Austria hunts new industry, new policies

Austrian industry is making changes. But is it making the right changes, in the right way, and is it making them fast enough? Austria's economy has done quite nicely, thank you, over the past several years, with above-average growth, low inflation, and low unemployment.

But like virtually all developed countries, particularly those with small domestic markets, Austria is worried about its ability to maintain its industrial base in the face of ever increasing global competition. The Socialist government has put much of nationalized industry on notice: Get into the black by the end of 1986, or else.

Meanwhile, many Austrians feel their industrial future lies less in adapting existing industry than in growing new businesses. ``Innovation'' is on everyone's lips. This has much in common with what's going on elsewhere in Europe and North America, but there are some distinctive Austrian elements.

The most important of these is Austria's ``social partnership.'' This is a longstanding arrangement whereby the Finance Ministry works with the Federal Economic Chamber, the employers' association, and the Chamber of Labor, the legal representative of all workers, to develop basic economic policy and legislation. (The trade union confederation and the farmers' association are also part of the partnership, but the first two groups are the most important partners.)

This partnership is credited with some of Austria's economic successes over the past few years, including reducing the annual strike rate to only a few seconds per worker -- as Austrians are quite pleased to point out.

But critics argue that the social partnership has slowed the rationalization of industry -- perhaps to the point where it may be too late to preserve certain industries. And there is widespread skepticism whether the latest government bailout of the nationalized industries will be the last.

One observer in Vienna flatly says of the plan to cut off industrial subsidies by the end of 1986, ``I don't think they are going to do it,'' and he blames the social partnership and Austria's politicization of industry.

Yes, there has been low inflation and unemployment in Austria, he acknowledges, ``but standards of living are lower here, too.'' And low inflation in Austria has less to do with the social partnership than with a central bank whose monetary policy keeps Austria's schilling in line with the West German mark. ``If inflation weren't so low, the social partnership would be hard to maintain.''

He criticizes the politicized management of Austrian industry, where jobs at the nationalized companies are traditionally the purview of either the governing Socialist Party or the opposition People's Party. ``It's like choosing the players for your baseball team on the basis of whether they're Republicans or Democrats,'' this observer comments. ``You get good people, but not the best.''

And even if management wants to take a tough case and trim jobs, the political hue and cry often prevents it.

Werner Teufelsbauer, economic policy specialist with the Federal Economic Chamber, looks at Austria's industry from the point of view of what might be. He sees the country's future in small and midsize companies -- which, he notes, do not have the same problems with red ink as does the 30 percent of Austrian industry that is controlled either directly or indirectly by the government.

``Austria is not a big country, but it is highly developed, with a high technological standard. We can't do everything well, but in some things we are at the top of the world,'' Mr. Teufelsbauer says.

He cites ``niche companies'' like Fischer, the skimaker, which provides Boeing and Airbus Industries with parts made of the composite materials it developed for ski production.

Still, Austrian firms have to learn to market better. ``There is no strong commercial tradition here,'' he notes. Under the dual monarchy, Vienna was the empire's cultural and administrative center. The business and industrial centers were in Bohemia, Silesia, and northern Italy. In Vienna, ``Profit was not fashionable.''

Too often over the years Austrian manufacturers have aimed at low-cost production. ``But cost competition is not the thing we should aim at,'' Teufelsbauer says. ``That's done by the newly industrialized countries, Taiwan, Brazil, and so on. We've got to get out of this competition.

``To cite our Austrian economist, Schumpeter, you have to try to establish temporary monopolies. You have to go into the earlier phases of product cycles.''

Austria once had a certain advantage: Because so much of its industrial base was destroyed during the war, it had relatively little old machinery. Nowadays, Teufelsbauer suggests, the important thing is not so much having the latest technology to make the traditional products, but making new products -- ``where you can make a nice profit.''

Austrian companies have to think globally when they develop products. But Austrian scientists and inventors have over the years had to face ``inflexible large national companies'' not always as interested as they should be in new products. ``There are no large international companies in Austria who can market worldwide, so you have to go abroad -- to a 3M or Control Data or Du Pont.''

``In the past five years that have been a number of interesting inventions with commercial potential that have been bought and marketed by US companies.''

He cites the case of an engineer at the Technical University of Vienna who developed a microelectronic ear-implant device that could help people suffering from certain kinds of deafness. The product needed a global market. The engineer signed a contract with 3M. ``When the product was in small-scale production here in Vienna, it sold for about $1,500. Now 3M markets it worldwide and it costs about $20,000.''

He criticizes the government for putting too many of its industrial-renewal eggs into the joint-venture basket. Instead of encouraging a number of small, domestic businesses, the government has worked out multimillion-dollar deals, on concessionary terms, with international giants like General Motors and Oki, the Japanese electronics firm. The foreign companies involved have been solid, he notes. ``But what if the automobile market breaks down?''

Choosing his words carefully, Teufelsbauer notes that over the years there has been ``a certain worry that the social partnership has been responsible for petrifying Austrian industry. But the social partnership is changing, a new generation is coming in.''