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Austria – why the public-sector economy is doing so well

Updated on January 7, 2013

Back in June 2012 I visited Austria as a part of a work related study tour of similar businesses in Europe. What I saw in Austria compared to Northern Europe and the UK was an economy that appeared to be doing really well and a sense of wealth and consumer spending which seemed to be absent from other parts of Europe.

In my naivety I thought that old money and tourism was keeping Austria afloat, but an article in the Foreign Policy magazine by Dardis McNamee explained the real reason being the Austrian miracle in these austere times.

Austria Today

In nations like Spain and Greece unemployment is running at 25% and 50% for those under 25. In the EU the rate is 10.6% and 11.6% in the Euro Zone. So, how can Austria be running at just 4.4%. Mercer has just reranked Vienna as being the #1 city on the Quality of Living index in what seems to be a recession proof nation.

What is the Austrian secret?

It is a combination of a central commitment to social market economics where ‘individual and corporate prosperity depend on the prosperity of the social partnership’ and a productive, competitive manufacturing sector.

In Austria parliament receives recommendations from negotiated discussions between representatives from labour, industry, government and academia on such diverse topics as job security, wages, pensions, unemployment insurance and other workplace standards. Imagine getting all these parties together in nations such as Australia or the USA let alone developing a consensus. But this is what occurs in Austria and during the initial crunch of the GFC this enable all parties to work together to help Austria pull through largely unaffected.

This concept of social partnership enabled manufacturing workers (primarily in vehicle manufacturing) to volunteer to take reduced hours to protect their industry and their job. In the early days of the recession 66,000 workers were affected, today just 2,000 are on reduced hours.

The other initiative is the heavy investment in training and education, especially for workers on reduced hours and youth. This €1 billion budget has enabled Austria to have people meaningful engaged, as well as more educated which has assisted the nation as they emerged from the worse of the GFC.

Austrian’s are also prone to save. In 2011 7.5% of the annual income was saved by Austrian householders. While this was slightly down on 2010 (8.3%), what is encouraging for retailers is that disposable income also increased by 2.6% for households. The research indicates that when Austrians are confident that their basic needs are covered they are happy to use their savings to continue spending. This helps to create output for the economy as well as keeping employment levels steady.

Images of Vienna

That’s Why!

So, this explains in better detail what I experienced back in June. In the height of austerity plans in Europe I met people who really loved living in Vienna and I saw plenty of people in the cafes, restaurants and bars enjoying great nights out.

The city was full of tourists enjoying the many museums of this ancient capital and this added to the buoyancy of the nation. Even in the regional areas there was a sense of optimism and this can be based almost entirely on the success that the socialist Austrian government has built around consensus and active participation between labour, industry and government.

Cheers Michael

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