04 Nov Interview with Prince Alois, Hereditary Prince of Liechtenstein
What key milestones has the country passed in the development of the independent Liechtenstein state that led to its modern economic success?
Looking back at Liechtenstein’s history over the past 200 years, we introduced compulsory education in 1805, making us one of the first countries to do so. In 1806, we became a sovereign state and joined the Rhine Confederation founded by Napoleon. Our journey towards statehood began with our sovereignty in 1806. We became part of the German Confederation in 1815 but became completely independent in 1866. By 1815, we had started to establish a legal framework, culminating in our current constitution from 1921. This laid the foundation for our political and economic stability and our modern development. Ensuring access to world markets has been crucial for our development as was our early focus on education and sound economic policies.
By the mid-19th century, we began to see the fruits of our labors, especially following the dissolution of the German Confederation, which opened up new market opportunities. Our customs currency union with the Austro-Hungarian Empire further facilitated our industrialization during that period. At the time, the region had a prominent textile industry, largely supported by Swiss entrepreneurs who established a presence in Liechtenstein to gain free access to the Austro-Hungarian market. This marked the beginning of our industrialization. However, the First World War led to the collapse of the Austro-Hungarian Empire, resulting in complete devaluation and a difficult period for the country. We then turned our focus toward Switzerland, adopted the Swiss currency and entered into various treaties.
The interwar period posed challenges for our textile industry, which struggled to adapt to this new direction. During this time, we began laying the groundwork for our financial sector. The disintegration of the Austro-Hungarian Empire created a need for international companies to restructure, and our connections with Swiss lawyers sparked interest in introducing trusts and foundations, which were later used for holdings in Austria and Germany. While the financial market was still small, significant growth began after the Second World War. The interwar years were uncertain with limited access to markets due to the Great Depression. However, our ties to Switzerland expanded, which helped to enlarge our market. Globalization and membership in the European Economic Area, along with numerous free trade agreements through the European Free Trade Association, enabled strong development in both the financial sector and manufacturing industry.
Since becoming sovereign, we have developed unique institutions, combining a parliamentary democracy with a strong monarchical element and direct democracy, which was inspired by Switzerland. In 1921, we adopted direct democratic practices that allow citizens to influence governance even between elections, ensuring politicians remain accountable to the people. Our system includes tools for referendums on laws, constitutional changes and international treaties. In Liechtenstein, citizens can vote on whether to dissolve parliament or call for a vote of no confidence against the reigning prince. This has compelled elected officials and the monarchy to prioritize the long-term interests of the populace. With our small size, politics is closely connected to the people, enabling direct interaction and fostering political stability.
What major factors have allowed for the country’s continued economic stability in 2024?
Our diverse economy supports our stability, with 16 of 18 economic sectors outlined in the European Union’s Industrial Strategy for Europe represented in a country of just 40,000 people. Manufacturing accounts for 40% of our gross domestic product and employment as well as provides a buffer against fluctuations in individual sectors. This balance, alongside a growing service sector, contributes to our overall economic resilience. We have focused on sound economic policies that emphasize long-term sustainability — not just ecologically but also socially and economically. Given our small size, we must ensure our state budget is sustainable as we cannot print our own money. This allows us to concentrate on essential state functions while minimizing bureaucracy. We prioritize low fiscal burdens with minimal subsidies to create an attractive environment for planning and innovation. Our membership in the European Economic Area provides open access to a larger economic zone, while our customs union with Switzerland adds a unique advantage. These historical steps have shaped our economy and contributed to our stability.
How important has education been in creating a competitive industrial landscape for the country?
A key factor in our success has been our emphasis on education, particularly the dual education system prevalent in German-speaking countries. Our apprenticeship model allows students to choose between academic careers and vocational training. Apprentices typically work three days a week and attend school two days a week to gain practical experience and become highly skilled in various fields, including banking, industry and trades like carpentry. Cooperation with our neighbors in this segment is essential, especially given our proximity to excellent universities such as ETH Zürich, the Technical University of Munich and the University of St. Gallen, one of Europe’s top management schools. Milan is also nearby, which is home to other reputable institutions. We are fortunate to have access to these educational resources. Education has been a cornerstone of our success for centuries.
