Economy

   The shift from an agrarian to a capital-driven industrial economy has taken longer in Austria than in many other regions of Europe. The agricultural base of the Austrian lands has always been in the east, especially Lower Austria; its mountains, the Alps, although they are heavily forested and once held important veins of precious metals, particularly in the Tyrol, have limited both population and economic growth in those regions for centuries.

   As part of the Habsburg Empire, the Austrian lands were both advantaged and disadvantaged economically. The dynasty’s panEuropean responsibilities—defense against the expansion of the Ottoman Empire from the 16th through the end of the 17th centuries and the wars associated with the re-catholicization of central and east central Europe during the Counter-Reformation—siphoned off capital from the Austrian lands that otherwise might have gone into economic enterprises. Cities such as Vienna, an important trading center in the Middle Ages, were reduced to administrative garrisons, and by the beginning of the 18th century could not compare with Paris, London, or Amsterdam in economic importance. The nobility of the Habsburg lands, including those territories now in modern Austria, retained extensive control over their agricultural workforce, much of which was enserfed, thus discouraging the labor mobility that would be a precondition for economic growth throughout Europe. The industrialization of the Habsburg Empire began seriously in the second half of the 18th century during the reigns of Maria Theresa and her son, Joseph II. Starting in the textile sector, the growth of manufacturing was immeasurably encouraged by the spread of railroads, which began in the first half of the 19th century. However, this development did not take place uniformly throughout Austria. Rather, it was concentrated in Lower Austria and, to a lesser extent, in Styria and Carinthia. Private banking, represented by such institutions as the Creditanstalt Bankverein, also grew significantly during this period.

   The most explosive spurt to the industrialization of Austria came after the Ausgleich between Austria and Hungary in 1867. Large numbers of firms were founded, many of which would not survive the financial panics that were a feature of the 19th-century economy or would be absorbed into huge conglomerates organized by leading industrialists such as Carl Wittgenstein. Some of these enterprises were in the east and southeast of Austria, but the most important of them lay in the kingdom of Bohemia.

   World War I and the Treaty of St. Germain, which ended the conflict for Austria, produced an economic catastrophe. Traditional markets in eastern Europe shunned Austria as a partner in international trade, and aside from forestry, the instability of Austria’s currency discouraged the development of new export markets. The bulk of the Habsburg Empire’s heavy industrial infrastructure remained in the new Czechoslovakia. Unemployment was rampant throughout the interwar period, and the country depended heavily on subsistence agriculture. Although German investment in Austrian heavy industry during World War II brought about some recovery in that sector, Allied bombing had heavily damaged manufacturing and transportation sites.

   It was not until after World War II that the Austrian economy returned to pre-1914 productivity levels. Led by textiles and heavy metals, the latter heavily nationalized, Austria joined the ranks of industrialized nations. Its primary agricultural population shrank significantly. Challenged by greater global competition, Austria began to privatize its economy systematically in the latter half of the 20th century. Membership in the European Union since 1995 has only intensified this development.

   In 2005, for the first time the economic performance of Austria outdistanced the Federal Republic of Germany in per capita gross domestic production and growth and a favorable ratio of debt to Gross Domestic Product. Austrian labor costs, corporate income taxes, and unemployment figures were lower. Germans, on the other hand, worked about 200 hours less per year than their Austrian counterparts. The rate of corporate relocations from abroad to Austria, German firms among them, was up as well. Although taxes remain relatively high—roughly 42.9 percent of gross pretax earnings—various kinds of income transfer payments and subventions in the country lower that figure to around 16.20 percent. In 2006, close to 68,000 Austrians were worth over 1 million euros.

   The international economic downturn that began in the summer of 2007 affected Austria seriously. Financial and government authorities thought that the country would avoid the worst consequences of the mortgage meltdown in the United States, but major Austrian banks were as heavily invested in aspects of this market as some of their German and Swiss counterparts. As equity prices fell in the credit crisis of 2008, the Austrian Financial Credit Authority that oversees the Vienna Stock Exchange prohibited short selling on 10 October. It also ordered the suspension of trading should prices of securities fluctuate up or down by 10 percent. In a special session called on 20 October, the Nationalrat adopted a financial package that provided unlimited guarantees for savings and other personal accounts.