Austria Economic Growth and Government Policy

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Austria - Economic Growth and Government Policy

Developments During the 1970s and 1980s
The New Policies
The Magic Pentagon
The Subsidy Policy
Foreign Workers in Austria

Economic growth and government policy

After World War I and the breakup of Austria-Hungary (also seen as the Austro-Hungarian Empire), Austria faced serious problems of economic and social adjustment in finding a means of livelihood for its 6.5 million people, one-third of whom lived in Vienna. Without an adequate agricultural and mineral base in the territory left to it and with the old trading relations of the relatively self-sufficient empire and customs union broken, Austria found itself without adequate food supplies for its population and without sufficient coal for its industry. At the same time, its industrial capacity was excessive for the reduced home market. Relief credits grudgingly given by the Allies kept the country from complete chaos for a time, but devastating inflation in the early 1920s brought it close to economic collapse. Finally, in 1922, a League of Nations commission agreed on a program of international financial support that brought currency stabilization and a balanced budget.

Under the austerity program that ensued, considerable progress was made toward economic reconstruction. Because of the austerity, however, it was also a period of high unemployment and political and social unrest. When the worldwide depression that began in 1929 put an end to this brief period of economic progress, Austria was ripe for the disorders of the 1930s and for the annexation (Anschluss) by Germany in 1938. This takeover brought an unanticipated measure of economic recovery to Austria as a result of the German buildup of war potential. In order to serve Nazi goals of conquest, most of the existing Austrian industries were expanded and modernized, and several new industrial complexes were established.

Austria emerged from World War II with its economy shattered. The loss of life and the damage to industry and transportation had decreased production to only one-third of its prewar level. Reestablishment of the economy was both hampered and helped by the division of Austria into four Allied occupation zones after the war and by the ensuing ten-year period of foreign occupation. The presence of foreign troops encouraged the Austrian people into a more cooperative attitude toward each other and toward their leaders than that which had prevailed in the interwar period. As a result, the uncompromising divisiveness that had dominated Austrian economic, social, and political life between the wars gave way to a spirit of cooperation that extended well after the occupation ended.

During the occupation, the primary objective of the Soviet Union seemed to have been the exploitation of the Austrian economy. Although the Western Allies had successfully prevented the exaction of outright reparations from Austria, they agreed to give the Soviet Union "full and unqualified title" to all German assets in eastern Austria, that is, the part of Austria under Soviet occupation. Soviet leaders put the broadest possible interpretation on the term German assets and dismantled and removed to the Soviet Union much of the movable industrial equipment. Fixed installations were formally confiscated and put into production to serve Soviet interests. When the occupation ended with the signing of the State Treaty in May 1955, the Soviet Union had under its control some 450 firms with 50,000 employees--some 10 percent of the Austrian industrial labor force. Under the terms of the treaty, Austria agreed to make reparation payments to the Soviet Union in oil, other goods, and cash to compensate for the return of these Soviet-controlled assets. The payments, which were completed in 1963, totaled S7.1 billion.

The Western Allies, in contrast, invested considerable effort, money, and material under United States leadership in reconstructing the Austrian economy. The initial effort consisted primarily of relief goods channeled through the United Nations Relief and Rehabilitation Administration (UNRRA). This program, involving over US$300 million from the United States alone, was replaced in 1948 by the European Recovery Program (commonly known as the Marshall Plan). Under the plan, the United States provided US$962 million in aid in the form of consumer goods, raw materials, and capital equipment. The total amount of foreign aid received by Austria between 1945 and early 1955 was US$1.6 billion.

The contrasting policies of the Soviet Union in the eastern zone and those of the Western Allies in the rest of Austria had significant implications for the future of the Austrian economy. In the first place, most United States aid went for economic reconstruction in the Allied occupation zones, rather than in the Soviet areas, to prevent its suffering the fate of capital assets already in Soviet hands. This meant, in turn, the creation of employment opportunities in western Austria that, together with the more relaxed living conditions and political freedoms, stimulated a steady movement of the population westward from Soviet-occupied eastern Austria. Thus, the industrialization of the Austrian hinterland, which had started for military purposes during the Nazi occupation, was further advanced. Finally, the more constructive behavior of the Western Allies encouraged cooperation with Austria's coalition government and created an atmosphere of continuing cooperation, virtually guaranteeing a Western orientation for Austria's economic policies after the occupation.

