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A Case Study Of The Adaptation Of A Small National Economy'S Industry To International Competition: Austria

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A Case Study Of The Adaptation Of A Small National Economy'S Industry To International Competition: Austria

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Content T his d isserta tio n has been 64-3100 m icrofilm ed exactly as receiv ed HARVEY, C urtis E r ic , 1930- A CASE STUDY OF THE ADAPTATION OF A SMALL NATIONAL ECONOMY'S INDUSTRY TO INTERNATIONAL COMPETITION: AUSTRIA. U n iversity of Southern C alifornia, P h .D ., 1963 E con om ics, G eneral University Microfilms, Inc., Ann Arbor, Michigan A CASE STUDY OF THE ADAPTATION OF A SMALL NATIONAL ECONOMY’S INDUSTRY TO INTERNATIONAL COMPETITION: AUSTRIA by Curtis Eric Harvey A Dissertation Presented to the FACULTY OF THE GRADUATE SCHOOL UNIVERSITY OF SOUTHERN CALIFORNIA In Partial Fulfillment of the Requirements for the Degree DOCTOR OF PHILOSOPHY (Economics) June 1963 UNIVERSITY O F S O U T H E R N CALIFO R N IA GRADUATE SCHOOL UNIVERSITY PARK LOS ANGELES 7. CALIFO RNIA This dissertation, written by CURTIS ERIC HARVEY under the direction of h%3....Dissertation C om mittee, and approved by all its members, has been presented to and accepted by the Graduate School, in partial fulfillment of requirements for the degree of DOCTOR OF PHILOSOPHY Date.... JHBe.19.63. DISSERTATION COMMITTEE Chdirmt TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION .......................... 1 Statement of the Problem ........... 2 Nature of the problem........... 2 Objectives of this study........ 5 Significance of the problem . . . 6 General Literature to Be Utilized . 7 Definitions and Concepts ......... 9 The concept of the North Atlantic Treaty Organization ........... 9 The concept of the Council of Mutual Economic Assistance . . . 10 The concept of the European Economic Community ............. 10 The concept of the European Free Trade Association............. 11 Analytical Technique............ . . 12 Projected Organization of the Thesis 14 II. SOCIAL, ECONOMIC, AND GEOGRAPHIC ABSTRACT OF AUSTRIA............... 16 Geographic Composition ............. 16 Topographic Composition ........... 17 Demographic Composition ........... 17 Socio-Economic Composition ......... 19 iii CHAPTER PAGE Primate population distribution . 19 Regional distribution of population..................... 20 Population distribution by occupational group ............. 22 Distribution of working population by province .......... 22 III. INDUSTRIALIZATION AND ITS ECONOMIC CONSEQUENCES ..................... 25 Pre-World War II Development .... 25 Pre-World War I development . . . 25 The first republic............... 27 Post-World War II Economic Development..................... 40 General development ............. 40 Stages of postwar development . . 42 Foreign Trade and the Balance of Payments.......................... 55 Foreign trade . ............... 53 The balance of payments and its underlying strength ........... 61 IV. RELATIONS WITH INTRA-EUROPEAN TRADE ORGANIZATION........................ 67 iv CHAPTER PAGE The Emergence of the European Economic Community ............... 67 The precursors of "supranationalism" ............. 67 Establishment of the E E C.... 68 The implications of EEC integration for Austrian foreign trade ......... 69 The Genesis of the European Free Trade Association........... 74 The Stockholm Convention.... 76 The consequences of the EFTA upon Austrian foreign trade ......... 77 Comparative Evaluation of the EEC and EFTA..................... 81 Comparative statistical evaluation 81 The relative treaty documents . . 82 Comparative development ......... 84 Toward Integration of the EEC and EFTA.............. 88 The Demise of the EFTA......... 92 V. PROJECTED ROLE IN A CONSOLIDATED WESTERN EUROPEAN COMMUNITY ........ 97 The Course toward Integration . . . 97 V CHAPTER PAGE Military-politico influence of integration.................... 97 Reasons for Austria's membership in the E F T A .................... 100 Association with the E E C ........... 103 General advantages................ 104 General disadvantages ........... 108 Austria's Contingent Circumstances . 109 Adverse geographic position . . . 110 Imbalance in economic structure . 114 Preponderance of small and medium-sized weak businesses . . 114 Deficiency of capital ........... 117 Retarded economic development . . 118 Industry Adaptation ............... 120 The projected development of industry........................ 122 The major industries ............. 134 Structural Deficiencies in Austrian Export Trade ...................... 233 Structural export maladjustments . 233 Prospects of gr o w t h............. 237 Constricting distribution .... 242 Austrian Terms of Trade ........... 248 vi CHAPTER PAGE The terms of trade........... 250 The Level of Tariffs and Quotas . . 255 The assumption of a new external tariff level.................. 255 The deletion of tariffs between Austria and the E E C ....... 257 Quota restrictions........... 265 VI. THE THEORETICAL ASPECTS OF INDUSTRY ADAPTATION OF SMALL NON-EEC MEMBER ECONOMIES...................... 267 The^Small Nations and Economies of S c a l e ........................ 267 The small national economy .... 268 Economic stability as a function of s i z e ....................... 269 Expansion as a function of size . 271 Integration effects on nonmember smaller nations .................. 274 Export Trade Adjustments ............. 276 Export trade and competition . . . 277 Profit margins and foreign trade . 279 Summary and Conclusions ............. 281 Trade adjustments........... 283 Industry adjustment ............... 286 vii CHAPTER PAGE Conclusion.......................... 292 BIBLIOGRAPHY...................................... 297 APPENDIX A. Toward an Impact Model of Factor ~ "Mobility........................ 304 APPENDIX B. Economic Map of Austria........... 333 / LIST OF TABLES TABLE PAGE I. Distribution of Population by Province— 1951 and 1 9 6 1 ........... 21 II. Occupational Distribution of Working Population— 1951 and 1 9 6 1 ......... 23 III. Working Population According to Province— 1956-1960 24 IV. Austria's Foreign Trade in 1924 . . . 29 V. Distribution of Austria's Exports in 1922 and 1924 31 VI. Indexes of Industrial Production . . . 32 VII. Index of Industrial Production .... 34 VIII. Percentage Share of Germany, Austria, and Czechoslovakia in the Foreign Trade of the Southeast European Agricultural Countries (Bulgaria, Greece, Romania, Turkey, Hungary, Jugoslavia)........................ 37 IX. The Development of the Gross National Product in Austria................. 43 X. International Comparison of the Growth Rate 1953-1960 ...................... 44 XI. Productivity in Industry.............. 45 XII. Rate of Investment.................... 46 ix TABLE PAGE XIII. Austrian Foreign Trade .............. 55 XIV. Foreign Aid Deliveries.............. 56 XV. Structure of Foreign Trade ......... 57 XVI. Foreign Trade Volume Index ......... 58 XVII. Regional Distribution of Foreign Trade— .1960-1961 60 XVIII. Share of Exports and of Output for Domestic Consumption in Gross National Product ................. 62 XIX. Balance of Payments.................. 64 XX. Austria's Exports to France ......... 71 XXI. Share of EEC in Austrian Exports and Imports........................ 75 XXII. Austria's Exports to the EFTA .... 79 XXIII. Austrian Foreign Trade in the First EFTA Year.......................... 80 XXIV. EFTA and EEC in 1959 83 XXV. Production and Exports Volume of the EEC and EFTA Countries........... 87 XXVI. Changes in Foreign Trade in the EEC and E F T A ...................... 89 XXVII. Tariff Comparison— Austria-EEC . . . 105 XXVIII. Percentage of Industrial Output Exported.......................... Ill X TABLE PAGE XXIX. Comparisons of Rail Freight Rates among Several West European Cities and Their Ports ........... 113 XXX. Per Capita GNP for Western Europe and the United States, 1960 . . . 119 XXXI. Contribution of Industry to GNP . . 124 XXXII. Anticipated Growth to 1970 ......... 126 XXXIII. Value of Output Per Worker in Industry and Trade............... 128 XXXIV. Increase in and Utilization of Capacity in Industry ............. 129 XXXV. Growth Comparisons of European Nations............... 131 XXXVI. Rate of Growth of Significant Industrial Sectors .......... 133 XXXVII. Share of Important Industrial Commodities in Export ............ 135 XXXVIII. Steel Production According to Type in Austria........................ 139 XXXIX. Rolled Steel Production and Exports 141 XL. Export Orientation of the Iron and Steel Industry.................... 144 XLI. ECSC Countries 1 Share in Austrian Iron and Steel Exports to the ECSC 148 xi TABLE: PAGE XLII. Precious Metals Production in Italy 149 XLX1I. Nonferrous Foundry and Semifinished Goods Production................. 151 XL1V. Exports of Aluminum............... 153 XLV. Foreign Trade Balance of Metals . . 155 XLVI. Paper Firms Distribution According to S i z e .......................... 159 XLVII. Production and Employment in Nations Producing Paper Surpluses .... 160 XLVIII. Export Volume of the Paper Industry 162 XLIX. Exports of the Paper Industry . . . 163 L. Exports of Paper According to Type . 164 LI. Share of Economic Blocs in Austrian Exports.......................... 166 LII. Regional Structure of Investment Goods Exports................... 169 LIII. The Development of Austrian Investment Goods Exports ......... 171 LIV. Production of Heavy Machinery Industry.......................... 174 LV. Regional Exports Distribution of Machines and Vehicles ........... 176 LVI. Exports Share of the Heavy Machinery Industry.......................... 177 TABLE LVII. LVIII. LIX. LX. LXI. LXII. LXIII. LXIV. LXV. LXVI. LXVII. LXVIII. LXIX. LXX. LXXI. Production and Productivity of Electrical Industry ............. Size of Firms in Electrical Industry Regional Distribution of Electrical Exports and Imports ............. Exports and Imports of Electrical Articles .......................... Production of Motor Vehicles . . . . Foreign Trade in the Motor Vehicle Industry .......................... Imports of Automobiles ............. Number of Tractors Per Hectare of Land in Agricultural Use ......... Index of Textile Production . . . . Distribution of Major Sectors by Firm Size ........................ Foreign Trade in Textiles ........ Foreign Trade Structure of Textile Industry .......................... Distribution of Clothing Manufacturing Firms According to Size .......................... Gross Production of Clothing . . . . Imports and Exports of Clothing . . xii PAGE 180 181 184 186 190 192 193 195 202 204 206 207 213 215 216 xiii TABLE PAGE LXXII. Distribution of Shoe Manufacturers According to Size.......... 219 LXX1I1- Production of Shoes ................ 221 LXXIV. Exports and Imports of Leather Shoes....................... 222 LXXV. Exports and Imports of Shoes . . . 223 LXXVI, Distribution of Food Articles Industry According to Size of Firm..................... 227 LXXVII. Growth of Foodstuffs Production in Five European Nations ........... 229 LXXVIII. Production of Food Articles Industry................... 230 LXXIX. Volume Index of Foreign Trade . . . 234 LXXX. Austria's Share in OEEC Exports . . 236 LXXXI. Austrian Industrial Exports According to Expanding, Static, and Declining Sectors ........... 238 LXXXII. Structure of Industrial Exports in Austria and Other Countries . . . 241 LXXXIII. Index of Export Goods Concentration 244 LXXXIV. The Share in Exports of the Most Significant Purchasing Nations in 1959 .......................... 247 xiv TABLE PAGE LXXXV. Recent Price Developments in Foreign Trade ...................... 249 LXXXVI. The Terms of Foreign Trade .... 251 LXXXVIX. Price Indexes of Important Export Groups............................ 252 LXXXVIII. Price Indexes of Important Import Groups............................ 254 LXXXIX. Imports of Industrial Products from Nonunion Members ............. 258 XC. Several Examples of German Tariff Discriminations Against Austrian Products as of January 1, 1962 . 261 XCI. EEC Common External Tariff .... 263 XCII. Average Tariff Level for Thirty-Three Important Manufactured Goods Positions . . 264 XCIII. Per Cent of Liberalization of OEEC Imports...................... 266 CHAPTER I INTRODUCTION By 1961 it appeared that intra-European economic and political integration had passed well beyond its embryonic stage. At the time of this writing profound revisions in relative economic and political strength and alignment seem imminent. In fact, it has been suggested that ultimately nearly 90 per cent of total free world exports of industrial products are likely to emanate from two common markets— the Common Market of Europe and the Common Market of the United States. In a report prepared for the Subcommittee on Foreign and Economic Policy of the Joint Congressional Economic Committee, former Secretary of State Christian A. Herter and former Undersecretary of State Will Clayton observed the following: For many years Europe has dreamed of a U.S. of Europe. Now they have a beginning. The European Common Market already has a home market in terms of population, almost as large as the U.S. If all, or nearly all the Western European countries Join the market, as we expect they will, it will then have a much larger home market than the U.S., and the implications are clear.I ^The New York Times, November 2, 1961, p. 16. 