75
I
n May 1931 the Creditanstalt, one of Austria’s oldest and most
important banks, collapsed under a mountain of debt. In other
small countries the ruin of a big banking concern might have
caused some local economic problems, but it probably would not
have precipitated a major world crisis. The Creditanstalt failure,
however, was different. Austria lay at the heart of Europe’s intricate
financial web—a web that had been dangerously frayed by the Wall
Street crash of the New York Stock Exchange in 1929. The repercussions
from the collapse of the Creditanstalt were devastating. Other
European banks began to topple and fall, and the panic spread across
the Atlantic to North America. Soon, the entire world was in the grip
of an economic malaise that became known as the Great Depression,
the slump that in part brought about the rise of the dictatorial
regimes of Europe and Asia and the outbreak of World War II.
Austria’s
Economy
6
Thankfully, Austria’s role in the world economy has rarely
been as catastrophic as it was in 1931. But the fall of the
Creditanstalt is a dramatic example of Austria’s importance
to the international financial community. Despite its modest
size, Austria’s location and resources have long been vital to
European economic development. Historically, Austria has
gone through a long and—at times painful—transition from
a mainly agricultural to a high-tech capitalist base, and in
the 21st century it faces new challenges as it adjusts to the
changing economic realities of globalization and the decline
of old heavy industries.
Land and Resources
As you might imagine, a country as festooned with mountains
and forests as Austria has never been an easy place to
develop economically. This is not to say that the Alpine lands
are without value, however. On the contrary, Austria has many
useful economic resources such as metals, minerals, timber, and
even oil and gas. The problem for Austrians throughout history
has not so much been the scarcity of useful raw materials as
the difficulty of extracting them from a challenging terrain; the
areas richest in assets have often been hardest to utilize.
By the sixth century B.C. settlers were mining the salt deposits
in the Salzburg region, from which the name of the province
derives. It was however copper, and above all iron, which
attracted early entrepreneurs like the Romans to Austria; the
famous Iron Mountain (Erzberg) in Styria, made almost entirely
of its namesake metal, has been strip mined for centuries for
its valuable ores. In more recent years Austria’s hillsides have
also yielded magnesite (a key ingredient in modern chemistry),
lead, lignite, and zinc. The thick belts of forest covering these
hills can also be used for timber and paper.
Austria has several important energy resources, though not
nearly enough to sustain the huge demands of its modern
economy. Although some petroleum and natural gas deposits
76 Austria
have been discovered in the eastern part of the country, and it
is estimated that the whole region north of the Alps may lie on
top of a vast underground oil field that could one day be
tapped, for the time being Austria still has to import most of its
petrol, coal, and gas supplies from abroad. Electricity is a different
story, however. About two-thirds of Austria’s electric supply
comes from a series of ingenious hydro dams, which use the
waterpower of the country’s lakes and rivers to turn enormous
turbines, generating inexpensive and pollution-free electricity.
Agriculture has always been difficult in Austria for practical
reasons, and in recent years it has become a thorny political
question as well. Only the eastern part of the country, around
the Danube Valley, is really suited to traditional arable farming
of cereal crops, potatoes, and sugar beets. Farmers in the hillier
Alpine regions, where the land is more rugged and difficult to
plough, prefer to keep livestock such as pigs, poultry, and cattle.
Before World War II a fairly large proportion of the Austrian
labor force, especially in the west, was still concentrated in
the agricultural sector. After 1945, however, the share of the
population living or working on farms dwindled rapidly.
Ironically, part of the reason for this is the enormous
increase in agricultural productivity that modern farming
methods, especially mechanization, have produced; Austria is
now capable of supplying all of its own cereal, meat, and
milk needs, which has meant that many farming communities
have been surplus to requirements and have drifted out of
agriculture altogether, switching to tourism for their income.
The postwar decline of the Austrian small farm raised
concerns among many citizens that the traditional social fabric
of their countryside was in jeopardy. The government in
Vienna responded to this by becoming heavily involved in the
agricultural industry, setting minimum market prices and
providing generous subsidies to farming concerns. This has
kept the remaining Austrian rural sector at an artificially stable
size, but it has ill-prepared the country’s farmers for the
77Austria’s Economy
challenges of competition from abroad. Austria’s complex
agricultural regulations were a key sticking point when the
country negotiated its entry into the European Union in the
1990s, and they continue to cast a shadow over its relationship
with its EU partners. Those Austrian farmers who have found
it difficult enough to maintain their traditional pastoral life in
an increasingly industrialized and urban society now worry
that they will lose the government support that has kept their
small family-run farms viable.