Within the limited scope of economic matters left for Austrian determination during the occupation, two major developments carried over into the postoccupation period and had significant influence on the future course of the economy. The first was the nationalization of a large segment of Austria's heavy industry. The second was the establishment of a mechanism for coping with inflationary pressures through joint agreements on wages and prices reached by the representatives of business, agriculture, and labor.

The nationalization acts of July 26, 1946, and March 26, 1947, were designed to effect the systematic reconstruction of the basic materials industries after the heavy damages suffered during the war, to channel their output and services toward the reconstruction of other elements of the Austrian economy under impartial government direction, and to maintain some degree of Austrian control over these assets during the occupation. Although the Soviet Union objected to the nationalization laws insofar as they applied to former German properties, the other Allies were able to override Soviet efforts to block these laws. The Soviet Union did prevent their application in the Soviet Zone. As a result, about half the enterprises there, including the entire petroleum industry, were kept from Austrian control until after the occupation ended.

About seventy industrial enterprises and plants were selected for nationalization. The enterprises and plants included the most important lignite mines, the largest iron and steel works, the nonferrous metals mining and smelting works, the most important petroleum extraction and processing installations; a number of firms involved in steel construction and in mechanical engineering, a major chemical concern, and a major shipping company. Outside the manufacturing sector, the three largest credit institutions and the most important electrical energy installations were also nationalized.

The problem of compensation to the former owners, which had been left undetermined by the original legislation, was covered by laws passed in 1954 and 1959. Under this legislation, compensation was largely covered by issuing federal bonds to the former owners. These bonds, together with the small cash sums paid out, amounted to about S515 million.

The second economic event of fundamental importance was establishing mechanisms to settle wage-price disputes. The initial wage-price agreements were stimulated by unusual inflationary pressures in 1947, which had increased prices nearly threefold since the end of the war. Possibly with the specter of the inflationary period of the early 1920s in mind, four key interest groups--the chambers of commerce, agriculture, and labor and the Austrian Trade Union Federation (�sterreichischer Gewerkschaftsbund--�GB)--joined forces. They established the Economic Commission, negotiated a schedule of fixed prices for essential goods and services, and adjusted wages and pensions to that schedule. Although the Economic Commission had no legal standing and compliance was voluntary, the first of these agreements, covering the period from August through October 1947, was sufficiently successful to lead to a series of renewals over the next four years. These agreements slowed, but did not stop, the rate of inflation, which averaged 35 percent annually until 1951. Additional stabilization measures were necessary that year, including credit restrictions, an increase in the bank rate, and such fiscal measures as cuts in government spending and increases in taxes. Most important, however, these measures were accompanied by voluntary price reductions and a postponement of wage demands arrived at through the wage-price agreement procedure. This brought a degree of price stability, in marked contrast to the inflationary explosion of the comparable period after World War I.

At the time of the signing of the State Treaty in May 1955, the economy had largely recovered from the effects World War II. The gross domestic product, in constant prices, had more than doubled since 1946, the first full year of peace, and was 47 percent above that of 1937, the last full year of Austrian independence. Although industrial facilities in the Soviet Zone that had been returned to Austrian control were in poor condition--particularly the oil fields--most of the industrial structure in the Allied occupation zones had been revived and modernized, largely through the application of Marshall Plan funds. Relative price stability had been achieved, and the 1955 unemployment rate of 5.8 percent, although high by subsequent standards, was at least an improvement over the 1953 rate of 8.8 percent and was tending downward. Finally, Austrian independence arrived at a time of growing European prosperity as the full effects of the Marshall Plan were being felt. Thus, Austria was able to take its place in the economy of Western Europe and to share in the prosperity that characterized the postwar period.

You can read more regarding this subject on the following websites:

BMF - Economic Policy in Austria - Austria - Economic Growth And Government
Austria Economy - GDP, Inflation, CPI and Interest Rate
The economic and social situation in Austria -

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