2 I. STATEMENT OF THE PROBLEM Events in Europe clearly prophesy the demise of the European Free Trade Association in favor of the burgeoning European Economic Community. It therefore appears that continued economic prosperity in Western Europe must be predicated upon some form of membership in, or association with, the European Economic Community, The various political and ideological restraints however, with which several V nonmember nations are faced, have given rise to considerable concern. Though such contingencies are unquestionably of principal importance, they unfor tunately lie without the bounds set by this study. It may reasonably be prognosticated that failure to associate with the expanding European Economic Community carries an indigenous penalty of economic oblivion and impotence. Recognizing this theorem, Austria, as a nonmember of the Community, is confronted with the difficult decision of actively seeking membership or association on the one hand, or remaining outside the expanding intra-European union. Nature of the Problem The gravity of the decision to seek economic alliance with its major trading partners is compounded by political implications inherent in such an agree ment. But once again it should be stated that these political impediments are not included in the breadth of this study; they easily represent an adequate source for separate investigation. The general problem. The general problem to be resolved in the following pages assumes, in praesenti. no prevailing political obstacles. As a consequence, emphasis is entirely upon economic factors. Stripped of political barriers, the general problem resolves itself into the projected economic consequences which Austrian membership in an intra- European trade bloc may encounter or initiate. The question thus assumes a purely economic character. The specific problem. Austria's major trade ties (over 50 per cent) lie with European Economic Community countries. Finding competition in such markets progressively more unfavorable as a result of considerably reduced member country trade restric tions, Austria's trade balance with these economies is not growing at rapid enough rates. In the event, however, of an Austrian alliance with these countries, the domestic economy will no doubt be subjected to far-reaching impulses originating abroad. Thus, before it can be clearly stated in what manner the Austrian economy will respond economically in the event of its integration with present and prospective European Economic Community members, the following questions should be adequately investigated and analyzed: 1. Is Austrian membership in, or association with, a greater European economic union compatible with its peremptory neutrality? 2. May failure to seek economic alliance result in prospective national stagnation? 3. Which industries are most likely to be the major recipients of benefits derived from increased trade? 4. Which industries are more likely to be adversely affected by Austrian economic membership in an all-European Economic Community? 5. Is a common tariff wall likely to offset benefits received from lowered tariffs within the Community? 6. Can Austrian industry readily adjust to greater mass markets and competition in view of relative transportation encum brances? These and many other pertinent questions warrant prudent consideration before recommendations can be made regarding the economic rationale of integrating Austria's economy with a greater European Economic Community. Objectives of this Study It is not the purpose of this study to analyze European economic integration iji toto, but rather to focus upon the economic and, to a limited extent, social and political consequences arising for Austria out of European economic integration. To that end, the following specific objectives may be submitted: 1. An investigation of the over-all potency of the Austrian economy; 2. An analysis of the vigor of the country's various industries; 3. A projected adaptation to mass market competition by industry categorization; 4. The probable effects of tariff and transportation differentials; 5. A suggested prognosis of the balance- of-payments; 6. The probable benefits to be derived from "trade creation" versus "trade diversion"; 7. A definitive economic model of factor mobility for a country of limited size. Significance of the Problem The significance of the problem has been alluded to above on several occasions. Suffice it to say that Austria is tied ideologically, histori cally, and culturally to the West in overwhelming proportions. Although remnants of its monarchial past still extend well beyond the country's eastern most borders, its past, present, and future orientation clearly tend toward the West. Significance of the special problem. And yet, despite its otherwise indicated orientation, there intercede certain economic factors which it is the purpose of this study to bring into proper focus and perspective. Among these the questions of transporta tion differentials, high tariffs, and considerable trade ties with Eastern European countries (represent ing some 16 per cent of total foreign trade) are apt to distract from an unqualified affirmative projection for a partnership with an economically integrated Europe. On the other hand, rejection of membership is likely to carry with it severe consequences, not the least of which may bring economic association with the Eastern Bloc* Significance of the problem to the economist. Economic intercourse is frequently held to be the precursor of political intercourse and even political union. In fact, it is this very principle upon which Jean Monnet fathered the European Economic Community. The task of the economic researcher is, therefore, to investigate those economic factors which are most likely to ascend into prominence once economic inte gration has come into existence. For it appears that the two century old principle of free trade and profitable international division of labor has found a renaissance in modern economic thought. II. GENERAL LITERATURE TO BE UTILIZED Extensive studies or analyses in regard to the above-mentioned objectives are at this time unavail able. Most information, data, and insights will therefore be gathered from various academic publica tions as well as materials made available by the Austrian Institute of Economic Research and the several trade associations. Of considerable value in the sphere of back ground literature proved to be the outstanding work by Jacob Viner, The Customs Union Issue; the study by Tibor Scitovsky, Economic Theory and Western European Integration; a recent publication by Emile Benoit, Europe at Sixes and Sevens; and The Economic Consequences of the Size of Nations, edited by E. A. G. Robinson. Of recently published learned articles, "The 'Outer Seven' and European Integration" by M. E. Kreinin, appearing in The American Economic Review, merited distinct consideration. In addition, a variety of articles appearing in The Economic Journal also were consulted. Particularly interesting and relevant were the many descriptive and statistical publications of the Organization for Economic Cooperation and Development (previously the Organization for European Economic Cooperation), and the monthly and special reports and studies issued by the Creditanstalt Bankverein, the Oesterreichische Handelskammer, and the Oesterreich- ische Laenderbank. Two historical publications, Heinrich Benedikt's Geschichte der Republik Oesterreich and Gottfried F. Litschauer's Kleine Oesterreichische Geschichte were of material consequence in providing precise historical background data. Finally, it would be unfair not to mention the many invaluable suggestions and recommendations received from professional scholars, researchers, and industry representatives with reference to as yet unpublished or transitory sources of information. III. DEFINITIONS AND CONCEPTS In the age of space travel and atomic energy isolated economies exposed to trade barriers and other restrictions appear to be as obsolete as the horse and buggy on a freeway. Out of such an aphorism, the drive for European economic integration was born. The Concept of the North Atlantic Treaty Organization Established in 1949, the North Atlantic Treaty Organization (NATO) is the Western Warsaw Pact organ ization. It encompasses all European Economic Com munity members, Norway and Denmark, Great Britain, Portugal, Iceland, Greece, Turkey, the United States, and Canada. It is strictly a military association created for the purpose of mutual defense and security. 10 The Concept of the Council of Mutual Economic Assistance On January 25, 1949 the economic representa tives of Bulgaria, Hungary, Poland, Romania, Czecho slovakia, and Soviet Russia, meeting in Moscow, created a Council of Mutual Economic Assistance (COMECON). The objective of this council is the exchange of experience in the field of economics as well as the rendering of technical assistance and mutual aid in regard to foodstuffs, machinery, and equipment. Decisions are reached only with the con- 2 sent of the countries concerned. The Concept of the European Economic Community Evolving out of the European Coal and Steel Community established in 1952, member nations signed on March 25, 1957, in Rome, an agreement to integrate economically into the European Economic Community (EEC). The nations concerned are Germany, France, Italy, and the Benelux countries. Since that time the economic vigor manifested by "The Six" has been United States Department of State, Bulletin XX (Washington: Government Printing Office, February 9, 1949), p. 60. 11 the envy and at the same time the apprehension of most nonaligned economies. The Concept of the European Free Trade Association As a consequence of the disciplined vigor manifested within the EEC, the remaining nonaligned Western European nations formed, under the sponsorship of Great Britain, a rival economic union. The European Free Trade Association (EFTA), bearing fewer political implications and greater economic latitude, came into being July 1, 1960. The signatory nations were Great Britain, Norway, Sweden, Denmark, Portugal, Switzer land, and Austria. The union's progress, having been much less vibrant, appears at this time destined for dissolution. Customs union. A customs union is ordinarily a group of countries which abolish among themselves customs tariffs, quantitative restrictions, and in general all barriers to mutual trade. They adopt a common customs tariff and a common trade policy in regard to the outside world. In this manner they JJ create a single market within which goods move freely. Organization for European Economic Cooperation, The QEEC and the Common Market (Paris: The Organiza tion, 1958), p. 7. 12 Free trade area. A free trade area is one in which, as in a customs union, trade barriers, i.e. tariffs, quantitative restrictions, etc., are abol ished. However, whereas the customs union provides for the establishment of a common customs wall and trade policy in respect to the outside world, the free trade area leaves each of its members free to choose its own customs tariff and trade policy in relation to countries outside the area. The absence 4 of a common external tariff raises difficult problems. IV. ANALYTICAL TECHNIQUE The economic inquiry into the problem posited above involves the utilization of three distinct interrelated steps: (1) the exploration of the problem in its historical, sociological, and politico-economic setting; (2) the development and empirical analysis of the problem and its related phases; and (3) compara tive analysis and general evaluation. Precise economic research necessitates the completion of step one in advance of any analysis of steps two and three. To that extent a relationship exists between the methodological steps of economic 4Ibid., p. 9. 13 research and the material in this writing. ■ • Step one is the exploration of the problem. In essence, Austrian economic affluence hinges upon beneficial trade relations, particularly with its immediate neighbors. Examining the historical development and nature of this economic, political, and social intercourse has provided a much needed environmental setting within which further analysis could be consummated. Step two is the development and empirical analysis of the problem in its related phases. In this part of the study the functioning and inter relationship of industrial and nonindustrial activity is brought into focus on an industry-wide basis with emphasis on the prospect of economically integrated markets. Objectively compiled and systematically developed data serve as empirical bases for final observation. Step three is the comparative analysis and general evaluation. It is the major objective of this study to present a coherent summary of the likely obstacles as well as advantages inherent in the economic adaptation of Austria's economy to European integration. To this extent the study may, contingent upon pertinent qualifications, serve as 14 a guide or model for other small economies in their movement toward economic integration. V. PROJECTED ORGANIZATION OF THE THESIS The introductory chapter was divided into five short sections containing (1) the statement of the problem, (2) literature to be utilized, (3) definitions and concepts, (4) analytical technique used, and (5) projected organization of the thesis. In the succeeding chapters of this treatise an attempt is made to follow the logical sequence of analysis of the adaptation of Austrian economic rela tions to integrated Western European markets. Chapter II, "Social, Economic, and Geographic Abstract of Austria," is essentially a descriptive survey of basic statistical data. In Chapter III, "Austrian Industrialization and Its Economic Effects," the economic development of present-day Austria, from 1918 to the present, is traced in chronological sequence with particular emphasis upon the omnipotent role of foreign trade. Chapter IV, "Membership in Intra-European Trade Organizations," discusses the progressive advance of Austrian economic relations toward European union. 15 In Chapter V, "Austria's Projected Role" in a consolidated Western European Community is analyzed from the point of view of industry adaptation to mass markets and intense competition, the general avail ability and mobility of resources, and the likely effects upon the balance of payments. Chapter VI encompasses "The Theoretical Aspects of Industry Adaptation of Small Non-EEC Member Economies." Its second part relates to summary and concluding remarks. And finally, the Appendix, "Toward an Impact Model of Factor Mobility," attempts to delineate in symbolic form a possible sequence of definitions which could be used to measure the relative mobility of the factors of production of an economy intent upon economic integration or association. CHAPTER II SOCIAL, ECONOMIC, AND GEOGRAPHIC ABSTRACT OF AUSTRIA I. GEOGRAPHIC COMPOSITION The Federated Republic of Austria comprises 32,376 square miles of territory. It measures 360 miles in length and 160 miles in width. Related to the thirty-six countries of Europe, Austria ranks nineteenth in size, just ahead of Switzerland, Belgium, and Holland. Located between latitude 46° and 49° north and longitude 9° and 17° east, it occupies a central European position and represents a particularly significant passageway to Eastern Europe and the Balkan States. Austria's frontiers measure 1,638 miles, the longest single portion of which borders onto Germany followed by Czechoslovakia, Italy, Hungary, Jugoslavia, Switzerland, and Lichtenstein, in that order. The Federated Republic consists of nine prov inces, the largest of which in square miles is Lower Austria followed by Styria, Tyrol, Upper Austria, Carinthia, Salzburg, Burgenland, Vorarlberg, and Vienna, in that order. II. TOPOGRAPHIC COMPOSITION 17 Topographically, Austria is an Alpine country. In the north mountains and valleys slope down to the Danube, which flows through the country from west to each for 217 miles. In the east the mountains give way to the Vienna Basin which, in turn, leads to the vast Hungarian plains with the 124 square mile Neusiedler See as the dividing line. At the extreme western end of Austria is located Lake Constance with a total area of 208 square miles, through which flows the Rhine. The area north of the Danube is a fruitful, undulating country which only occasionally rises to a height of more than 2,500 feet. By contrast, the provinces south of the river are bisected by high Alpine ranges of perpetual snow and ice, giving birth to such important rivers as the Inn, the Enns, the Drau, and the Mur. An extensive net of mountain power stations gives rise to millions of kilowatts of electric power. III. DEMOGRAPHIC COMPOSITION Austria's population at the beginning of 1961 numbered 7,067,432, with a density of 218 people per square mile. The net natural increase in population 18 on an annual average, 1958-1961, comes to 15,311, or 2.2 per 1,000 inhabitants. The annual net immigration average, 1956-1959, is 21,238.