AUSTRIA
From technology import to a top 5
economy
Small country geographically in the center
In a divided Europe a bridge to the East
Largest border with accession countries
2% of population, 2½ of EU-GDP
Well known for Alps, tourism, culture
Large and efficient manufacturing sector
EU-membership 1995
Starting from a moderate position in the fifties/sixties
Due to civil war and stagnation in period between WWI and WWII
Surpassed EU average in 1971
GDP per capita 2000: 25.000 EURO
11% above EU
4th after DK, IRE, NL; (5th if Luxembourg is ranked)
5% higher than in Germany
9% higher than in Italy
GDP per hour 2nd after Denmark
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Macroeconomic performance
Growth of GDP 1990/2000: 2.3% (EU 2.1%)
employment rate 2000:
73% (EU 65%)
unemployment rate 2000: 3.7% (EU 8.2%
low inflation rate 2000: 2.3% (EU 2.7%)
industry growth 90/2000 3.8% (EU 3.3%)
productivity growth in manufacturing 5.4%
(higher than in US: 4.2%)
productivity acceleration in the nineties
Income distribution: lowest spread low/high incomes: 1 : 4.4
Ecological indicators: top 3 position with Denmark and Sweden
Social expenditures GDP: 28% (EU 27%)
Excelling in low unemployment, industry dynamics and equity
Growth differential fades away in 90s
Specifically low growth of output in
“non-manufacturing” sectors:
utilities, construction, services
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The policy framework
Social partnership: continental style
Government focus on macro management
High but declining share of nationalized firms
Focusing on security and stability
Internationalization guarantees technology import and
toughness of competitive
Internal financing (out of retained earnings)
Inadequate capital market
Lack of venture capital and fast growing small firms
Deficit in merchandise trade and outward FDI
Few large firms, inadequate capital market
Major investor in accession countries
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Social partnership
Broad and comprehensive system of social security
Paid by taxes/ employers and employees
Strong influence of trade unions and employers federation
on all economic questions
incl. training, health, media, culture
Macroeconomic orientation:
stability, productivity
internationalization
upgrading of locational advantages
History: after confrontation (“class struggle”) between the wars
Strong informal cooperation between 4 interest groups
Social partnership with centrally coordinated institutions
Chambers of Commerce, Agriculture, Labor, Trade Union
“chambers” are representative organizations with compulsory
membership
1948 – 1960: moderation of price and wage increases
wage council coordinated wage negotiation
price commission set price ceilings
(dependant on cost increase)
Regimes changes parallel to internationalization
labor markets: stepwise more flexible
industrial policy: from subsidies to technology promotion
competition policy; still lenient and favoring size
entry: accompanied with administrative and financial burdens
Social partners finally lobbied for EU membership
Putting the macro perspective ahead of vested interests
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Elements of the Austrian model
Favoring change in existing structures
Low entry and low death of firms
Insider advantages, low mobility
Internal financing (out of retained profits) and credits instead of
capital market
Hierarchical carriers, steep income growth with age
Low entry rates, low exit rates
Low market capitalization/GDP ratio
Insufficient venture capital
Open economy, focus on productivity
Membership in EFTA 1960-1994
Membership in EU 1995
Supporting opening of borders to transition countries
EURO since 2002
Open to FDI (net importer)
Subsidies contingent on productivity change
Competition policy, Competitiveness, dynamics
Mergers more favored than restricted
Soft competition policy
State owned and regulated utilities
Productivity oriented incomes policy
Price and Wage controls up to eighties
Large differences of wages across industries
Nationalized industries up to nineties
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Growth drivers
High savings/ investment ratio (2nd after Portugal)
Highest relation physical vs. intangible investment
Research/GDP: catching up to EU average: 1.95% in 2002
below that of countries at the same income level
Relying on South Germany and North Italy fir research base
Low position in patents publication
Rank 7-9 in innovation ratings
High expenditures on education
Excellent vocational training (schools + firms)
Below average rate of secondary education
Deficit in university degrees/work force
Small proportion of scientists among third degrees
Medium position in ICT
Small share of production
High share of mobile telephones and internet use
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Manufacturing: the growth structure-paradox
(Peneder 2001)
Competitive strength
4th largest share of manufacturing in GDP
Higher growth in output and productivity
Productivity level 2nd position in Europe
Exports rise from 2.2% (1985) to 3.0% of European market
Traditional structure
High share of labor and capital intensive industries
Low share of technology driven and high skill industries
Largest industry: machinery
Traditional strength
Wood paper cluster
Steel/metals
New strengths
Pharmaceuticals
Plastics
Publishing
Telecom equipment
Vehicle parts for European and US car manufacturers
Upgrading quality in existing industries
Share of exports in highest quality segment
