Despite some weakening in the 1990s, partly due to sluggish trend growth, the Swiss innovation performance has been very strong. There are, however, areas in which policy reforms could strengthen innovation further and help Switzerland maintain its lead in the face of a changing global environment. Boosting competition, simplifying administrative burdens and reforming the bankruptcy law would go a long way towards stimulating the innovativeness of small enterprises in sheltered services sectors, which becomes more crucial to sustaining high domestic innovation in a context where large firms are increasingly mobile. On the other hand, the growing knowledge economy and the increasing competition from emerging countries in skill-intensive activities press for further upgrading the vocational education system and increasing the efficiency of the university system. Regarding innovation-specific policies, budget spending priorities on education and research should be better protected and more resources devoted to bridge the gap between fundamental research and the market, especially through the activities of the Commission for Technology and Innovation. This Working Paper relates to the 2006 OECD "Economic Survey of Switzerland" (www.oecd.org/eco/surveys/switzerland). A bibliography is included. (Contains 52 footnotes, 18 figures, 4 boxes, and 6 tables.)