* Total employment in November of 1961 was 2,361,510, of which 620,400 were o in industry. Approximately 89 per cent of the population adheres to the Roman Catholic faith, with 6 per cent Protestants. Ninety-nine per cent of the population has German as their native tongue, with the remainder belonging to other nationalities. Austria is not confronted with a native popula tion problem. During the interwar years the population remained relatively stable with only small increases recorded. Immediately following World War II, however, one million refugees and displaced persons poured into Austria, mainly from the East. As a result of exten sive programs of aid and resettlement, only about a quarter still remain. In late 1956, 180,000 Hungarian refugees sought freedom, of which nearly 10 per cent remained in Austria. A steady stream of Jugoslavian immigrants further swells the number of displaced ^Organization for European Economic Cooperation, Austria (Paris: The Organization, December, 1962). 2 Ibid., wage and salary earners. 19 persons still living within its borders. IV. SOCIO-ECONOMIC COMPOSITION Approximately one-half of Austria's seven million people live in the Danube Valley and the Vienna Basin, and nearly one-fourth in the city of Vienna alone. This manifestation finds its source in the fact that more than three-fourths of the country is mountainous, so that agricultural and industrial development are forced to concentrate in the above primary regions. Primate Population Distribution The population distribution of Austria may be said to be of "primate" type. Even though "different city size distributions are in no way related to the relative economic development of countries," it may nevertheless be observed that "urbanization and economic development are highly 4 associated." Primate city size distribution refers to the presence of one or more very large cities, Brian J. L. Berry, "City Size Distribution and Economic Development," Journal of Economic Devel opment and Cultural Change, IX (July. 1961), 579-582. 4Ibid., p. 587. 20 with none inbetween these and others of less than 20,000 population. Primate distributions are dis cernible particularly in countries of recent political or economic dependence on outside nations. Such cities generally are not only national capitals, but political, cultural, and economic centers as well. Primate cities are also to be found within the indigenous remnants of previous empires, viz. Madrid, Lisbon, Copenhagen, Vienna, and others. These are centers "in which such economies of scale may be achieved that cities of intermediate size are not 5 called for," nor are they practical. Regional Distribution of Population Even though the Vienna Basin in toto comprises but 38 per cent of the nation's area, more than 60 per cent of the country's population indices its home there. Thus there prevails in the basin a relatively densely populated area in which the major industrial g activity of the country takes its course (Table I). 5Ibid., p. 582. g Population density of Vienna Basin: 338 per square mile, versus 218 per square mile for entire country. 21 TABLE I DISTRIBUTION OF POPULATION BY PROVINCE— 1951 AND 1961 1951 1961 Austria 6,933,905 7,067,432 Vienna 1,616,125 1,627,034 Lower Austria 1,400,471 1,372,962 Burgenland 276,136 270,875 Upper Austria 1,108,720 1,131,218 Salzburg 327,232 345,713 Styria 1,109,335 1,137,460 Carinthia 474,465 493,972 Tyrol 427,465 462,476 Vorarlberg 193,657 193.657 Source: Austrian Central Statistics Office, 1961 Census Publication (Vienna: The Office, 1962), p. 9. 22 Population Distribution by Occupational Group The largest percentage of the working popula tion, 47.5 per cent, are employed in industry, with 22.7 per cent, the second largest segment, in agri culture and forestry (Table II). Distribution of Working Population by Province As can be surmised from the general distribu tion above, by far the largest segment of the working population is to be found in the Vienna Basin, i.e. approximately 33 per cent (Table III). If the working population of Vienna, Lower Austria, Upper Austria, and Styria are combined, it is found that more than three-fourths, 78 per cent, of the people reside in 57 per cent of the country’s area. More precisely, the area thus comprised encompasses the Danube Valley as well as the southeastern lower mountain valleys and flats. ! 23 TABLE II OCCUPATIONAL DISTRIBUTION OF WORKING POPULATION— 1951 and 1961 (In Per Cent of Working (In Thousands) Population) 1951 1961 1951 1961 Agriculture and Forestry 1,080 765 32.6 22.7 Manufactur ing 1,367 1,599 to • •H 47.5 Trade and Communications 436 536 13.2 15.9 Free Professions 201 228 6.1 GO • (0 Public Service 147 176 4.5 5.2 Domestic Service 76 46 2.3 1.4 Source: Oesterreichische Laenderbank, Statistical Data on Austria (1961 and 1962 Editions; Vienna: The Bank, 1961, 1962), p. 3. 24 TABLE III WORKING POPULATION ACCORDING TO PROVINCE— 1956-1960 1956 (I 1958 1960 n Thousands) Austria 2,136 2,203 2,282 Vienna 707 733 761 Lower Austria 331 339 347 Styria 318 329 336 Upper Austria 319 326 342 Carinthia 129 132 136 Tyrol 123 128 138 Salzburg 107 108 112 Vorarlberg 74 76 78 Burgenland 31 32 34 Source: Austrian Institute for Economic Research, Monthly Report Supplement (Vienna: The Institute, September, 1961), p. 31. CHAPTER III INDUSTRIALIZATION AND ITS ECONOMIC CONSEQUENCES I. PRE-WORLD WAR II DEVELOPMENT In spite of the efficacy of Germanic industrial development , Austrian economic progress appears to be of rather recent origin, cumbrously dependent upon peripheral trade relations since 1918. Pre-World War I Development In comparison with the remainder of Europe, Austria developed rather slowly industrially due, primarily, to the feudal character of the Habsburg Monarchy. The 1873 depression proved a severe setback for the economy, causing industrialization to proceed from then on at an even slower rate. Despite the over-all trend toward industrial ization, Austria-Hungary remained a predominantly agricultural empire with little foreign trade. What ever industrial development did ensue centered, as a result of various economic, political, and military consequences, to a high degree in the western part of the monarchy,'*' viz. present-day Austria, Czechoslovakia, ^Colin Clark, Conditions of Economic Progress (London: Macmillan and Company, Limited, 1940), p. 200. 26 and Silesia. The subsequent dissolution of the empire triggered the emergence of independent nations with vastly divergent economic structures. Had trade remained free and aloof from political recrimination, and had inflation not forced the imposition of strict control over currency movements, then despite the partition of the monarchy present-day Austria could have continued to exchange industrial products for foodstuffs and other necessaries produced in Hungary, Czechoslovakia, Jugoslavia, etc. But the new national boundaries greatly inhibited the course of free trade. Professor Roepke observes in this context: Whether and in how far a political act such as the drawing of a frontier has economic impor tance, depends on whether and to what extent the predominating economic order of the countries „ gives economic importance to the state frontiers. In the case of the new Europe, the economic signifi cance attributed to state frontiers was nearly as great as the political importance, i.e. the former often was a function of the latter. New and old nations zealously guarded all intercourse across the newly won or retained borders. o Wilhelm Roepke, Internat ional Order and Economic Integration (Dordrecht-Holland: D. Reidel Publishing Company, 1959), p. 174. 27 The First Republic German war exploitation, monarchial bureaucracy, antagonistic minorities, and the small number of people remaining (six and a half million from the fifty million in the empire) all combined to present the new nation with an enormous task of political and economic reorganization. Having traditionally been an import surplus region in the empire, the new Republic of Austria suddenly found neighboring borders tightly sealed due to protectionist and nationalistic policies, thereby finding itself unable to obtain foodstuffs, coal, and raw materials. Foreign aid and inflation. Even though the United States, Great Britain, France, and Italy pro vided aid from 1919 to 1921 in the total amount of twenty-seven million pounds, a rapidly spreading inflation engulfed Austria as well as most other European nations, enhanced by potent political and patriotic defeatism and friction, extraordinary post- 3 war budgetary deficits, and active printing presses. K. W. Rothschild, Austria*s Economic Develop ment between the Two Wars (London: Frederick Muller, Limited, 1947),p. 25. Price Index 1914 — 100 1921 — 761 1919 — 131 1922 (April) — 1,189 1920 — 169 1922 (August) — 7,522 1922 (Dec.) — 11,837 28 On the other hand, it must be admitted that this severe inflation did stimulate industrial activity. Exports began to increase at a greater rate than imports, as the demand for foreign exchange drove up the exchange rate at a higher pace than that recorded by the domestic price level. The deficit in the balance of payments was thus affected favorably. By 1923, as a consequence of foreign loans negotiated at the Geneva Protocols, retail prices ceased spiraling, domestic and foreign loans were oversubscribed, and the budget showed a surplus for the first time. Readjustment and consolidation. Following the period of inflation, a time of severe crisis and structural unemployment set in. As a result of the breakup of the empire, Austria was suddenly confronted with enormous foodstuffs and raw material needs obtainable only through import via export earnings. (Previously these exigencies had been satisfied from other parts of the monarchy.) Thus great efforts were generated to increase exports, especially manu factured items (Table IV). Layton and Rist wrote, in their report to the Council of the League of Nations, "The process of industrial re-adaptation is not a matter of adjusting TABLE IV AUSTRIA'S FOREIGN TRADE IN 1924 (IN MILLION GOLD CROWNS) Imports Per Cent Export s Per Cent Animals 167 6.96 11 0.87 Food and Drink 648 27.06 32 2.33 Fuel 198 8.27 2 0.146 Other raw materials 513 21.42 249 18.18 Manufactured goods 868 36.25 1.075 78.52 Total 2,394 100.00 1,369 100.00 Source: K. W. Rothschild, Austria1s Economic Development between the Two Wars (London: Frederick Muller, Limited, 1947), p. 25. Note: It should be pointed out that the indexes used in this chapter emanate from Professor Rothschild's book, unless otherwise noted. No detailed explanation as to their derivation was given by the author, other than that they were compiled from records kept by the Austrian Central Statistical Office in Vienna. 30 production to her home market. She must re-organize her industries for foreign trade." Unfortunately, however, intra-European tariff policy was directed toward stringent protectionism, which fact ultimately forced Austria as well to adopt higher tariffs in 1927. Thus exports compensated in 1924 for only 57 per cent of Austrian imports, the unfavorable balance being made up by invisible items and foreign loans. As Table V indicates, industry conscientiously sought to redirect its exports to other parts of the world during that period. In response to a drive toward lesser reliance upon foreign trade and an increased awareness of the utility of an efficient domestic agricultural sector, a new national economy began to unfold with consider able rates of growth but rather unsatisfactory rates of unemployment, the latter fluctuating between 10 and 15 per cent. The growth of industrial production paralleled that of the new Republic of Czechoslovakia, and was slightly ahead of that of Great Britain by 1929 (Table VI). The deficit in the balance of payments continued nevertheless as the demand for certain imports to 4Ibid., p. 40 31 TABLE V DISTRIBUTION OF AUSTRIA'S EXPORTS IN 1922 AND 1924 (IN PER CENT) To 1922 1924 The Danube State" 42.1 36.8 Northern Central Europe** 23.9 23.0 Western Europe*** 23.0 25.9 All other countries 11.0 14.3 "Czechoslovakia, Hungary, Jugoslavia, Romania *"Germany, Poland **"Great Britain, Belgium, Netherlands, France, Italy, Switzerland 32 TABLE VI INDEXES OF INDUSTRIAL PRODUCTION (AVERAGE 1925-1929 = 100) Austria Germany Czecho slovakia Great Britain 1925 89 87 88 99 1926 89 87 86 76 1927 100 109 100 109 1928 110 108 111 104 1929 113 109 115 112 33 Austria proved quite inelastic, particularly with increased domestic production, whereas Austrian exports were adversely affected by high foreign tariff barriers. World crisis, recovery. and new foreign trade i policy. The drastic fall in world purchasing power in 1929 affected, particularly, Austria very adversely as its economic prosperity, in spite of certain struc tural improvements, continued to be a critical function of its foreign trade. "Beggar-my-neighbor" policies pushed tariffs, quotas, and other trade restrictions to incredible heights. The loss of income from exports, however, was more than offset by a readjustment of domestic pro duction which permitted a greater than proportional decrease in