Troubled Affluence

AUSTRIA Troubled Affluence

On the surface, Maine-sized Austria hums with gemuetlich prosperity. Unemployment shrank last year to a negligible 2%, and wages rose faster (10%) than the cost of living (6%). Last week pre-Easter shoppers crowded Vienna's Kaerntnerstrasse, splurging on everything from spring ski sweaters to imported delicacies like pate de foie gras and French Beaujolais. Swarms of Volkswagens, Fords and Austrian-built Puchs choked the streets of downtown Vienna, where private autos were a rarity only ten years ago. Travel reservations for the Easter holiday were virtually unobtainable.

Despite such symptoms of affluence, the Austrian economy is in trouble. In sharp contrast to the U.S. and most of Europe, Austrian industrial investment in new plants and equipment has dwindled by an average 4% a year for four years, and the decline seems sure to continue throughout 1966. The investment shrinkage is undermining Austria's ability to compete in its biggest foreign market, the European Economic Community, which took 47% of the country's exports last year.

The Hobbled & the Small. Exports are falling while imports rise, and productivity gains by Austrian labor have slowed. Many experts feel that the economy is headed for slow stagnation. Professor Franz Nemschak, head of Vienna's Institute for Economic Research, warned last week that "Austria will surely go downhill unless we weed out the weaknesses in our economy."

The chief weakness lies in the nationalized 53% of Austrian industry: steel, aluminum, oil, chemicals, leather, paper and lumber, plus the deficit-burdened state railway. Hobbled by price control, high taxes to finance lavish welfare programs and a chronic lack of capital, both nationalized and private industry have been loath to expand into new product lines or even to modernize plants rebuilt after World War II with $1 billion of Marshall Plan aid. On top of that, much of private industry is fragmented into pint-sized firms--25% employ no more than 20 persons. Predictably, they turn out goods in small volume at comparatively high prices.

Fortunately, food remains cheap and 1913-vintage rent control keeps the cost of city housing down to a mere $4 to $8 per month. Even so, Austrian workers earn an average of only $1,500 a year, and the Austrian standard of living lags so far behind that of its Western neighbors that some analysts fear a massive emigration of skilled manpower.

Harsh Prescription. Hoping to gain ground in the great European prosperity race, Austria's new conservative-led coalition government is pressing hard for some kind of alliance with the Common Market. Though barred from full membership by its peace treaty with Russia, Austria believes that even "associate" status in the EEC would mean tariffs so low that competition would force its sluggish home industries to become more efficient. Of course, some Austrian firms would perish in the process. "They'd die anyway eventually," shrugs Austrian EEC Envoy Eugen Buresch. As harsh as that prescription sounds, Austria seems willing to swallow it to bolster its economic strength.

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