Manufacturing and Services
One of the paradoxes about Austria is that a country with
such a landscape of wilderness should also be a major conduit
of human contact and communication. As we saw earlier,
the Austrian Alps are intersected by a series of mountain
passes that provide a land bridge between the Baltic and
Mediterranean worlds, while the River Danube connects
Western Europe to the Balkans and the Black Sea. It is not
surprising, then, that Austria has long played a major role in
transcontinental trade, with Vienna acting as one of the key
commercial centers of medieval Europe. This mercantile
heritage provided the foundation for Austria’s important role
as an industrial and financial hub in the modern era.
Modern Austria is one of the world’s most industrious and
profitable manufacturing nations. The country makes and
exports sophisticated goods like specialized ores, tools, textiles,
glass, and porcelain as well as many unique luxury items
requiring skilled workers and equipment; about half of all
the world’s skis are made in Austria, for example, perhaps not
surprising given the local demand for them. During the 1950s
and 1960s, Austria predominantly invested in traditional heavy
industries like steelmaking, and a large proportion of the
country’s workforce was employed in large smokestack factories,
producing industrial goods for engineering and machine
works. During and after the 1970s, however, there was a slow
78 Austria
but steady global decline in the demand for this kind of
production, and the focus of the Austrian economy shifted
from metals and chemicals to the “service” sector—industries
like retail trade, banking, and telecommunications. This was
a difficult transition for a mass workforce used to factory
methods, and like many European countries Austria suffered
serious unemployment.
One service industry in particular, tourism, is especially
important to the modern economy. Austria has the highest per
capita income from tourism in Europe, and the country’s
79Austria’s Economy
Navigable by barges from Ulm, and by larger craft from Regensburg,
the Danube is an important shipping route, with canals linking it to
other ports.
unquestionable natural charms, rich cultural heritage, modern
amenities, and central location make it an obvious destination
for foreign travelers. Indeed, catering to the world’s vacation
seekers has become so critical a facet of Austria’s economic
life that all of its political decisions must take the potential
impact on tourism into account. The country’s new focus on
environmental responsibility has been propelled partly
because it was feared that Austria’s lucrative beauty spots
might be in peril from pollution. Unfortunately, mass tourism
tends to create ecological pressures of its own, and so the
80 Austria
Skiing remains a major attraction in the Austrian Alps. Each year,
thousands of enthusiasts gather at places like Stubai Glacier to
enjoy the sport and the dramatic scenery.
desire for ever-greater numbers of visitors has to be weighed
carefully against Austria’s environmental sustainability.
National Industries and Privatization
In 1946 the new postwar Austrian government introduced
a nationalization law that put control of the country’s 70 most
important industrial companies in state hands. The government
became the sole owner of Austria’s mining, oil refining, and
electrical-power industries and also took responsibility for all
major banks. In a single sweep, Austria’s government now
employed one-fifth of the country’s labor workforce and soon
controlled a higher proportion of national productive output
than any other country in Western Europe.
This system of state paternalism has characterized Austria’s
economy for most of its modern history. It has been a policy
with mixed success. Nationalization brought full employment
and the guarantee of stability to a people who unsurprisingly
ranked economic security highly on their list of wants. During
the 1950s and 1960s, while Austria enjoyed rapid economic
growth from its postwar ruins, nationalization remained
popular with the voters. But as the 1970s ushered in a period of
worldwide economic fluctuations caused by an energy crisis
and the decline in heavy industrial demand, critics began to
voice complaints about the system. It encouraged economic
sluggishness and lack of entrepreneurial zest, they claimed, and
the managers of the state companies were too closely connected
to leading politicians; nationalization was at best inefficient—
and at worst corrupt.