imports, even though the international division of labor was, no doubt, scarcely enhanced by this reorganization. The course of the depression deviated little in Austria from that of the rest of Europe or even the world (Table VII). The financial crisis in mid- 1931 led to the intervention of the government, which in turn prompted, in 1934, a 22 per cent devaluation of the schilling. A de facto devaluation had been in TABLE VII INDEX OF INDUSTRIAL PRODUCTION (1929 = 100) 1929 1930 1931 1932 1933 1934 1935 1936 1937 Austria 100 85 70 61 63 70 80 86 103 Czechoslovakia 100 89 81 64 60 67 70 80 96 Great Britain 100 92 84 84 88 99 106 116 124 U.S.A. 100 81 68 54 64 66 76 88 92 Germany 100 86 68 53 61 80 94 106 117 existence since late 1932, when "private clearing" of foreign exchange was permitted* Thus from 1934 Austria had, in essence, returned to a nearly free exchange market, underscored by a secure schilling which today is held in equal eminence. This with drawal of all except the most rudimentary exchange controls was termed, by Howard S. Ellis, a "unique 5 chapter in monetary history," as the rest of the world campaigned in the opposite direction at that time. From mid-1933 economic recovery very clearly manifested itself, reaching record levels by 1937. As a consequence of increasingly closed world markets, the economy, in striving for self-sufficiency, was able to reduce markedly import requirements of food stuffs. Therefore, even though Austria's share in world trade fell from 1.12 per cent in 1929 to 0.93 per cent in 1937, her traditionally unfavorable balance of trade continued to shrink, leaving the import surplus at low levels. A salient transformation came to pass upon foreign trade and political relations with Germany 5Howard S. Ellis, "Exchange Control in Austria and Hungary," Quarterly Journal of Economics, LIV (March, 1932), 47. during that period. Early attempts on the part of Pan-German elements to form a German-Austro Customs Union in 1931 gave rise to indignant world protests, as well as an unfavorable decision on the part of the Permanent Court of International Justice. The result ant adverse publicity detrimentally affected trade and political relations with Austria's neighbors. With the rise of Hitler to ominous power, the country began to feel the deunaging indirect effects of Germany's trade offensive designed to strengthen its military might and to deprive Austria, and also Czechoslovakia, of their natural export markets. As a consequence, Austria attempted to reorient its trade efforts toward more distant markets, meeting, however, with only mild success (Table VIII). German annexation and ensuing consequences. German economic and subsequent political influence in Austria manifestly antedates World War I. Essentially through direct ownership of controlling interests and dominance of international cartels and combines, German industrialists were able to divert production and profits toward aggrandizing ambitions and por- tentous military goals. This course of events was C The "Drang nach dem Osten" had been German policy since the days of Bismarck. 37 TABLE VIII PERCENTAGE SHARE OF GERMANY, AUSTRIA, AND CZECHOSLOVAKIA IN THE FOREIGN TRADE OF THE SOUTHEAST EUROPEAN AGRICULTURAL COUNTRIES (BULGARIA, GREECE, ROMANIA, TURKEY, HUNGARY, JUGOSLAVIA) Imports Exports 1926 1938______1928 1938 17 35 16 34 11 5 16 7 14 7 8 6 Germany Austria Czechoslovakia 38 possible as cartelization was a widespread feature of the Austrian and German industrial structure, and continues to be so to the present. It is interesting to note Professor Brady's observation here* He suggests that it was no accident that nearly every book written since World War II on the "development, functions and policies of cartels, trusts, trade associations, unions, syndicates and other types of cooperative enterprise" have been largely concerned with the "problem of Politik— a term which combines the meaning of policy and political. With Hitler's rise to power, political and economic pressures on Austria were greatly intensi fied, culminating on March 11, 1938 in the infamous "Anschluss." Austria's economy ceased to function as an independent entity and soon was completely absorbed by the "New Order." Of particular value to Germany were the country's considerable gold and foreign exchange reserves; its acutely requisite sources of raw materials, i.e. iron ore, magnesite, timber, 7 Robert A. Brady, The Rationalization Movement in German Industry (Berkeley: University of California Press, 1933), p, 368. 39 electric power, etc.; and its strategic military location as a gateway to the East and the Balkans. Austria's assimilation into the German economy was nearly complete. All state monopolies (salt, railways, tobacco, etc.) were taken over by German banks, and approximately 55 per cent of the voting shares of the significant Creditanstalt, controlling almost 90 per cent of the country's industry and agriculture, were transferred to the Deutsche Bank. All remaining industrial enterprises of significant size subsequently were absorbed by the Hermann Goering Works, I. G. Farben, Krupp, Henschel, Vereinigte Industrie-A.G., and others. As a concomitant occur rence, small enterprise showed a definite decline. The number of business enterprises in Austria decreased from 1938 to 1942 from 21,300 to 16,300, while those in Germany showed a noticeable gain. Even though Austria's economic structure experienced an irrevocable transformation during the war years, its total output greatly increased. Thus, between 1938 and 1944, steel output doubled, aluminum production rose from 4,000 to 72,000 tons, and the generation of electricity grew from two and a half million kW.H. to ten million kW.H. And as road, rail, and shipping facilities were vastly expanded, shifts 40 in the location of industry occurred as well. As an overtly adverse feature of the war economy it must, however, be noted that Austria's resources, once their potentiality was revealed, were subject to rapid and severe exploitation. This was particularly true in the case of timber, livestock, iron ore, and oil. And finally, the drastic destruction of Austrian manpower is expected to make its deterrent effects felt for at least another generation. II. POST-WORLD WAR II ECONOMIC DEVELOPMENT It is against the background of the preceding survey that post-World War II economic development must be considered, in spite of the regrettable fact that accurate data for that prewar and war period are often not available or are incomplete. General Development Since for the years 1945 to 1947 only very incomplete figures are available, mere rough estimates are ascertainable regarding growth and development. The Austrian gross national product in 1945 had dropped to about 36 per cent of the 1937 level, rising by 1946 to about 42 per cent and by 1947 to about 62 per cent of the prewar level. 41 In the period of reconstruction, from 1948 to 1951, the gross national product rose from 91 per cent to 134 per cent of 1937. While the relatively Q high rates of growth during the immediate postwar years should not be overestimated in view of the particularly low starting point, those of 1949 (20 per cent), 1950 (11 per cent), and 1951 (9 per cent) are of significant magnitude. Currency stabilization with accompanying arrest of growth was witnessed in 1952. In 1953 the gross national product rose by 3 per cent; in boom 1954 by 10 per cent at stable prices and wages. The increase in 1955 was nearly the same as in the pre ceding year, 11 per cent. Further rises of 5 and 6 per cent, respectively, were shown in 1956 and 1957, while 1958, even though a year of international recession, nevertheless pushed up the gross national product another 4 per cent. While the gross national product manifested a 5 per cent increase in 1959, the figures for 1960 pointed to a 10 per cent increase with a somewhat lower rate forecast for 1961, i.e. 8 Due primarily to aid received under the Marshall Plan (ERP). 42 6 per cent (Tables IX and X). It may finally be observed that, in essence, the success of Austria's postwar recovery may be attributed to very high rates of capital investment with significant attendant gains in productivity (Tables XI and XII).9 Stages of Postwar Development The postwar era of progress may be divided, for convenience, into three specific periods in order to facilitate analysis. The first postwar years. Heavy fighting char acterized the final days of spring 1945. Austria's economy was virtually paralyzed. Approximately 250,000 apartments were destroyed; hunger and despera- g John W, Kendrick, Productivity Trends in the United States (Princeton: Princeton University Press, 1961), pp. 11 and 17. What is usually implied when productivity indexes are considered is a definite change in total factor productivity, i.e. changes in productive efficiency. Such changes may be the result of technological innovations, scales of output, or the rate of utilized capacity. "It may also reflect changes in inputs of 'intangible capital' designed to increase the quality of the input of the tangible factors, and such change is not readily susceptible to measurement." It therefore becomes evident that productivity indexes are not "all purpose" indexes, but rather should be used "in conjunction with other measures in order to assess progress in the broader realm of social and economic efficiency as contrasted with the narrower realm of technological efficiency." TABLE IX THE DEVELOPMENT OF THE GROSS NATIONAL PRODUCT IN AUSTRIA* Year At Market Prices Billions of Schillings Rate of Real Annual Growth (in Per Cent) At 1954 Prices Index of Real Development 1937 8.5 58.0 100 1945* 21.0 36 1946* 17 24.5 42 1947 47 36.0 62 1948 29.0 46 52.8 91 1949 40.3 20 63.5 109 1950 49.6 11 70.6 122 1951 66.4 9 77.4 133.6 1952 76.8 0.5 77.9 134.2 1953 77.5 3 80.0 138 1954 87.8 10 87.8 152 1955 100.4 11 97.1 168.6 1956 110.3 5.4 102.3 177.7 1957 121.2 5.5 108.1 187.5 1958 127.4 3.3 111.6 193.7 1959 134.6 3.1 115.5 198.6 1960 148,2 8.4 124.9 215.3 1961* 161.5 5.4 131.6 *Estimated Source: Austrian Institute for Economic Research, Monthly Report. March, 1962, Statistical; and Ten Years of Austrian Economic Development. 1945-1955 (Vienna: The Institute, 1955), p. 13. 44 TABLE X INTERNATIONAL COMPARISON OF THE GROWTH RATE 1953-1960 Country Gross National Product (Average Yearly Growth in Per Cent) Total Per Capita Belgium 3.0 2.3 West Germany 8.7 6.9 France 5.1 4.0 Italy 7.0 6.3 Netherlands 6.0 4.3 EEC Total 6.4 5.1 Denmark 4.1 3.3 Great Britain 3.1 2.6 Norway 4.3 3.4 Austria 8.3 7.9 Switzerland 6.0 4.4 Sweden 4.3 3.4 EFTA Total 3.9 3.1 U.S.A. 2.7 0.9 Source: General Statistics. No. 4, Part II (Paris: Organization for European Economic Coopera tion, 1961), p. 63. TABLE XI PRODUCTIVITY IN INDUSTRY Year Percentace 1937 100 1947 48.1 1948 68.2 1949 H 0 CM 00 1950 91.8 1951 100.1 1952 101.7 1953 106.0 1954 116.6 1955 129.6 1956 128.7 1957 135.2 1958 140.4 1959 147.0 1960 155.4 Source: Oesterreichische Laender- bank, Statistical Data on Austria, 1961 Edition (Vienna: The Bank, 1962), p. 6. 46 TABLE XII RATE OF INVESTMENT (IN BILLIONS OF SCHILLINGS) Year Available Resources* Investment as Per Cent of Actual Resources Invested 1937 8.5 7 1948 31.3 14 1949 43.1 16 1950 51.6 18 1951 69.9 20 1952 78.6 19.6 1953 75.4 19.5 1954 86.0 21.7 1955 97.4 22.8 1956 110.6 22.1 1957 121.8 22.3 1958 126.7 22.6 1959 134.6 23.0 1960 148.2 23.5 1961 162.2 24.0 ♦Gross national product plus balance of payments surplus or deficit. Source: Oesterreichische Laenderbank, Statistical Data on Austria, 1961 Edition (Vienna: The Bank, 1962), p. 7. 47 tion prevailed; children and adults with impaired powers of resistance died in large numbers. In July 1945, out of 1,000 babies born alive, 421 died within a short period thereafter. Monetary conditions were a reflection of a disorganized administration as well as of an intense black market. In December 1945 black market prices for sugar and lard were, respectively, 390 and 463 times those of official prices. Stores and warehouses were being emptied; dwellings plundered. Not only did the local population resort to such measures, but the Soviet occupation forces as well. The only assistance, up to 1948, came in the form of American and British aid; 379 million dollars worth of goods were shipped to Austria under the UNRRA aid program. A further 110 million dollars arrived from private institutions abroad. Reconstruction— 1948 to 1951. This period witnessed a tripling of industrial productivity and a doubling of export volume, with agricultural pro duction reaching 90 per cent of the prewar level. / The national product available for consumption and investment increased 100 per cent, and the living standard of wage and salary earners reached prewar levels (the Soviet zone excluded). 