What impact is becoming a member of the International Monetary Fund (IMF) expected to have on the country’s continued success?
The benefits of IMF membership are significant, with three key advantages. First, it enhances our economic and political stability by providing quick access to liquidity as we do not have a national bank and rely on the Swiss central bank. Additionally, the IMF offers valuable expertise that can help us improve our already strong financial system. Second, joining the IMF raises our marketplace reputation by including us in their reports and datasets. Our manufacturing and financial sectors are eager to be represented, and this representation will have a positive impact on our economy. Last, the IMF serves as an important platform for networking, with finance ministers meeting twice a year. We carefully select which international organizations to engage with, prioritizing those that align with our interests, particularly given the IMF’s critical role in ensuring sound international finance.
How significant are Liechtenstein’s economic ties with the United States to Liechtenstein’s current development?
The USA is vital for Liechtenstein. It serves as our largest trade partner after the European Economic Area. Many Liechtenstein manufacturing companies invest and operate in the USA, which benefits both our markets. To enhance this relationship, we must continue improving the framework conditions for these activities. Conversely, Liechtenstein provides access to the European economic market, including the EU, Norway and Iceland, alongside our customs union with Switzerland. This unique position makes us an attractive location for US investors looking to enter Europe. Additionally, we have strengthened cooperation with the USA in areas such as security and economics in light of current geopolitical challenges. We recently concluded a memorandum of understanding to ensure regular exchanges and collaboration. Through annual meetings and our business associations traveling to Washington, we hope to further consolidate our relationship and explore new opportunities, including engaging with the IMF and the United Nations.
What kind of ecosystem exists for entrepreneurs and business leaders looking to grow in the digital technology segment?
Digitalization is a crucial development that we have been focusing on for some time. While countries like Estonia are ahead, we are making significant progress, particularly alongside the expertise of US companies. Collaboration in this area is vital, especially since we do not provide substantial subsidies. In a small country, heavily taxing successful companies often leads to prolonging the viability of struggling ones, which is not sustainable. Liechtenstein has a high number of small businesses, with one operating company for every seven residents. This is high compared to one for every 15 residents in Switzerland and one for every 25 in Germany. To foster innovation among these companies, we offer state funding for good projects in digitalization and sustainability, provided they contribute their own resources. We call this the digital cheques initiative. This support is particularly aimed at new businesses or entrepreneurs with promising ideas, whether they are from Liechtenstein or elsewhere.
Liechtenstein has been innovative in fintech and blockchain, with ambitious legislation to govern these new business practices. As a small country, we adopt much of our legislation through our membership in the European Economic Area and our customs union with Switzerland. We focus on key areas that matter to our business community. Our close interaction with regulators is a significant advantage. Companies often receive decisions and authorizations quickly, which is crucial for startups that might run out of funding while waiting for regulatory approval — an experience that can be frustrating in larger countries. This efficiency is highly valued by the investment community.
What role does Liechtenstein’s monarchy play in the development of the economy?
The role of the Princely Family, particularly the monarch, is to safeguard the key elements of our long-term success. For instance, during the popular vote on the IMF membership, I engaged the public and emphasized its importance while leaving operational responsibilities to the government to avoid micromanagement. When significant issues arise, such as the modernization of our financial center in 2010 or reforms to our tax and justice systems, I actively participate, especially when these initiatives align with my strategic vision. In education, I stress the importance of fostering an entrepreneurial spirit and civic engagement. At receptions for new citizens, I encourage them to contribute philanthropically, whether through politics, direct philanthropy or bringing in new experiences. The princely family also engages in philanthropy, both locally and internationally, to benefit society as a whole.
I aim to be a good guardian by ensuring the key success factors that make Liechtenstein one of the most attractive places to live and do business in the world. This involves fostering a well-regulated society that shares common values and remains resilient and competitive. It is also crucial to maintain strong relationships with the outside world, both to ensure our attractiveness and to contribute positively to global stability. Through our diplomatic and philanthropic efforts, I strive to promote a rules-based international order and make the world a better place. This is my focus for the coming years.