Between 1975 and 1985 Austria’s ruling Socialist Party
(SPÖ) introduced numerous institutional reforms intended to
make the country’s nationalized industries more cost effective
and less beholden to political interests. The collapse of the
Soviet Union and the communist Eastern Bloc in 1989 to 1991
and Austria’s correspondingly new relationship with the
European Union (for which see more below) encouraged even
81Austria’s Economy
more radical changes, and during the 1990s the process of
economic privatization began in earnest. For all of its newfound
enthusiasm for the free market, however, Austria remains by
Western European standards a country with an unusually large
amount of government influence in the economy.
It is ironic in light of all this that Austria’s most significant
contribution to modern economic theory, the “Austrian
School” of economics, is characterized by a distrust of the state.
The Austrian School was founded by a group of professors
teaching at the University of Vienna at the beginning of the
20th century, and although their individual attitudes varied
somewhat, one of the school’s overall beliefs was that governments
should interfere in the workings of the market economy
as little as possible. The most important student of the Austrian
School was Friedrich Hayek (1899–1992), a Viennese-trained
economist who emigrated to Great Britain during the 1930s.
Hayek’s famous book, The Road to Serfdom, was influenced by
developments he witnessed in the Nazi and Communist
spheres. He won the Nobel Prize for Economics in 1974.
The “European Question”
Perhaps the most pressing of all Austria’s economic problems
is its relationship with the European Union, or EU, which it
joined in 1995.
The postwar Austrian government was committed to a
policy of neutrality during the Cold War between the United
States and the Soviet Union. This meant, among other things,
that Austria had to avoid becoming involved in entangling
political relationships on either side of the Iron Curtain, and this
prohibition included membership of the EU—originally known
as the European Economic Community, or EEC—founded in
1958 by France,West Germany, Italy, and the“Benelux”countries
(Belgium, the Netherlands, and Luxembourg). Although
officially concerned only with matters of international trade,
from its very beginnings the membership of the EEC had clear
82 Austria
political implications, and these became more explicit during
the 1970s and 1980s as the organization moved toward greater
legal unity between its member states.
In 1960 in place of the EEC, Austria joined what was
known as the European Free Trade Association (EFTA), a less
closely linked group of states that included Great Britain,
Portugal, Switzerland, and the Scandinavian countries. EFTA
never really prospered, and as more of its members left to join the
EU, Austria found itself more and more economically isolated.
This limited Austria’s export growth but also allowed it to
manage its domestic economy without outside interference.
The end of the Cold War released Austria from its vow of
neutrality and opened up the possibility of joining the EU. This
initiated an often-rancorous debate within Austria about the
country’s proper relationship with the rest of Europe, a debate
that crossed traditional party lines and created unusual coalitions
of left- and right-wing politicians. The public remained skeptical,
and the 1995 vote in favor of membership by a 66 percent
majority was by no means preordained.
Austria’s place within the Union remains an ambivalent
one. Membership gives Austrians unprecedented access to one
of the richest commercial markets in the world, but it has also
required the country to reduce its large budget deficit and
deregulate its rigorously controlled financial and energy
industries, a process that it still taking place. Integration into
the EU opens up the unwelcome prospect of competition
from outside, while some Austrians have seen the Haider
controversy as an intrusion into their own democratic decision
making. The replacement of the schilling with the euro as
the country’s monetary unit in 2002 will likely heighten these
tensions as well as open up new business opportunities.
Although Austria has re-entered the mainstream of European
economic development, not all Austrians agree as to whether
their country really belongs there.
83Austria’s Economy
99
Facts at a Glance
Land and People
Official Name Republic of Austria (Republik Österreich).
Capital and Seat Vienna (1991 population: 1,533,000).
of Government
Other Major Cities Graz (1991 population 232,000), Linz (202,000),
Salzburg (143,000), Innsbruck (114,000).
Language German.
Area 32,378 square miles (83,858 square kilometers).
Population 8.07 million (1998 census).
Population Density 249 persons per square mile (1998 census).
Religion 78 percent Roman Catholic, 5 percent Protestant, 17
percent none or other.
Highest Point Grossglockner, 12,460 feet (3,798 meters).
Mountain Ranges Austrian Alps (Bavarian, Carnic, Kitzbühel, Lechtal,
Ötzal Ranges).
Major Rivers Danube, Drava, Enns, Inn, Mur.
Economy
Currency Euro (replaced Austrian schilling in January 2002).
Chief Agricultural Products Grain, fruits, potatoes, sugar beets.
