the Federal Constitution. They shall exercise all rights that are not vested in the Confederation. The principle of subsidiarity must be observed in the allocation and performance of state tasks." In practice, this means that the federal government only performs tasks allocated to it through the constitution.

In many areas, this structure means that competencies and functions exist simultaneously at the federal, the cantonal and the local or communal level. This is the case, for example, with regard to citizenship: People are first and foremost citizens of a commune or canton and on that basis enjoy Swiss citizenship. Popular votes also exist at all three levels, each level has the right to raise taxes and taxpayers pay the largest share of direct taxes to their local authority and to their canton; by comparison, direct federal taxes are relatively low.

These three levels of government prevent the federal or the cantonal authorities or their legislation, from becoming too powerful. But there is also a healthy level of competition between the various state institutions. In the field of taxation, for example, this competition plays among cantons when it comes to attracting good taxpayers, whether they are private individuals or companies. Flat-rate taxes or low rates of tax are an incentive. But what if such competition were to create serious financial problems? This is where a further feature of our country comes into play: the active participation of citizens in state decision making. Switzerland has well developed instruments of direct democracy. Let me give you an example related to taxation: In certain cantons, foreign nationals who live in Switzerland, but who are not gainfully employed, can pay a flat rate of tax. Financially, this is extremely attractive. However, there have now been a number of successful popular initiatives to curb or to abolish such taxation practices because the feeling was that they were unfair. So, direct democracy can have a corrective effect giving us the means to achieve a healthy balance.

The federal structure is also beneficial in terms of the relationship of the citizens with the authorities: in the cantons, the authorities are closer to their citizens. On the communal level this relationship is even more immediate.

Often, new ideas come from the cantons. Such ideas start small and, if promising enough, are adopted by other cantons, or even on a national level. What is interesting is that when this happens, it doesn't necessarily lead to the creation of a new federal competence. What we have instead are often inter-cantonal agreements: an arrangement approved among the cantons themselves. The area of schooling represents a typical example. Education is the responsibility of the cantons. In recent years, a new agreement has been worked out to ensure the coordination of compulsory schooling. But no canton is forced to buy into this coordination. In fact, a few cantons have rejected the agreement in popular votes. But at a later date and if it proves to be an advantage they may well join the coordination agreement.

Political rights

Our popular votes, our political rights, direct democracy these are constants in Switzerland. Political rights are in our blood. They are the cornerstones of our continuity. The result is a very special political system: the system of concordance. One could paint this system of concordance in a negative light: it provides us Swiss with many ways of blocking everything. Popular initiatives and referenda provide the public with the means of perpetual interference. This calls for compensatory steps and strategies. One of the most fundamental of these is to make new legislation ‘referendum proof'. Long before the legislation is to come into force we consult all relevant stake-holders: the political parties, the cantons, the main business organisations and the unions Draft bills routinely go through this consultation procedure to begin with. Then, during the parliamentary process, the proposals have to be approved by the two chambers of parliament. These are the National Council, which represents the population of the cantons proportionally, and the Council of States, where cantons hold two seats each giving the smaller cantons more weight. Both chambers have an equal say in the process and this takes into account the popular as well as the state majorities. That a new measure needs a popular majority as well as a majority of states is also central to popular votes on constitutional amendments. Like in the Council of States this need for a State majority gives the smaller cantons a greater weight and ensures that the voice of smaller groups is heard too.

Checks and balances

From all this, it becomes clear that all of these mechanisms serve to produce solutions that are acceptable to all involved, that are capable of winning the support of majorities. They are instruments which promote balance. We aim for the same balance also between the various language regions between town and country, between urban centres and the periphery, and between richer and poorer regions.

This need for balancing mechanisms has its price. But it is a price we gladly pay, as it has a positive overall effect, because it acts as a restraining influence. In an international context this can occasionally cause problems, for example when we need to get EU directives through our legislative process more quickly than this would normally be the case.

But in general this deliberate process results in balanced legislation. Legislative shooting from the hip is almost impossible. Stability rules. This is beneficial in a situation where an extraordinary event results in an urgent call for new laws. In the nature of such situations, this tends to be a ban of some kind. But in the course of our legislative process, it is possible to stand back and consider the matter a little more objectively so that ultimately the decision may be taken not to draft a new law. Our procedures may therefore even limit the number of new laws.

It has to be said that Switzerland's body of law is not particularly dense. Our legislation is notable for its simplicity and clarity. In this respect our multilingualism is an asset. All legislation must be available in German, French and Italian. During the editing process needed for the three versions ambiguities may be discovered in one language, which help to improve clarity in the others.

The primary elements of our legislation go back to 1848, but they are equally valuable today, of course with some necessary amendments. Our Civil Code and Code of Obligations are both over a hundred years old. Our Civil Code in particular is renowned for being concise and to the point. In the same way, the Code of Obligations contains a balanced employment contract law with considerable freedoms in its provisions. These provisions allow our economy to make structural changes when and where they are needed. But employer protection is not neglected either. Social partnership is considered of prime importance in Switzerland. Collective wage agreements exist in many business sectors. These contain a mutual obligation to maintain good labour relations. As a result, strikes are rare in Switzerland and there is a strong awareness of responsibility on the part of both employers and employees.

These are sound basic conditions. They provide stability. Stability and continuity in turn encourage competitiveness. And competitiveness encourages innovation.

