Austria remains in demand as a European business location. In recent times, domestic companies, the government and social partners have demonstrated Austria’s resiliency during the most severe financial and economic crisis since the 1930s.
With the economic recovery packages, the banking package and the generous and flexible implementation of short-time work by companies and public authorities, nearly 86,000 jobs could be saved during this time! Internationally, Austria was among the top five EU member states in an OECD comparative study! The respectable real growth of the Austrian economy of 1.0 per cent in the second quarter of 2011 compared to the same quarter of the previous year represents a significant contrast to the majority of countries in the eurozone. This is testament to the strength of the red-white-red economy. However, we must not forget that Austria’s economy cannot isolate itself completely from international uncertainties and risks.
Economic researchers anticipate that the coming year will see a weakening of the economy and we will not remain unaffected by the concern over Europe as a business location and the debt crisis.
As a small business location in the heart of Europe, it is therefore even more important that we increase our competitiveness and maintain our attractiveness for foreign investors.
In 2010 alone, an increase of 25 per cent was achieved in businesses moving to Austria. Strong growth was registered especially in companies from Germany and the CEE/SEE and BRIC countries. The incoming companies invested 221.1 million euros, which is a 166 per cent increase in investments in Austria compared to the previous year.
Exports as a running horse. The development of Austria’s foreign trade reflects the success of an economic policy focused on competition. Following a decline during the crisis, annual export rates of ten per cent are expected in 2011/2012. The share of innovative SMEs in Austria is the third highest in Europe. This includes process innovations, for example, used to integrate technologies developed by other companies. The successful niche policy is based on extensive flexibility and well-educated specialist workers, as well as on integration into international value chains and effective partnerships between small and medium-sized businesses.
Social stability. This is an important requirement for planning investments and the quality of the location. The capacity to solve problems and the adaptability of the Austrian social partners have resulted in strikes – if at all – being measured in seconds and social security in Austria being very high. The social partners in Austria understand themselves as being the managers of change, who always attempt to represent the overall interests of our country alongside those of their members. In over 60 years, the actions of the social partnership have contributed significantly to Austria’s rise to become one of the most prosperous and stable countries in Europe.
The economy is improving. As a result of the excellent performance of domestic companies, tax revenue for the Ministry of Finance is increasing. To not tackle the challenges which Austria faces now would be a cardinal sin. This includes budget consolidation, climate and environmental protection, securing the energy supply, the consequences of demographic development, migration and integration as well as ensuring the attractiveness of our business location.
Consistently pursuing the “IQ strategy”.
The future of our location will be decided by the consistent pursuit of the “IQ strategy”. Innovation and quality are the cornerstones with which we can move ahead of the international competition. The fact is that we cannot win a price competition against countries with low wages. Our location is characterised by the quality of its products and services. However, this can only succeed with highly skilled workers. That is why we must promote research, innovation, schools and universities, in order to be prepared to meet the challenges of the future. Educational reform is therefore of vital importance. The dual training of our apprentices is among the best in Europe. The excellent performance of our apprentices was demonstrated impressively recently by the flood of medals won at the EuroSkills competition. However, achievements in schools are not as impressive, as the Pisa results demonstrate. Feedback from business also reinforces the need for taking action without delay. Many businesses criticise the lack of basic education shown by school leavers at the start of their apprenticeships: they demonstrate sometimes alarming deficits in economic knowledge, reading and mathematics. This means that we must develop and foster the potential of our young people, whatever their talents and skills, to the best of our ability. We must also use opportunities provided by career guidance. Even today, most female apprentices become hairdressers, retail salespersons or office clerks. We must inspire girls to go into technical fields, too. Industry is using higher salaries as just one enticement.
Competition for the best minds.
The demographic change certainly does plenty to aggravate the situation. The birthrate in Austria declined by over 20 per cent between 1993 and 2001. This trend will continue to worsen. At the same time, an increasing number of the baby boom generation, born in the 1950s and 60s, are reaching retirement. The Red-WhiteRed Card, which allows immigration of skilled workers from third countries based on specific criteria, will help to alleviate the situation. The full liberalisation of the employment market will also provide relief. However, development cannot be stopped. Retail and trades alone calculate their requirement for skilled workers at 13,000 people. The competition for the best minds has begun and Austria must be among the leaders in order to not fall behind.
Universities, too, are lacking money. While the federal subsidies for pensions will increase to 12 billion euros by 2014, universities demand a comparably small amount of 300 million euros. This is where we need to begin. And if we established a greater number of all-day schools, in which students can be better cared for and educated by specialist teachers, a great deal would be accomplished. In return, savings must be implemented in school administration, for example by eliminating district and provincial school boards. This has already been agreed in governmental treaties; now the government just has to implement it.
Education will therefore be one of the most crucial issues facing the business location in the coming years, because Asia – in particular India and China – but also South America, are catching up very quickly. These countries not only have many young and hard-working employees, but also have a growing number of highly skilled and specialised workers.
Debt hinders growth. There is also a need for action in budget consolidation. The financial framework recently passed calls for an increase in the debt ratio by 2013. This will bring the deficit to 75 per cent of gross domestic product, representing an unprecedented, historic high for the Second Republic. Austria will thus record a debt that is 50 billion euros higher than the imposed debt ceiling of 60 per cent of the gross domestic product. Federal spending on cash and interest alone currently totals 8.3 billion euros. That equals nearly 23 million euros per day. The debt and interest burden has increased to an alarming level in recent years, due in part to the worldwide crisis, but also due to the delayed structural reforms. A family of four would have to pay nearly 4,000 euros every year just for the interest due on the federal debt. This debt burden will hinder economic growth if Austria does not take steps to achieve a sustained reduction in debt and interest.
Only Luxembourg’s citizens retire earlier. It is primarily the pension payments that cause substantial holes in the federal budget. Early retirement has become endemic in Austria, and its effects are frightening. Life expectancy has increased, but the retirement age has dropped significantly. Today, Austrians spend much more time in retirement and education than 40 years ago. The number of years spent contributing is steadily declining, while the pension subsidies paid by the state are reaching dizzying heights. Government expenditures for pensions increased by 53.5 per cent between 2001 and 2010. The international comparison is clear: with an average age for first pension claims of 59 for men and 57 for women, Austria has the lowest retirement age of all OECD countries except Luxembourg. Early retirement under the ‘Hackler’ rule must be eliminated without replacement as soon as possible, by 2013 at the latest. Each year, 70,000 people apply for a disability pension. This flood is also impossible to finance in the long term and must be cut off. The most important goal of pension reform must be to steadily increase the actual retirement age from 58, as at present, to the legal retirement age (60 for women and 65 for men). Working longer must be rewared.
We are now standing at a crucial crossroads. Austria must take the challenges it is facing seriously. Education, research and innovation must be supported, and urgently needed reforms in schools, health and administration must be tackled in order to ensure Austria’s long-term and sustained competitiveness of the location. Business is a reliable partner in and driving force behind these reforms.
The author (born in 1949) studied social and economic sciences. Christoph Leitl is an entrepreneur and a politician in the Austrian People’s Party (ÖVP). From 1977 to 1990, he was the managing director of Bauhütte Leitl-Werke Ges.m.b.H. He has been president of the Austrian Federal Chamber of Commerce since 2000 and chairman of the social insurance service for commerce and industry (SVA) since 2004.