48 Accompanying this development, however, was a spiraling inflation. Living costs rose by 140 per cent; wholesale prices by 180 per cent. The volume of money was expanded from seven billion to seventeen billion schillings. Credit was expanded from two billion to eleven billion schillings. Inflation never reached the point where money was refused as a means of payment or exchange, but it lost its function as a means of saving. It was due primarily to the aid received under the Marshall Plan (European Recovery Plan), however, that Austria was able to embark upon an investment plan of major proportions. Under this plan the country received 962 million dollars in aid from January 1, 1948 to March 31, 1955. The annual deficit in the balance of payments in the years 1948 to 1951 averaged 220 million dollars. This deficit was also covered by means of ERP aid. Stabilization and sustained growth. The year 1952 will go down in Austrian economic history as one of successful currency stabilization. This was accomplished by restrictions of credit, increases in bank rates (from 3.5 to 6 per cent), and prudent budgetary policies, i.e. cuts in spending with increases in taxation. Wholesale prices fell by 49 6 per cent, building costs by 2 per cent, and the cost of living by 1 per cent. However, stabilization extracted the phenomenal growth rate in employment and production of the previous years. The economy seemed to lack vigor. Substantial success in the field of foreign trade and tourism occurred during 1953, culminating in the first surplus (seven million dollars) in the history of the country*s balance of payments. The nation was gaining greater independence from imports by virtue of its increased volume and diversity of domestic production. A strong boom tendency grew out of 1953, which spread well into 1955. Industrial and commercial output, internal and foreign trade, trans portation and tourist traffic all reached new heights. In 1955 capital goods production was 22 per cent greater than in 1954, ascribable, in essence, to strong domestic demand. The succeeding years witnessed particular growth in the export of goods and services, but since imports grew equally as much earned foreign surpluses contributed little to stimulating continued growth. It was rather gross fixed investment, which had declined slightly in 1956, with attendant government expenditures which were the most important elements 50 contributing to the growth of the economy; while consumers' expenditures, the largest component of total demand, rose less than the gross national product. Austria continued its expansion at a high rate in 1957, but the rate of growth slowed down somewhat in 1958. This development was attributable to the slackening of economic activity throughout the world, which served to reduce exports and adversely affected business expectations. Prices and wages remained stable during 1957 and 1958, with government expendi tures stimulating total demand considerably. Never theless, the balance of payments remained in surplus, chiefly as a consequence of high tourist receipts and capital imports. While the effects of the 1958 slowdown continued to make their presence felt into early 1959, by the third quarter of that year industrial production showed an advance of 4.6 per cent over the preceding year. Continued economic vitality seemed enhanced by a vigorous credit expansion and a rapidly decreasing labor supply. The balance of payments differed, how ever, markedly from that of the prior year, particu larly in capital transactions. Inasmuch as in 1958 capital imports were of record character, it was the 51 normalization of that account which significantly contributed to the reduction of the surplus from 4,216 million schillings in 1958 to 749 million schil- * lings in 1959. By mid-1960, with capacity fully utilized and the labor shortage being felt throughout the economy, pressures of demand and upward moving wage costs were exerting considerable stress upon the price level, notably in the field of investment products. As a consequence, imports recorded a sharp gain, much more so than exports, which resulted in the first deficit on the balance of payments since 1953. After an average real gross national product growth rate of 8.4 per cent during 1960, the economy began to show signs of a slight slowdown in the first half of 1961, attributable almost exclusively to a dearth of labor power and capacity. In August there prevailed three unfilled positions for every fully employable person. Industrial growth in 1961 was due largely to development of the domestic economy, par ticularly the investment goods sector and more prudent seasonal utilization of labor.A favorable develop- *°A few remarks which concern the character of measurements of growth may, perhaps, be in order. A. Bergson, The Real National Income of Soviet Russia Since 1928 (Cambridge: Harvard University Press, 52 ment in September 1961 appears to have been the reduced rate of increase in imports over exports. In fact, the second quarter indicates a rise of exports by 8 per cent, whereas imports increased by only 7 per cent. This is to be attributed mainly to greater reduced imports of foodstuffs (a very favorable 1960 harvest), raw materials, and other half finished items, and 10 Continued 1961), p. 211, observes that the "degree of index number relativity depends on the extent of and cor relation between structural changes in production and prices." When economies of varied levels of indus trialization are related, measurements of physical volume of production depend on the base year. That is, where the computations are in terms of an earlier rather than a later base year, output grows more rapidly. Prices are expected to behave in a set pattern in this context, i.e. they must rise less or fall more for more rapidly expanding than for more slowly expanding products. Alexander Gerschenkron, A Dollar Index of Soviet Machinery Output. 1927-28 to 1937. Report R-197 (Santa Monica: The Rand Corporation, April 6, 1951), pp. 46 ff., puts it more succinctly: "One way of describing industrialization is to define it as a process of changing scarcity relationships. At early stages of industrialization, the value of output of certain commodities constitutes a relatively small sphere of the value of aggregate industrial output, while prices of these commodities are relatively high in relation to prices of commodities composing the bulk of industrial output. . . . in the course of the industrialization process it is precisely these com modities whose output expands at a particularly high rate, and this expansion is accompanied by a cheapen ing of these commodities in terms of the rest of industrial output." It becomes, therefore, quite relevant as to what base years are used when growth of economies of varying degrees of industrialization are compared. 53 increased exports to the EFTA and the United States* III. FOREIGN TRADE AND THE BALANCE OF PAYMENTS Foreign Trade At the conclusion of the hostilities in 1945 no foreign trade existed in Austria. Only sporadic barter trade and occasional foreign aid deliveries preserved Austria from complete chaos and famine.'*''*' In 1946 regular trade relations were finally established with Austria's immediate neighbors— Switzerland, Czechoslovakia, Germany, and Italy. By the end of the year exports had reached 13 per cent and imports 10 per cent of prewar levels. In 1947 the first clearing and trade agreements were negotiated and eventually Austria was given membership in the European Payments Union (EPU), enabling her to effect a vigorous expansion of her foreign trade on the basis of multilateral agreements. By 1950 the country's foreign trade figures had already overtaken those of 1937. As noted above, imports during the first post war years consisted mainly of foreign relief shipments. By 1955 these had shrunken to practically zero. It is **In particular UNRRA aid. 54 interesting to note that imports remained relatively low until 1953 (Tables XIII and XIV). Whereas indus trial production nearly doubled between 1948 and 1953, total imports barely equaled prewar figures. The explanation lies essentially in the changes which took place in the Austrian economic structure. A number of important basic industries were developed during the war under German insistence and direction, in particular mining, hydroelectric power, iron and steel, oil, chemicals, etc. These basic industries, in conjunction with several subsidiary industries which were started in recent years, have made the country less dependent on imports. Moreover, the agricultural sector of the economy supplies domestic needs to the point of 86 per cent of self-sufficiency. The sharp rise of imports after 1953, however, shows that in prosperous times Austria will import on a substantial scale, principally heavy and automated machinery, fuels, and certain chemical products (Table XV). After reaching 1937 levels, Austria’s foreign trade expanded rapidly, in particular since 1952, with significant increases recorded in 1960 and 1961 (Table XVI). TABLE XIII AUSTRIAN FOREIGN TRADE Year Total Exports Total Imports (1945-1955 Including Foreign Aid) Million Schillings Import Surplus (from 1954) Commercial Imports 1937 1,218 1,455 1,455 1946 219 1,730 261 1947 882 3,054 1,191 1948 1,948 3,900 2,209 1949 3,230 6,365 4,424 1950 6,511 9,208 7,097 1951 9,635 14,027 11,284 1952 10,797 13,959 12,002 1953 13,188 13,269 12,352 1954 15,851 16,987 622 16,473 1955 18,169 23,068 4,899 1956 22,074 25,318 3,244 1957 25,442 29,339 3,897 1958 23,864 27,912 4,048 1959 25,161 29,760 4,599 1960 29,129 36,813 7,684 1961 31,262 38,604 7,342 Source: Creditanstalt-Bankverein, Austrian Economy in Figures, 1961 (Vienna: The Bank, 1962), p. 14. 56 TABLE XIV FOREIGN AID DELIVERIES Year Millions of Dollars Per Cent of Total Imports 1945-1946 200 88 1947 225 68 1948 280 57 1949 300 50 1950 207 43 1951 206 31 1952 105 16 1953 40 7 1954 20 3 1955 1.3 0.7 Source: Austrian Institute for Economic Research, Ten Years of Austrian Economic Develop ment , 1945-1955 ^Vienna: The Institute, 1955), p. 59. TABLE XV STRUCTURE OF FOREIGN TRADE Principal Exports 1957 Percentase of 1958 1959 Total 1960 1961 Iron and Steel 19.4 16.3 16.9 19.2 18.1 Wood and Timber 14.3 14.3 13.6 12.3 11.4 Machinery, Tools, Engines, Etc. 10.6 11.9 12.0 13.6 14.3 Textiles and Clothing 9.4 10.0 7.7 6.7 6.3 Paper and Cardboard 6.0 5.9 5.2 5.0 4.9 Principal Imports Machinery, Tools, Etc. 15.5 17.7 15.4 17.2 19.7 Coal, Coke, Briquets 12.4 10.4 8.0 6.9 5.9 Vehicles 6.8 7.5 6.5 6.7 6.6 Chemical Products 6.8 7.3 8.3 7.9 7.8 Textiles and Clothing 7.1 7.3 5.5 5.8 5.6 Source; Oesterreichische Laenderbank, Statistical Data on Austria, 1961 Edition (Vienna: The Bank, 1962), p. 15. Ol •o TABLE XVI FOREIGN TRADE VOLUME INDEX Year Imports Export s 1937 100 100 1954 121 178 1956 179 234 1958 209 258 1960 280 313 Source: Austrian Institute for Economic Research, Monthly Report, Statistical Summary (Vienna: The Institute, March, 1962), p. 98. 59 Geographic reorientation. A complete geo graphic reorientation came about as a result of post war political encampments. Austria's membership in international organizations such as the ERP, OEEC, GATT, EPU, and recently the EFTA has led to closer ties with Western Eruope. In 1961, 73.7 per cent of imports and 66.5 per cent of exports originated in and were delivered to OEEC countries, as compared with 40 per cent and 52 per cent, respectively, in 1937, Conversely, Eastern Europe's share in Austrian imports has dwindled from 32 per cent to 10.4 per cent, and in exports from 28 per cent to 14.6 per cent12 (Table XVII). Structure of foreign trade. Timber, iron, steel, and paper have always been Austria's principal exports; but whereas in 1937 they represented but 21 per cent of total exports, in 1960 they accounted, in conjunction with machinery, for no less than 43.5 per cent of total exports (Table XV, page 57). In 1960 Austria exported to the United States a total of fifty million dollars— magnesite, rayon, chemicals, leather goods, ski equipment and clothes, wines and spirits, porcelain, glassware, costume jewelry, fancy foodstuffs and confections. In return, Austria purchased agricultural commodities, coal and oil, and industrial equipment worth 105 million dollars. TABLE XVII REGIONAL DISTRIBUTION OF FOREIGN TRADE— 1960-1961 Imports in Million Schillings In Per Cent Exports in Million Schillings In Per Cent 1960 1961 1960 1961 1960 1961 1960 1961 Europe 30,651 33,161 83.3 85.9 24,206 26,510 83.1 84.8 Member countries of OEEC 25,780 28,469 70.0 73.7 18,989 20,791 65.2 66.5 EFTA 4,455 4,890 12.1 12.7 3,631 4,492 12.5 14.4 EEC 20,792 22,980 56.6 59.5 14,632 15,488 50.4 49.6 Eastern Europe* 4,116 4,011 11.2 10.4 3,996 4,577 13.7 14.6 America 4,047 3,366 11.0 8.7 2,157 2,231 7.4 7.1 U.S.A. 2,703 2,288 7.3 5.9 1,284 1,204 4.4 3.9 Africa 841 904 2.3 2.3 856 783 2.9 2.5 Asia 1,046 957 2.8 2.5 1,663 1,474 5.7 4.7 Australia and Oceania 232 216 1.0 0.6 247 263 0.9 0.9 Overseas territories OEEC member countries of 366 279 loO 0.7 361 318 1.2 1.0 *Not including Finland and Jugoslavia Source: Creditanstalt-Bankverein, Austrian Economy in Figures (Vienna: The Bank, 1961), p. 14. 61 In 1937 one-third of Austria's imports con sisted of food, beverages, and tobacco; by 1955 this group represented only one-fifth. At the same time the share of finished industrial products in the total import volume rose from 20 to 30 per cent. As a country heavily dependent upon foreign trade (exports represent more than a fourth of gross national product), Austria has followed closely the various movements toward closer European economic ties from their inception, finding ultimate solace in the EFTA (Table XVIII). The Balance of Payments and Its Underlying Strength Austria's balance of payments must be considered against the background of its full economic recovery since 1952, particularly since the restoration of its political sovereignty. The fiscal situation. In 1952, at the outset of the economic upsurge, the nation's fiscal situation represented a marked contrast from current conditions. Reserves in 1952 equaled only 14 per cent of banknote circulation, gold standing at a mere 1 per cent and hard currency at 13 per cent. In mid-1959 the Austrian National Bank held reserves of 38.3 per cent gold and TABLE XVIII SHARE OF EXPORTS AND OF OUTPUT FOR DOMESTIC CONSUMPTION IN GROSS NATIONAL PRODUCT (IN BILLION SCHILLINGS) Output for Share in GNP Cent Output in Per for Year GNP Domestic Consumption Export * Domestic Consumption Export 1957 121.8 89.0 32.8 73.1 26.9 1958 126.7 94.3 32.4 74.4 25.6 1959 134.6 99.4 35.2 73.8 26.2 1960 148.2 107.9 40.3 72.8 27.2 1961 162.2 118.6 43.6 73.1 26.9 ^Exports of goods and services Source: Creditanstalt-Bankverein, Austrian Economy in Figures Vienna: The Bank, 1962), p. 2. 