/u/AlarmingRepeat

Ah yes, Swiss Neutrality, good question. I have addressed this in this post where the original poster /u/And_G pointed out some very good validation based on the original German documents; and in this post addressing the 20th century.

The long and short of it is that Swiss Neutrality is an evolving concept, informed both by the challenges they were facing, and how they want to portray themselves. Further, Swiss Neutrality cannot be properly understood without analyzing how the early modern Confederation was set up, and how the modern nation of Switzerland is run.

Swiss-ness in the early modern era

The Swiss national identity can be argued to have begun in the Swabian War triggered by the Imperial Reform of 1495. Emperor Maximilian I, Holy Roman Emperor and Duke of Austria, enacted the Common Penny tax that was to be used to raise an Imperial army, and in exchange he agreed to being placed under theoretical supervision by an imperial body. The cheeky Swiss of the so-called Old Confederation refused to be subjected to this tax. Maximilian wanted to force the issue through war, forming the Swabian League. However, princes, knights, and peasants of the Swabian League weren't keen for war, and repeatedly expressed their sympathy for "the Swiss." Throwing his glove to the ground, Maximilian declared in exasperation, "You can't fight Swiss with Swiss!"

The winning Swiss forced Maximilian I to revert back to the pre-1495 state of relationships between them and Maximilian, acting as the Duke of Austria. Thus, the cantons of the Old Swiss Confederacy was able to have their cake and eat it, too: they were exempt from paying their dues, even as they remained members of the HRE.

Further importantly, in the early modern era, nothing stops a Swiss canton from conducting its own foreign relations, and they did so throughout the early modern era. For example, during the Thirty Years' War -- a confessional war that devastated Europe -- the Swiss Confederation remained theoretically neutral even as its member cantons clearly did not. Catholic and Protestant cantons developed their own leagues of self-defense, and risked civil war within the Confederation. For example, five of the seven Catholic ones signed a treaty with Spain in 1587 that gave it access through these cantons' territories. This effectively empowered Spain as it re-supplied its Army of Flanders fighting in the Low Countries. Protestant ones signed an alliance with the English and the Dutch to allow their soldiers to be used to block the use of these same passages. Both sides in the Thirty Years' War recruited Swiss soldiers extensively.

In short, to say that the early modern Swiss Confederation "neutral" is hubris. It is a confederation based on a set of privileges and responsibilities, and not a nation-state. To be "Swiss" was a trait, not to be part of an entity.

The last aspect to discuss is then, what does it mean to be Swiss and what does it take to be one? When the Swiss signed a treaty with Maximilian, it was a treaty between the original Old Swiss cantons and Maximilian. The participation of the Swiss in the Peace of Osnabrück endowed the Swiss with the power to formally extend membership benefits in this agreement, such that other cantons can join the Confederation and benefit from that treaty, too. Thus, the Swiss were set up closer toward a nation-state as defined by the privileges they gained from that treaty.

Swiss Neutrality in the modern era

The modern Swiss state was a different entity. It is important to note that the modern Switzerland practices direct democracy, so such matters are decided in referendum. To quote its 1848 law: “the federal constitution grants the people ultimate power when making and legitimising foreign policy." Further, article 55 of its confederation stipulates that the cantons “shall be consulted” in the preparation of foreign policy decisions that “affect their powers or their essential interests.”

In short, in modern Switzerland the cantons no longer have the ability to conduct their own foreign relations.

At the end of WW1 the Swiss joined the League of Nations in a referendum not because it was viewed as a compatible meeting of collective security and neutrality, but because of how the choice was cast. A lot of work was put into demarcating the meaning of neutrality, in particular to differentiate between "neutrality policy" and "the law of neutrality". The latter is applicable in case of war, the former in times of peace. Thus the Swiss could participate in economic sanctions along with members of the League as long as it is militarily neutral. This is called "differential neutrality".

The 1920 referendum passed with 56.3% voting yes.

This differential neutrality did cause some complications, for example Entente troops weren't allowed to cross Swiss territory even under League sponsorship. However the Swiss were never challenged with sanctions.

Over the first part of the 20th century the Swiss moved further into a trading economy, away from its formerly agrarian economy. So there was more pressure to trading and maintaining trading ties especially with neighboring countries. As a result, when Italy invaded Ethiopia in 1935, the Swiss insisted not only on military neutrality but also economic neutrality, or in essence refusing to join in the League's economic sanction against Italy. The Swiss federal council asserts that as a sovereign country, it cannot be forced to comply. Several other members of the League followed suit and thus the concept of differential neutrality fell apart.

In 1938 when Germany annexed Austria, the same theme was played with the Swiss declaring they cannot comply with any economic sanction, and even further that the distinction between military and economic neutrality is null. Basically they backed out of their previous position in 1918-1920.

Given the failure of the League with the outbreak of WW2, the UN was set up under a different premise, and that neutrality was dead. The allies put pressure on Switzerland's failure to declare war on Nazi Germany and requested the Swiss surrender German assets in Switzerland. Thus, in the early years of the UN the Swiss had no place in the organization. It's only later that the UN started to become more universal, with more recently independent countries wishing to join. With increasing membership, the UN's role around the world increased, and the Swiss became more involved even though they aren't formally a member.

Keep in mind though that to seek membership in the UN will require a referendum, and thus what is foreign policy becomes domestic policy. It took many decades for support of economic integration to emerge, and with it the realization that the Swiss cannot endure its political isolation due to non-membership. That's why only in 1986 was there finally sufficient political will to hold a referendum. This ultimately failed because due to lack of debate, and thus votes were run along the party line, and the anti-UN party won.

In 2002 things had changed considerably. The Cold War was over. However, the Balkan crises created a refuge crisis that affected the Swiss quite a bit. Thus, the argument that isolation gives safety is now moot, even from a right-wing perspective. More strongly, the Swiss now consented even to sending Swiss troops under UN command, something they had rejected even just a decade prior.

So basically to understand the Swiss and neutrality, it is important to understand how both of them have evolved over time, and how the world around them has, too.