The economics of neutrality: Spain, Sweden and Switzerland in the Second World War

Neutrality has long been seen as impartiality in war (Grotius, 1925), and is codified as such in The Hague and Geneva Conventions. This dissertation empirically investigates the activities of three neutral states in the Second World War and determines, on a purely economic basis, these countries actually employed realist principles to ensure their survival. Neutrals maintain their independence by offering economic concessions to the belligerents to make up for their relative military weakness. Depending on their position, neutral countries can also extract concessions from the belligerents if their situation permits it. Despite their different starting places, governments and threats against them, Spain, Sweden and Switzerland provided similar types of political and economic concessions to the belligerents. This thesis comparatively investigates neutral trade, labour and capital. Using standardized trade statistics, this study shows that while all three neutrals were dependent on the Germans for most basic goods, they were generally able to benefit from relative gains in prices and excess imports of goods in periods of German weakness. In trade with the Allies, at least two of the three countries permitted the illicit export of items necessary for the Allied war effort, and did so at reduced relative prices. All three neutrals benefitted from substantial services revenue and positive balance of payments in all of their belligerent relationships. In several cases the neutrals were able to force the belligerents to cover their balance of payments deficits in gold because they needed to maintain access to the neutral markets. The final chapters demonstrate that despite political promises, the Spanish and Swiss governments constructed labour transfer systems to limit the number of workers for Germany.