63 83.2 per cent hard currency (a total of 121.5 per cent) against its outstanding schilling currency. These reserve holdings far exceeded those of Austria's last prewar year of freedom, 1937, when gold reserves and hard foreign currency equaled only 42 per cent of schilling circulation. The balance of payments. The over-all balance of payments, with the exception of 1960, has shown a surplus on total account since 1953, thereby adding substantial foreign exchange and gold reserves to the existing stock (Table XIX). Following the adverse year of 1960, during 1961, as a result of reduced imports, rising exports and tourist earnings, and resumed capital imports, a surplus on the balance of payments appeared once again, with additions to foreign exchange holdings amounting to over 132 million dollars. Further additions to foreign exchange reserves are expected via German reparation payments to be made to Austria during the next few years. The surpluses of foreign exchange are attrib utable primarily to three sources: (1) considerable foreign aid receipts up to 1955 (Table 16, page 58), (2) a rapidly expanding tourist trade which more than TABLE XIX BALANCE OF PAYMENTS (IN MILLIONS OF UNITED STATES DOLLARS)* 1956 1958 1960 1961 A. Balance of Trade** Imports Exports 973.81 900.50 1,073.55 962.90 1,425.73 1.161.00 1,489.81 1,230.54 -73.31 -110.65 -264.73 -259.27 B. Services (Invisible Items) Payments thereof Tourist Traffic 104.64 23.50 122.13 33.96 178.38 61.34 190.54 60.38 Receipts thereof Tourist Traffic 189.47 116.15 288.66 166.77 389.23 232.00 447.92 277.42 +84.83 +166.53 +210.85 +257.38 c. Investment and Finance Payments Receipts 30.71 84.34 81.00 199.53 116.58 139.69 128.92 248.23 +53.63 +118.53 + 23.11 +119.31 (Continued) 64 TABLE XIX (Continued) 1956 1958 1960 1961 D. Equivalent of Unrequited Deliveries to USSR under Austrian State Treaty -51.43 - 45.05 - 31.15 - 23.11 A + B + C + D +13.72 +129.36 - 61.92 + 94.31 Unascertainable Items +38.76 + 32.80 + 39.27 + 38.23 Change in Monetary Reserves +52.48 +162.16 - 22.65 +132.54 ’Exchange ratio used: 26 Austrian schillings = Si,00 *’Including Unrequited Deliveries— D Source: Oesterreichische Laenderbank, Statistical Data on Austria (Vienna: The Bank, 1959, 1961, 1962 Edit ions), pp. 8 and 12. offsets the unfavorable balance of trade, and (3) considerable foreign investment capital receipts, particularly since 1958 and the establishment of the EEC and EFTA organizations. The increase in foreign exchange reserves had made possible the introduction of greater liberaliza tion of foreign trade relations and complete con vertibility of the schilling with but moderate restrictions remaining on the outflow of investment capital and foreign exchange allocations for tourism, the latter of which represent a token restraint only. In conclusion, it should be noted that a recent agree ment with the United States provides for the resump tion of payments on the Austrian prewar debt. 13 The maximum obtainable foreign exchange per year per person is currently Austrian schillings 10,000, i.e. $400. CHAPTER IV RELATIONS WITH INTRA-EUROPEAN TRADE ORGANIZATION After centuries of nearly absolute European world dominance, the progress of the twentieth century progressively suggests the emergence of significant fundamental changes, viz. the vigorous development of the United States, the industrialization and mili tarization of Japan, the transformation of agrarian Russia into a highly industrialized power, and the loss of the majority of Europe's overseas possessions to diversely motivated national movements. I. THE EMERGENCE OF THE EUROPEAN ECONOMIC COMMUNITY With the ultimate emergence of a divided world after World War II, each embracing one of the two great economic and political powers and facing one another across a disunited and abject Europe, the stage was set for the people of Western Europe to choose sides and tackle the task of regionalism. The Precursors of 1 1 Supranationalism" The first recent step toward some form of European economic union was taken by the exiled 68 Benelux governments in 1944 when an agreement was signed which, in effect, created a customs union designed to eliminate intra-union trade barriers and establish a common outside tariff. As political integration was considered an unlikely objective in the late 1940's, a plan was conceived by Robert Schuman and Jean Monnet which would establish inter-European cooperation in the field of various vital economic sectors. However, with the signing of a treaty establishing the European Coal and Steel Community (ECSC; France, Germany, Italy, and the Benelux states) in April 1951, the preamble of a projected, more inclusive European Economic Community was completed— a union which had as its ultimate goal political integration as well. Subsequent negotiations to form a European "supranational" defense and political entente failed mostly on French opposition to German rearmament, and it became increasingly clear that any furthering of European unity would need to confine itself ad interim to the economic sphere. Establishment of the EEC In April 1956, concluding several months of negotiations, the Spaak report was issued which formed the basis for subsequent negotiations among the six ECSC countries to join in a more inclusive association.^ With the signing of the treaty estab lishing the European Economic Community in Rome in March 1957, a major step had been taken in the direction of European integration. In January 1958 the organization officially came into being, with initial tariff provisions commencing operation one o year later. The Implications of EEC Integration for Austrian Foreign Trade The de facto implementation of European economic integration commenced January 1, 1959. EEC member nations lowered intra-union tariffs by 10 per cent, and liberalized quantitative restrictions by 20 per cent. These measures, however, had but slight imme diate consequence as the scope of the tariff reductions was enlarged to include all General Agreement on Trade and Tariffs (GATT) members so long as ultimate ^Commonly referred to as the Mesina Conference Report of 1956. 2 Political and Economic Planning Organization, European Organizations (London: G. Allen and Unwin, Limited, 1959), p. 51. 70 individual tariffs remained above the predetermined common EEC level. Thus while EEC and EFTA imports showed no manifest divergence in 1959, exports regis tered an 11 per cent increase over 1958 in the EEC but a mere 5 per cent rise in the EFTA. Effects upon Austrian trade— 1959. During 1959 Austria's exports into the EFTA rose by 17 per cent, more than those of any other EFTA member. Her exports into the EEC, on the other hand, showed an increase over 1958 of but 4 per cent. This minor increase of exports to the EEC is attributable directly to the pronounced reduction of exports to France, which represented a continuance of the trend begun in 1956 with the devaluation of the franc and deliberal ization of foreign trade. Thus exports to France sank from 3.9 per cent of total Austrian exports in 1956 to 1.7 per cent in 1959 (Table XX). Particularly affected were Austrian wood, paper, iron and steel, magnesite, and textile exports, and it appears unlikely that EEC integration had exerted any particular pressure in this case. In the matter of imports, those from EEC countries increased by 12 per cent over 1958 while those from EFTA countries rose by 11 per cent. It is generally held that the realignment of Austria's 71 TABLE XX AUSTRIA'S EXPORTS TO FRANCE Year Million Schillings Per Cent of Total Exports 1956 864.6 3.9 1957 764.6 3.0 1958 642.5 2.7 1959 435.4 1.7 Source: Austrian Institute for Economic Research, Supplemental Report No. 63 (Vienna: The Institute, July, I960), p. 8. 72 exports discernible in 1959 was not so much a conse quence of discrimination by the EEC, but rather the result of more dynamic efforts on the part of domestic industry to broaden its markets in the heretofore somewhat neglected EFTA area. This contention may be reinforced by the fact that no discriminatory, EEC- motivated effects were distinguishable for other EFTA countries, and further, that exports to Germany and Belgium rose more than proportionately while those to the Netherlands continued on a proportionate level. 1960. During this year of general European prosperity and receding American economic manifesta tions, Austria's foreign trade continued its realign ment toward increased European trade ties. In 1960 83.1 per cent of all exports traveled to European countries versus 80.5 per cent in 1959. Thus, in spite of additional intra-EEC tariff reduction of 20 per cent in mid-1960, Austrian exports to that union increased by an all-inclusive proportionate 18 per cent. In comparison, EFTA's share in Austrian exports rose from 11.6 to 12.5 per cent of the total, i.e. a growth of 7.7 per cent over 1959, or 24.8 per cent in total EFTA exports. 73 Imports from EFTA countries in 1960 also showed greater growth (by 6 per cent) than those from the EEC. Thus imports from the EFTA grew by 28 per cent; those from the EEC by 22.3 per cent. In this manner the share of EEC originating imports decreased from 57.2 per cent to 56.5 per cent of total imports. In general, then, it may be noted that in spite of the 30 per cent intra-EEC tariff reduction and the 20 per cent initial EFTA tariff reduction, Austrian foreign trade was not subjected to significant realign ment in favor of one or the other union during 1960. This fact is not only discernible in trade volume, but in the structure of foreign trade as well. 1961. The continuing effects of the American recession and payment difficulties of Asian and African nations further intensified Austria's trade with Western and also Eastern Europe. In the first half of 1961 imports from EEC members rose considerably, thereby reaching for the first time 61 per cent of total imports. This rise is attributable particularly to increased imports of machines and electrotechnical apparatus from Western Germany, which represented 72 per cent of all imports from the EEC— 44 per cent of total imports. With the inclusion of Italy, 52 per 74 cent of all Austrian imports originate in these two countries, or 85 per cent of all EEC imports. The share of the EEC in Austrian exports increased only slightly during the first half of 1961, reaching 51 per cent of total, whereas greater gains were recorded by the EFTA, particularly Switzerland and Denmark (Table XXI). The lack of comparable growth of exports to the EEC may, at least in part, be attributed to widening EEC tariff differentials. Thus, whereas exports to Germany and France rose substantially, trade with Italy and Belgium remained relatively stagnant. In final analysis it may perhaps be noted that, due to Europe's and particularly Austria's continued economic progress and advancement, few if any manifest displacements in Austria's foreign trade have occurred so far which may be directly imputed to economic division and/or partial integration of Western Europe. II. THE GENESIS OF THE EUROPEAN FREE TRADE ASSOCIATION Pursuant to the breakdown of efforts to find a mutually advantageous and desirable basis of asso ciation between the "outside” economies of Western Europe and those already within the EEC, a hastily 75 TABLE XXI SHARE OF EEC IN AUSTRIAN EXPORTS AND IMPORTS Year (In Per Cent) Exports Imports 1929 31.9 29.7 1937 36.6 28.3 1953 46.6 47.9 1954 49.7 54.9 1955 51.1 52.7 1956 49.4 50.6 1957 49.3 51.9 1958 49.6 54.3 1959 49.3 57.2 1960 50.1 56.5 1961 51.0 59.1 Source: Austrian Institute for Economic Research, Supplemental Report No. 63 (Vienna: The Institute, July, I960), p. 9. 76 formed new association was called into existence in 1959. This group was comprised of Great Britain, Sweden, Norway, Denmark, Switzerland, Austria, and later Portugal. The Stockholm Convention Analogous to the Treaty of Rome creating the EEC, it was the convention at Stockholm to which, by November 1959, all member countries had assigned their signatures, thereby creating the European Free Trade Association. An initial tariff reduction of 20 per cent to take effect on July 1, 1960 was agreed upon, with subsequent reductions of 10 per cent each to go into operation every full year thereafter. In addition, quota restrictions were to be progressively eliminated by not later than 1970. The obvious point of dif ferentiation with the Treaty of Rome was the fact that the EFTA agreement provided for no common outside tariff, but rather permitted member nations to retain 2 whatever outside tariff levels suited them best. Not only was the Stockholm plan a prototype of a free trade area, but it also was intended to JT Emile Benoit, Europe at Sixes and Sevens (New York: Columbia University Press, 19611"! 77 facilitate negotiations with the EEC without com pelling member nations to grant disadvantageous concessions. The Consequences of the EFTA upon Austrian Foreign Trade Whatever developments have emanated from the economic division of Europe since 1959 must be regarded against the background of an almost ubiquitous and continuing economic prosperity on the Continent. It would be entirely arbitrary to enlarge upon the con sequences in a manner which would include their acceptance for a period of recessive economic activity as well. Austrian exports to the EFTA. From July 1, 1960 to July 1, 1961, the first year of operation of the EFTA, Austrian exports to the area increased by 22 per cent, whereas those to the EEC rose by only 14 per cent. Exports to Denmark and Portugal rose 34 and 55 per cent, respectively. In absolute figures, however, exports to the EEC represented a much larger value (1.9 billion Austrian schillings) than those to the EFTA (740 million Austrian schillings). Thus exports to the EEC are, in toto, approximately four times those to 78 the EFTA (Table XXII). Thus, as already noted earlier, the share of the EFTA countries in total Austrian exports rose slightly from 12.1 per cent to 13.4 per cent during this period, while that of the EEC rose by an almost equal amount, i.e. from 49.2 per cent to 50.7 per cent. Austrian imports from the EFTA. During the identical time interval, Austria's imports from EFTA countries rose by 600 million Austrian schillings or 15 per cent, while those from the EEC increased by 3.2 billion Austrian schillings or 17 per cent. The share of total Austrian imports originating in the EFTA remained constant at 12.1 per cent; that of the EEC countries, however, showed an increase from 56.7 to 57.9 per cent (Table XXIII). Thus it is discernible that the only substan tive change which has occurred during the first year of existence of the EFTA is to be found in the export sector of the economy, where the rate of growth of exports to the EFTA exceeded that to EEC nations by 4 more than one-half. 4 F. Nemschak, Aspekte der Oesterreichischen Integrationspolitik (Vienna: Austrian Institute for Economic Research, October, 1961). TABLE XXII AUSTRIA'S EXPORTS TO THE EFTA Country July to June 1959-1960 1960-1961 (In Million Schillings) Increase over Previous Year (In Per Cent) Denmark 256.0 341.8 85.8 33.5 Great Britain 778.3 850.0 71.7 9.2 Norway 247.3 272.1 24.8 10.0 Portugal 73.2 113.5 40.3 55.1 Sweden 677.4 846.7 169.3 25.0 Switzerland 1,281.7 1.628.1 346.4 27.0 All EFTA countries 3,313.9 4,052.2 738.3 22.3 Source: Austrian Institute for Economic Research, Special Report No, 16 (Vienna: The Institute, October, 1961), p. 7. • nJ to TABLE XXIII AUSTRIAN FOREIGN TRADE IN THE FIRST EFTA YEAR (MILLION SCHILLINGS) Total Of That EEC EFTA Imports July 1, 1959 to June 30, 1960 33,499 18,979 4,053 July 1, 1960 to June 30, 1961 38,361 22,226 4,654 Increase 4,862 3,247 602 Increase in per cent +14.5 +17.1 +14.8 Exports July 1, 1959 to June 30, 1960 27,297 13,431 3,314 July 1, 1960 to June 30, 1961 30,268 15,343 4,052 Increase 2,971 1,912 738 Increase in per cent +10.9 +14.2 +22.3 Source: Austrian Institute for Economic Research, Special Report No. 16 (Vienna: The Institute, October, 1961), p. 8. o o o 81 III. COMPARATIVE EVALUATION OF THE EEC AND EFTA It is a necessarily contingent task to evaluate the EEC in comparison with the EFTA as the former, after four years of remarkable performance, permits deeper inquiry than the latter with a life span of but one and one-half years. The EEC appears to be a customs union striving to accomplish harmony and unison through the medium of incisive economic integration. The EFTA, on the other hand, merely represents an area of mutual, loosely defined cooperation. But in neither can one speak of fully autonomous national economic policy. What prevails, rather, is a type of residual economic license over areas of responsibility not specifically included in the various heterogeneously administered regional and global agreements. Comparative Statistical Evaluation Insofar as a purely statistical comparison of the EEC and EFTA can be of analytical value, it must ^W. Weber, Moeglichkeiten und Grenzen Einer Harmonischen Wirtschaftspolitik in Europa ' (Ber1in; Dunker and Humbolt, 1961). 