3rd position in EU
incremental innovation (often in small/medium firms)
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Privatization of a large nationalized
industry
About one fourth of manufacturing nationalized
State owned or owned by nationalized banks
“German property” without owners in 1945
Some of large firms were built in the “Deutsches Reich”
Nationalized industry was first successful at the start
Rebuilding and expansion of capacities
Technological frontier
Increasing sales
Crisis with structural change in sixties
Instrument to stabilize employment in the seventies
Cyclical losses, later structural losses and finally
Breakdown at beginning of the nineties
Privatization 1993
Holding company restructured
Selling of majority of all companies demanded
Flexible privatization regime with the goal of optimizing
Revenues, expected value added and
Domestic employment
Result: headquarters of large firms remained in Austria
Small and medium sized firms private or part of
multinational firm
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Nationalized industry: status 2002:
Government has minority share (about 25%) in four
companies
OMV (35%, syndicates with an firm from Abu Dabi)
VA Stahl, a former basic steel company now focusing
On flat steel e.g. for car industry
BUAG Boehler Uddeholm a merger of a Austrian and Swedish
Company producing speciality steel
VA Tech an engineering company
Banks: the 2 largest banks were merged and
then sold to German Bank (Landesbank)
Now a regional player under the name of
Bank Austria
Telekom Austria:
after a minority holding of Telecom Italia
and a public offering (one fifth of the shares)
government owns involuntary ¾ again
Intention to sell these shares to a strategic investor
The same hold for the mobile telecom subsidiary
(which is the largest of four main players)
Largest firms
OMV Oil gas
Erste Bank
BML
VA Tech
Telekom Austria
Banking incl. Leading banks in Czech Republic, Croatia
Retail
Special steel products
Telecom
Inward FDI much larger than outward
Siemens, Philips, Steyr-BMW, Chrysler have large subsidiaries in
Austria
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Macro economic policy: Austro Keynesianism
Demand management plus
incomes policy
plus hard currency policy
 A consensus that government has a role
in dampening cyclical fluctuation
 Fiscal policy has to increase spending
More than by automatic stabilizers
 Monetary policy has to stabilize specifically
In case of overheating
 Incomes policy guarantees wage restraints
And dampens price increase
 Hard currency policy underscores price stability
And presses for structural change
System is intensively discussed and has been scrutinized by
many agencies (OECD) and economists
Because of Austria's ability to match
Growth, full employment and low inflation
To some extent:
Similar problems as in other countries
Asymmetry of good times/bad times (increasing debts)
Decreasing impact in an internationalized economy
Rising inefficiency in sheltered sectors
Over-capacities in construction
Insufficient incentives for structural change and growth
However:
flexible policy mix
successful for a long time
leading to a top 5 position
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Status 2002: A successful model on a cross road
Some elements of past success fade away
 Cost position
Wages still not high, but higher than EU average
Tax rate 45% (4 points above EU)
 Dampening of cycles more difficult in globalized markets
 Import of technology via FDI no longer feasible for
High productivity country
Determinants of long run growth partly insufficient
Research
Education
Technology driven industries
ICT
Capital market
Entry and high growth of new firms
Accession/transition countries
Low cost competitor
Advantage for Austria: fast growing neighbor markets
Chance for outsourcing: combining cheap inputs with
Sophisticated manufacturing and value added by services
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Overall evaluation
Successful combination of growth
Stability, equity, social and environmental concerns
To an increasing extent at the cost of dynamics and change
Liberalization, deregulation, flexibilization, privatization had been pursued
less rigorously and with some bias towards insiders
steering capacities for crises and dampening of shocks
Insufficient investment into future growth
The challenge is to increase dynamics without loosing all the favorable
consequences of consensus and stability
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References
Peneder, M. (co-ordinator), Structural change and economic growth,
Reconsidering the Austrian "old-structures/high-performance"
paradox, Study by the Austrian Institute of Economic Research
commissioned by the Federal Ministry of Economics and Labour,
June 2001.
Aiginger, K., Europe's Position in Quality Competition: Working Paper and
Background Paper for the Report in the Competitiveness of
European Manufacturing, DG Enterprise, Brussels, 2000.
Aiginger, K., "The privatisation experiment in Austria", in Parker, D. (ed.),
Privatisation in the European Union, Theory and Policy Perspectives,
Routledge, London, New York, 1998, pp. 70-87.
Marterbauer, M., The loss of the positive growth margin, macroeconomic
performance of Austria from 1970 to 1999, in Peneder, M. (coordinator), Structural change and economic growth, Reconsidering
the Austrian "old-structures/high-performance" paradox, June 2001.
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