Education as a "natural resource"

Apart from water, Switzerland possesses no significant natural resources. Therefore, we consider innovation as an important raw material. For Switzerland, a good education system, sound training and exceptional educational institutions are of the highest importance. We have a number of outstanding universities. But we do not focus exclusively on academic education. Compared to other countries, we actually have relatively few university graduates. This is because vocational and professional education and training are equally important components in Switzerland's education system. And we attach great importance to training in practical professions. Many young people choose to go down this educational path. After completing their compulsory education, those pursuing non-academic training enter an apprenticeship. At the same time, they spend one or two days a week at school to acquire the necessary theoretical knowledge. In this context it is noteworthy that the private sector plays a key part alongside state institutions. But in the educational reforms we have implemented we have ensured that learning a trade is by no means the end of the road. After completing vocational education and training at the upper secondary level it is then possible to attend a university of applied sciences and cross from the professional over to the academic world.

The economic framework

Switzerland also seeks to provide a good framework for business. At the moment we are trying to tackle the difficulties caused by the strength of the Swiss franc, which creates problems for our export industry. While one Euro used to cost around one franc fifty in 2011 recently it went through a period when its exchange rate was almost one to one. In order for Swiss firms to avoid raising the price of their products abroad, they had to accept a dramatic and existential drop in their profit margins. Therefore, our national bank decided a little over a year ago not to let the exchange rate fall below one franc twenty to the euro. This measure has helped to stabilise the situation in Switzerland and probably prevented firms from closing. In recent years, we have undertaken numerous projects to improve competitiveness and break down barriers to innovation. One project has sought to simplify the every day running of companies. A catalogue of a hundred and twenty-eight measures was drawn up. Wherever possible, efforts were made to cut red tape and to simplify administrative processes. In this context, new technologies have proved to be useful: e-Government; today it is possible to set up a company online.

Another project which we put in place is the debt brake. The aim of the debt brake is to achieve a balanced budget in the long term. The state acts in a counter-cyclical manner: in economically difficult times it is allowed to accumulate debts. But when times are good it has to generate a surplus. In the course of an economic cycle the books have to be balanced. Therefore, if a negative balance seems likely, the Government has to submit corrective measures to parliament in the form of proposed spending cuts. The debt brake is anchored in our constitution. The people and the cantons voted in its favour in 2001 which means it has a solid backing in our country.

Promoting innovation based on political stability

An environment which promotes competition, free from unnecessary administrative restrictions, is a fertile ground for innovation. A modern innovation policy invests in education, research and development. Promoting innovation is an ongoing task. It must continually evolve and stimulate. In addition, innovation policy must also be reliable. The key concept is legal certainty. It must be ensured that decisions can be taken on a reliable basis and with confidence. Frequent changes in policy are unhealthy and prevent the necessary stable conditions.

Switzerland's political system is a good model in this respect. It is designed to favour continuity. We have a multiparty government. It is important to be aware that this is not a coalition government, reliant on a parliamentary majority. It is a government in which all major political parties are represented. It requires consensus. We have a government based on concordance. Five parties are currently represented in the Federal Council, our government. These five parties hold eighty-five per cent of seats in parliament.

Therefore, policies and solutions are called for which are capable of winning majorities. This is all the more important because 50‘000 citizens eligible to vote can call for a law passed by parliament to be put before the people. Often the mere threat of such a referendum is enough to persuade one party or another to cooperate in a constant system of give-and-take. This is the way to forming objective-oriented consensus.

One thing we never experience after parliamentary elections is a change of government and with it, all the upheaval that results from such a change. There is no reversal of political priorities or decisions taken by the previous government. Most members of our seven-strong government remain in office. At most one party or other may gain or lose a seat. Members of government are elected for a fixed four-year term following the parliamentary elections. This fixed four-year term applies to both the government and to parliament. There is no deselection or early dissolution of parliament for fresh elections. This means that the government is very stable and in a position to undertake long-term planning. While the Federal Council does formulate a government programme which it presents to parliament at the start of each legislative period, it is common for this legislative plan to take up and continue measures introduced in the previous legislative period. It also prepares measures to be implemented in the following legislative period. On the theme of growth policy, for example, the current legislative planning report of January this year describes how the Federal Council decided on a package of stimulus measures in 2004, in other words, three legislative periods ago, how this package has continually been updated, and how it intends to shape future growth programmes. The legislative plan also sets out strategies for an information society, e-Government and for education, research and innovation. These strategies reveal numerous approaches to promoting innovation. But I would like to pick one out which concerns me directly in my role as Federal Chancellor: I am responsible for organising elections and popular votes at federal level. Given the frequent call to the ballot box in our direct democracy, e-Voting is of course a big issue. E-Voting has the potential to simplify votes and elections considerably. It is gaining in popularity, it is modern and it is innovative. What is more, it ties in perfectly with the continuity of our old tried-and-tested popular rights and modern innovation. Nevertheless, the introduction of e-Voting in Switzerland is a consciously slow process. The first trials with e-voting took place in 2004. We are taking small steps forward. We have to double-check the technology at every juncture so as not to jeopardise the credibility of the results. Today, many Swiss abroad can already vote electronically. But at the moment only about ten per cent of all voters at home and abroad can vote electronically. Eventually, however, e-Voting should be available to all. But - quite deliberately - this will be years in the future.

In its legislative plan, the Federal Council formulated a highly specific vision with regard to innovation. I would like to end by quoting this vision: "Switzerland will establish itself as a preferred and sought after global environment for education, research and innovation and it will harness its expertise in these areas to integrate itself in the worldwide education, research and innovation area. It will assert itself among the world's most innovative countries." May this vision become a reality for both our countries.

Thank you.

The Political System of Switzerland: Bridging the Gap between Innovation and Continuity