82 be pointed out that the former, "the Inner Six," represents countries of contiguous location, whereas "the Outer Seven" form an intermittent ring around the first. This latter disadvantage, as well as the complementary nature of the EFTA economies, will be alluded to in a subsequent section. Suffice it to point out that in spite of, or perhaps because of, the fact that the EFTA displays a population of only somewhat more than one-half that of the EEC and a gross national product two-thirds that of the "Inner Six," its per capita foreign trade outpaces that of the EEC by approximately 43 per cent (Table XXIV). The Relative Treaty Documents The basic distinction between the EEC and the EFTA is to be found in the differing aims envisioned by the two organizations. In this context, the EEC found its origin in a most specific and detailed agreement, imposing in its Part I precise obligations upon its members. In essence these are: (1) the progressive step-by-step elimination of internal tariffs, (2) complete trade liberalization, and (3) the ultimate creation of a uniform tariff on imports from nonmember countries 9 83 TABLE XXIV EFTA AND EEC IN 1959 EFTA EEC Population million 89 170 GNP billion $ 101 ♦ 157 Investment M 14 24 Total exports i r 17 25 Total imports t r 20 24 Exports per capita $ 192 148 Imports per capita $ 225 143 Production of: Steel million t f t 27 63 Coal f t 211 235 Cement 1 1 22 57 Electric power billion kwt. hrs. 202 243 Private consumption: billion $♦♦ 63 100 Durable goods r t 6* 7 Automobiles million units 7 10 Use of petroleum products million t 58 ♦ 70 ♦Partly estimated ♦♦Figures for 1958 Source: European Free Trade Association, The Bulletin (Geneva: The Association, March, 1961), p. 11. 84 Contrasted with the Treaty of Rome, the EFTA's Stockholm plan exhibits the organization's aim to create a loosely knit system which could stand on its own feet if no agreement with the EEC were ultimately reached, and which could itself be modified to embrace the EEC or could become an element in a settlement with the EEC. In line with these objectives the treaty basically (1) commits its members to tariff reductions and trade liberalizations, (2) provides for clauses of exemption, (3) establishes "rules of origin" provisions, (4) asserts a general disavowal of offsetting trade restrictions, and finally (5) ft pledges a minimum of administrative machinery. In striking contrast, therefore, with the EEC, the EFTA document manifests simplicity of basic con ception, heavy reliance upon agreement among members to solve problems, and a definite evolutionary char acter so as to make it particularly susceptible to adaptation without renegotiation. Comparative Development By March 1, 1962, intra-organizational tariff reductions will have reached 50 per cent in the EEC and 40 per cent in the EFTA, with quantitative g Benoit, oj>. cit., p. 80. restrictions eliminated entirely in the EEC. With the January 1962 accord EEC members, after prolonged negotiations, have progressed to the second four-year stage which concomitantly moves the Community along the "path of no return." The perennial enigma of agricultural production, the seemingly final obstacle in the way of the realisation of the second stage, appears to have been settled, though perhaps somewhat less than amicably. Certain subsidiary agreements, however, particularly on farm product price levels, remain yet to be decided. Events taking their course in the summer of 1961, a scant year following its inception, have clearly prophesied the dissolution of the EFTA. Initiated by Britain and Denmark, an exodus, though of lame proportions and incentive, is manifesting its sequence. Industrial production. There exists no doubt in the fact that the EEC countries have been more dynamic in the past than the EFTA nations, and continue to exhibit this vitality with some modifica tion even today. From 1950 to 1960 industrial pro duction nearly doubled within the realm of the EEC, whereas it increased by only somewhat more than a 86 third in the EFTA.^ This marked difference may, in part, be justified by the greater war damage and chaos sustained by the EEC countries, particularly Germany and the Netherlands, and the consequently more pronounced compulsion for reconstruction and reassertion. However, even during the most recent years, when war reconstruction ceased to exert a notable influence, EEC industrial production grew by more than double that of the EFTA (Table X, page 44). Foreign trade. The tendency discernible in foreign trade parallels much that of industrial pro duction, i.e. growing at a considerably more rapid rate in the EEC than in the EFTA. In 1960 exports of EEC countries rose by 18 per cent over 1959, while those of the EFTA showed an increase of but 9 per cent. Continuing in this vein in the first half of 1961, EEC exports increased by 8 per cent, that is double the rate of increase recorded by EFTA (Table XXV). In toto, EEC foreign trade has shown a vigor surpassing even the most optimistic prognostications. Particularly remarkable was the growth recorded in the second half of 1959 and the first half of 1960, which reached a rate of increase of 28 per cent for 7 No data available for Switzerland and Portugal. 87 TABLE XXV PRODUCTION AND EXPORTS VOLUME OF THE EEC AND EFTA COUNTRIES (1950 TO 1959 AND 1960) Production 1959 Volume (1953 1960 Export = 100) 1959 Volume 1960 Austria 1956 169 190 214 Denmark 135 142 153 164 Norway 137 147 143 159 Portugal 155 172 141 * Sweden 127 135 150 170 Switzerland * * 151 * Great Britain 122 130 121 128 EFTA Total 126 134 134 144 Belgium 122 129 154 168 Luxemburg 127 138 France 150 168 164 192 West Germany 162 180 222 255 Italy 158 182 231 280 Netherlands 139 157 167 187 EEC Total 153 171 189 219 *No data available Source: Production volume— Organization for European Economic Cooperation, General Statistics (Paris: The Organization, November, 1961), p. 93; export volume— OEEC Foreign Trade (Paris: The Organization, November, 1961), p. 40. 88 the former and 34 per cent for the latter. In con trast, EFTA countries recorded a rise In their foreign trade during the same period of only 10 per cent and 17 per cent, respectively. Tables XXV and XXVI delineate most concisely the significantly greater expansion of production and trade activity within the realm of the EEC as compared with the EFTA. The more vigorous growth of the EEC takes clear precedence over that of the EFTA. Finally, it may be noted that the annual increase in trade among today's member countries, before EEC union, amounted to an average 11 per cent. By 1960 the rate had risen to 22 per cent annually, but not at the expense of nonmember countries. Trade with outside nations has risen by 25 per cent since 1958, and imports from them have shown an increase from an annual 8 per cent rate to a 10 per cent figure.® IV. TOWARD INTEGRATION OF THE EEC AND EFTA While it was initially contended that the crea tion of the EFTA represented in itself an additional obstacle to full European unity, the official EFTA ®W. Hallstein, "Progress Report of the EEC," The Financial Times, London, November 27, 1961, p. 23. 89 TABLE XXVI CHANGES IN FOREIGN TRADE IN THE EEC AND EFTA Change over Previous Year _______ in Per Cent_______ 1957 1958 1959 1960 Imports EFTA Countries: Austria +16.0 - 5.3 + 6.7 +24.2 Denmark + 3.7 - 0.9 +18.8 +12.8 Great Britain + 4.9 - 7.3 + 5.6 +14.2 Norway + 5.0 + 2.8 + 0.9 +10.9 Portugal +13.6 - 4.1 - 1.2 +12.5 Sweden + 9.8 - 2.5 + 1.5 +20.0 Switzerland +10.8 -12.8 +11.2 +17.0 Total + 6.7 - 6.0 + 6.1 +15.3 EEC Countries: Belgium-Luxemburg + 4.4 - 8.4 + 8.8 +12.9 West Germany + 13.0 - 1.4 +12.9 +21.3 France + 9*1 - 9.1 - 9.0 +23.3 Italy +14.4 -12.6 + 6.1 +41.4 Netherlands +10.7 -11.7 + 8.6 +15.2 Total +10.6 Exports - 7.6 + 5.3 +22.3 EFTA Countries: Austria +15.5 - 6.2 + 5.3 +16.3 Denmark + 5.5 + 8.3 +10.6 + 6.1 Great Britain + 4.3 - 3.0 + 2.9 + 6.5 Norway + 6.3 - 8.8 + 8.1 + 9.0 Portugal - 4.0 + 0.4 + 0.8 +12.5 Sweden + 9.9 - 2.2 + 5.7 +16.3 Switzerland + 8.3 - 1.5 + 8.5 +12.1 Total + 6.0 (Continued) - 2.4 + 4.7 + 9.0 90 TABLE XXVI (Continued) Change over Previous in Per Cent Year 1957 1958 1959 1960 EEC Countries: Belgium-Luxemburg 3.8 + 8.3 +13.5 West Germany +16.6 + 2.7 +11.4 +16.4 France +10.1 + 0.5 + 9.6 +22.2 Italy +17.8 — 0.5 +15.2 +25.9 Netherlands + 8.4 + 3.9 +12.3 +11.6 Total +11.4 + 1.1 +11.1 +17.7 Source: Austrian Journal of Foreign Affairs, II (November, 1961), 34. 91 objective suggested that indeed only through common multilateral negotiations would a completely integrated Western Europe stand its soundest chance of realiza tion. The EFTA, then, was to provide that basis of economic strength and autonomy which would permit the EEC no choice but to reassess its aims, liberalize its constitution, and through coalescence confirm the economic integration of Europe. Under the economic Q leadership of Great Britain, this newly created European "Commonwealth," though hastily formed, seemed at first to adequately tender to each member's needs. With the realization that a greater free trade area combining all non-EEC countries who were members of the Organization for European Economic Cooperation (OEEC) was unlikely to find initiation, and with severe and recurrent balance-of-payments and economic growth difficulties, Britain announced, on July 31, 1961, its intention to enter into bilateral negotia tions with the EEC. The end purpose of this was to be the full membership of the United Kingdom in that organization. Denmark and Ireland issued similar declarations, thereby clearly foreshadowing the even tual demise of the EFTA. Thus it became evident that g Representing 60 per cent of EFTA industrial output. 92 Britain's economic dominion and traditional "insular empire" self-image would have to be subrogated to, at least temporarily, EEC patronage. Alternative suggestions in 1958 of a comprehensive EEC-EFTA association, or even the subsequent German proposal to include the EEC in the EFTA as an eighth member, have manifestly been abandoned. Britain's decision found acceptance on part of the other EFTA members, licensing in this manner each of the remaining to pursue bilateral negotiations with the EEC whose objective is to occasion one or another type of association, insofar as the EEC is willing to consent to special situations, hardships, and contingencies. V. THE DEMISE OF THE EFTA The de facto demise of the EFTA found its initiation on July 31, 1961, with the declaration of the British Foreign Ministry indicating its intention to-commence membership negotiations with the EEC. Similar announcements subsequently issued by Denmark, Ireland, and the neutrals, i.e. Austria, Switzerland, Sweden, and Norway have, as a whole, enhanced the contention that the days of the EFTA are indeed numbered. With the exception of Portugal, every 93 association member has affirmed his readiness to join or associate with the EEC in one way or another. Britain*s problems, particularly those of Commonwealth preferences and highly protected agri culture, prophesy prolonged economic negotiations which may, however, in the light of recent intra-EEC farm policy agreements, be somewhat abridged. Never theless, Britain's "hat in hand" position seems to forecast its acceptance of nearly all EEC terms almost unaltered. With the exit of this most important EFTA partner, the association will have shrunk in nearly all sectors by approximately three-fifths. At the same time, however, it will have absolved itself of its most chronically deficient and slowest growing member. The three neutral nations— Sweden, Switzerland, and Austria, the most vigorous and prosperous of the remaining, face dissimilar considerations. Switzer land's traditional self-preservation neutrality has lost most of its substance and appeal in today's altered art of military and political confrontation, and this in spite of repeated reaffirmations. Sweden's allegiance to Nordic solidarity, though set against the neutral aura, is most unlikely to exhibit pro nounced reticence. Austria's enigma, on the other 94 hand, is involuntary political neutrality, its price for national autonomy. In taking Swiss neutrality as its prototype, it may find itself in an inexpedient cul-de-sac should Switzerland resolve to surrender its nominal neutrality and join the Western alliance.^ Antithetically, however, Switzerland's century old neutrality, though obsolete, may none the less find vehement sentimental support among large portions of the more conservative populace. In effect, recent opinions voiced by leading EEC policymakers and United States foreign officials cast various doubts as to the feasibility, particu larly in the case of Austria, of association with the EEC without at the same time embracing the underlying political aims and philosophy of the Community.^1 In spite of German reassurances and the replacement of unanimity voting by majority rule in the second four- year period of the EEC, pure economic association based on special provisions and EEC concessions may prove difficult to ascertain. And yet the EEC may be ^Moscow Declaration of April 1955 and Preamble to State Treaty models Austria's neutrality after that of Switzerland. ^Spaak, Dillon, Belgian Manufacturers' Association. 