Major Industries Construction, machinery, vehicles and parts, food,
chemicals, lumber and wood processing, paper and
paperboard, communications equipment, tourism.
Natural Resources Iron ore, oil, timber, magnesite, lead, coal, lignite,
copper, hydropower.
Government
Form Federal Republic.
Suffrage 19 years of age, universal. Compulsory for
presidential elections.
Legislative Assembly Bicameral: two legislative houses, National Council
(Nationalrat), Federal Council (Bundesrat).
Head of Government Chancellor.
Head of State President.
Political Divisions Nine self-governing Länder (provinces): Burgenland,
Carinthia, Lower Austria, Upper Austria, Salzburg,
Styria, Tyrol, Vienna, and Vorarlberg.
History at a Glance
100
7000 B.C. Earliest known human settlement of Austria.
1000–400 B.C. Halstatt civilization.
400–15 B.C. Celtic civilization (kingdom of Noricum).
15 B.C.–405 A.D. Roman occupation.
782 Franks establish Eastern March.
880 Magyars conquer Eastern March.
955 Eastern March re-established by Frankish King Otto I.
976 Leopold of Babenberg made Margrave of Eastern March.
Beginning of Babenberg period.
1246 Death of the last Babenberg, Duke Frederick II.
1273 Rudolf of Habsburg elected Holy Roman Emperor.
1278 Rudolf conquers Otaker II of Bohemia at the Battle of the
Marchfeld and becomes Duke of Austria. Beginning of
Habsburg period.
1365 University of Vienna founded.
1440 Frederick III elected Holy Roman Emperor. Habsburgs continue
to hold the title almost without interruption until the empire’s
dissolution in 1806.
1516 Charles V becomes king of Spain, completing his enormous
territorial inheritance.
1521 Charles hands over power in Austria to his brother Ferdinand.
Division of the Habsburg family into Austrian and Spanish houses.
1526 King Louis of Bohemia and Hungary killed by Ottoman Turks at
the Battle of Mohács. Ferdinand claims both titles but is able to
gain complete control only of Bohemia.
1529 Ottomans unsuccessfully besiege Vienna.
1618–1648 Thirty Years’ War.
1683 Ottomans attempt second unsuccessful siege of Vienna. In the
ensuing rout, Austria conquers all of Hungary.
1701–1714 War of the Spanish Succession.
1716–1750 Main years of Baroque artistic period.
1740–1748 War of the Austrian Succession.
1756–1763 Seven Years’ War.
1781–1791 Wolfgang Amadeus Mozart composing in Vienna.
1792–1815 French Revolutionary and Napoleonic Wars. Abolition of Holy
Roman Empire (1806). Period ends with Congress of Vienna.
History at a Glance
1815–1848 Main years of Biedermeier artistic period.
1848–1849 Revolution throughout Austrian Empire. Hungarian uprising
quelled by Russian troops. Franz-Josef becomes emperor.
1848–1897 Main years of Historicist artistic period.
1866 Austro-Prussian War.
1867 “Compromise” (Ausgleich) with Hungary: Empire renamed
Austria-Hungary.
1897–1918 Main years of Jugendstil artistic period.
1914–1918 World War I, precipitated by the assassination of Archduke Franz
Ferdinand in Sarajevo (1914).
1916 Death of Emperor Franz-Josef.
1918 World War I ends with collapse of Austro-Hungarian Empire.
End of the Habsburg period.
1919 Treaty of St. Germain. Federal Republic of Austria created.
1927 “Black Friday” police action against left-wing demonstrators
leaves over 90 dead.
1931 Collapse of the Creditanstalt bank ushers in the Great Depression.
1933–1934 Political crisis. Chancellor Dollfuss suspends parliament, suppresses
Social Democrat uprising, is killed in unsuccessful Nazi putsch.
1938 Anschluss (union) between Austria and Nazi Germany.
1939–1945 World War II. Ends with Austria occupied by France, Great Britain,
United States, and USSR.
1955 Austrian State Treaty. Second Federal Republic created.
1966 End of Grand Coalition between socialists and People’s Party.
1986 Kurt Waldheim elected president under great controversy.
1995 Austria joins European Union (EU).
1999 Right-wing Freedom Party of Austria joins government. Diplomatic
sanctions imposed by EU.
2002 Austria replaces its own currency, the schilling, with the EU euro.
101