Austria ECONOMIC GROWTH AND GOVERNMENT POLICY
Vineyard at Retz in the province of Upper Austria
Courtesy Embassy of Austria, Washington
Historical Background
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
(see The First Republic
, ch. 1). 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
(see The Anschluss and World War II
, ch. 1). 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
(see Restored Independence under Allied Occupation
, ch. 1).
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 (for value of the
schilling--see Glossary).
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 (Österreichischer
Gewerkschaftsbund--ÖGB)--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
(GDP--see Glossary), 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.
Data as of December 1993
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