95 willing to acquiesce in Austria*s political and military neutrality to the extent of sanctioning pure economic association without political con- 12 tingencies. Toward that end, bilateral negotiations between Austria and the EEC may indeed soon manifest themselves. Of the two remaining nations, no particular difficulty is foreseen in the prospective debate of the Norwegian Parliament in March 1962 in order to decide whether or not to actively seek membership in the EEC. It remains for Portugal to state an official intention, which, in view of recently strained rela tions and general disillusionment with the Western nations, is not anticipated for some time, but also is of little consequence to the Community as a whole. Thus, while it is expected that the EFTA is likely to remain in its present form or slightly reduced in membership for nigh three to four years, its ultimate fate of dissolution permits little scepticism. Its members have pledged, however, to continue their internal tariff reductions and coopera tion until satisfactory agreements on individual bases have been concluded with the EEC. 12 See the Strassburg Resolution of the European Parliament of January 23, 1962. 96 In conclusion, it can perhaps be anticipated that 1961 may, in the future, go down as the historic year during which Britain acceded her traditional extracontinental status to European codetermination and unity; a year during which Western European con solidation became an ominous and profound reality through the acquiescence of the EFTA to the more pragmatic and politically tenacious EEC. CHAPTER V PROJECTED ROLE IN A CONSOLIDATED WESTERN EUROPEAN COMMUNITY I. THE COURSE TOWARD INTEGRATION On March 23, 1960, the Austrian Parliament ratified the Stockholm Convention of the preceding year, thereby in effect creating and licensing the country's partnership in the newly formed EFTA. The factors and causes leading to this decision are dis cussed in the section below. Military-Politico Influence of Integration As may be contended of nearly all international cooperative movements, so, in the case of Austria, economic integration necessarily subserves political considerations. As a consequence, it is most prudent to examine initially these political permeations. Political and economic neutrality. Pursuant to the journey of an Austrian delegation under Chancellor Raab to Moscow, and to subsequent negotiations on ambassadorial levels in Vienna, the foreign ministers of the United States, Union of Soviet Socialist Republics, Great Britain, and France signed, on May 98 15, 1955, an Austrian State Treaty of Peace in Vienna.^" This event found its internal substantia tion when the Austrian Parliament declared into law, on October 26 of the same year, the country's 2 permanent "voluntary" neutrality. Without going into detail, it is nevertheless vital to examine briefly the relevant Article IV of the State Treaty and Article I of the Austrian Neutrality Law. The State Treaty of Peace states, in Section 1 of Article IV, that the Allied Forces prohibit any political and economic union with Germany, and that Austria fully subscribes to this responsibility. Section 2 declares further that Austria will in no way propagate any internal or external actions designed to bring about eventual direct or indirect union with Germany, economic or political, and will prevent German propaganda directed toward that end from entering its territory. ■^Gottfried F. Litschauer, Kleine Oester- reichische Geschichte (Vienna: Obelisk Verlag, 1961), p . 327. 2 It is generally held today that Khrushchev's acquiescence in Austrian autonomy was motivated by his erroneous belief of expecting to be able to per suade Western Germany to declare its neutrality as well, A la formula Austria, and thereby create a central European buffer zone of neutrality. 99 It is quite evident that in 1955 the Allied Powers, particularly Russia, were deeply concerned with preventing any possibility of a recurrent "Anschluss" and thus attempted to provide for Austrian independence. Austrian membership in EFTA. In the light of the above circumstances, it hardly seems necessary to delineate the political consequences which led Austria to seek active membership in the EFTA rather than in the economically and politically more pro pitious EEC. In this context, the Austrian Parliament ratified, on March 23, 1960, the Stockholm Convention, thereby in effect sanctioning the countryfs membership in the EFTA, which began to function on July 1, 1960. At no time was Austria committed ad infinitum to the EFTA. It was rather repeatedly emphasized, by responsible officials and organizations, that member ship in the EFTA was of temporary duration only, i.e. until such time as a successful agreement of a more widely inclusive Western European economic union could be eventuated. As early as February 1957 an official declaration by the then foreign minister, Dr. L. Figl, to the OEEC indicated Austria's readiness to Join a free trade association, and brisk doubt was voiced 100 about the prospects of the EEC, the treaty of which was signed a month later in Rome. Reasons for Austria*s Membership in the EFTA That Austria is economically, as well as ethnically, much more a part of the EEC needs little emphasis at this point (see Table XXI, page 75). What should be mentioned saliently, however, is the extent to which underlying political factors pre scribed the course leading to EFTA membership. Political causes. In this context it was of essence that in 1957, a mere one and a half years after the signing of the State Treaty, Austria manifested particular prudence in foreign relations so as not to antagonize one or the other of the signatories to the Treaty. The decision in favor of the EFTA was thus more compatible with this aim, as the association allegedly entertained no political 4 aims and provided for a more tolerant economic union. 3 It is well to note that Great Britain, Norway, Denmark, and Portugal, however, were members of NATO in 1957. 4 The British Secretary of Commerce noted, on September 6, 1960, in a publication of the Chamber of Commerce: "The Treaty of Stockholm and the EFTA are now a fundamental part of British politics. . . . political questions will call for closer cooperation." 101 Second, it was of significance that the other two neutral nations, i.e. Switzerland and Sweden, in view of their political orientation, had decided to give preference to the EFTA. This attitude on the part of Austria to proceed in unison with the other two traditionally neutral European nations is a line of thought pursued to the present. Economic motives. In the first instance, the Stockholm Treaty promises its members the same advan tages as the Treaty of Rome, i.e. continuous economic growth, full employment, increased productivity, financial stability, etc., yet appears to call for no sacrifices or deletions of national sovereignty. Second, the all-important question of integra tion, perhaps the thorniest enigma of European cooperation, is treated in but one paragraph in the Stockholm Treaty. To that extent it promises general improvement in that sector equal to those proposed by the EEC, but makes no provisions for practical appli cations and tangible remedies as those suggested in the Treaty of Rome. Thus, if EFTA assurances are accepted verbatim, they indeed represent a more attractive course of alignment. 102 And finally, the problem of certificates of origin, which is to prevent the importation of com modities into the association area through low tariff countries, is treated in a most elastic fashion. Alternative classification categories are made avail able to importers, permitting them considerable latitude in choice of codification. For example, whether a commodity is regarded as a preferred item may be determined arbitrarily according to criteria of origin, value added, or dominant manufacture. In addition, such determinations may be made by a variety of official, semi-official, and even civilian sources. Prestigeous encouragement. In concluding this section it must not be overlooked that Great Britain, much in contrast with the EEC, actively sought Austrian approbation of the EFTA plan. Whereas the EEC in 1957 was easily able to do without further members, Great Britain found itself in stringent need of Continental partners to join the EFTA plan, tailored to a con siderable degree in accordance with British needs and dispositions. Toward that end, British and Austrian political personalities exchanged several official visits during the late 1950's, contributing in no small measure to Austrian prestige as a newly inde pendent and autonomous European nation. II. ASSOCIATION WITH THE EEC 103 Notwithstanding recurrent and frequent opinions to the contrary, voiced primarily by COMECON members, Austrian association with the EEC is increasingly appearing on the forefront of EEC agendas. Theoretically at least, in contrast with full membership, association presents a wide spectrum of various probable arrangements. Perhaps the one most likely, and at the same time most ardently submitted to by Secretary of Commerce Dr. Bock, is based on a purely commercial alignment. Such an agreement would call for no other commitments than the eventual elimination of intra-Community tariffs and quotas between Austria and the EEC, and the acceptance by the former of the latter's common outside tariff level. All other integration measures, such as free movement of labor, services, capital, the inclusion of the agricultural sector, economic policy regulations with reference to prohibiting monopolistic practices and enhancing competition, mutual assistance in areas of urgent need, balance of payments aid, approaching common taxing and legal regulations, and many others, would, for the present, be left without the agreement, subject to future negotiations. 104 General Advantages It is coincidentally advantageous to note that Austrian tariff levels on the average are at approxi mately equal levels with those of the common external tariff of the EEC. As a consequence, Austria’s adaptation of the new, slightly lower EEC tariff level is not likely to be attended by pronounced difficulties. An investigation by the Austrian Institute for Economic Research points to the conclusion that approximately three-quarters of Austrian imports were subjected to an average 13.6 per cent tariff load, whereas the equivalent tariff burden according to EEC levels would have been 12.1 per cent (Table XXVII). The all-important category of imported manu factured commodities is subjected, in Austria, to a tariff load of 18.7 per cent, almost identical with that of the EEC at 18.3 per cent.** 5 Tariff level comparisons are intrinsically difficult and hazardous as only nominal levels can be utilized, leaving out of consideration contingent variations. Thus, even though extreme Austrian tariff loads of 30 to 40 per cent do not find their equal in EEC regulations, the latter impose tariffs on nearly all manufactured items. Opposed to this, many items not manufactured in Austria are imported free of duty, or are subjected to only an insignificant tariff. TABLE XXVII TARIFF COMPARISON— AUSTRIA-EEC Category Austrian Imports Value Million Per Cent Schillings of Total 1960 Per Cent Included Tariff Burden In Per Cent According to Austrian EEC Tariff Foodstuffs and Delicacies 5,025 14 85 25.7 14.4 Raw materials 8,660 23 64 0.1 0.5 Half finished goods 6,260 17 79 8.0 10.3 Finished goods 16,206 44 71 18.7 18.3 Other goods 662 2 93 C4 • to 1.7 Total Imports 36,813 100 73 13.6 12.1 Source: Austrian Institute for Economic Research, Special Report No. 16 (Vienna: The Institute, October, 1961), p. 16. 106 The other two neutral nations occupy a radi cally different position in this respect. In the eventuality of an association with the EEC, Switzer land and Sweden would be faced with the need for a substantial increase in their tariff levels in order to attain the common EEC external tariff position. The attendant implications would encompass an increase in prices of imports, higher production costs, and a consequent deterioration in their competitive status. For this reason, the wisdom of pursuing association in unison based on equal conditions for the three 7 neutrals, or even four, may be seriously questioned. A second advantage for Austria of association with, versus joining, the EEC may be found in the contention that with the exception of the elimination g A recent Austrian Institute for Economic Research study (not published) of thirty-three impor tant manufactured items showed the following average tariff burdens: Austria 20 per cent, Sweden 11 per cent, Switzerland 9 per cent, Great Britain 23 per cent, EEC external tariff 17 per cent. 7 In a recent speech Austrian Foreign Minister Dr. Kreisky spoke of four neutral nations, thus including Finland. The letter's inclusion, however, could well bring about considerable controversy with regard to its trade relations with Russia. It is commonly held that through its trade contracts with Finland, Russia was actually able to join the EFTA as a nonpaying member. Dr. Kreisky*s alleged statement was later denied by the foreign ministry. 107 of trade barriers, all other regulations of the EEC Treaty represent, in essence, mere guiding manifesta tions and declarations to be realized over considerable time periods and only after step-by-step negotiations. As a consequence, Austria would most likely not be expected to accept the current level of progress of such regulations, which could produce rather harmful immediate social and economic results. It is actually anticipated that negotiations between the EEC and Austria, in the case of association, would generate a time table giving full cognizance to circumstances peculiar to the country. A particular advantage of association versus integration would be the probability of the continued Austrian pursuit of nearly independent foreign trade policy. This question is of singular urgency for Austria as its trade with Eastern Bloc countries represents 14 per cent of its total foreign trade, whereas it makes up but 3 per cent of that of the EEC, 3.5 per cent for the EFTA, and 4 per cent for all of Western Europe. Thus it could conceivably be stipulated in a Treaty of Association that Austria may continue to expand its trade relations with the COMECON, so long as operative safeguards are provided against the dumping of commodities from third countries 108 into the BEC realm. General Disadvantages Most prominent among the innumerable disadvan tages which would be incurred if mere association were consummated in place of full membership stands the conclusion that most of the productivity increas ing effects and consequences would be forfeited if nothing other were brought about than the abolition of trade barriers. Thus the eventual resounding benefits to be realized from the free movement of resources, mutual financial aid, regulations enhancing competition and banning restraints, the inclusion of the agricultural and transportation sectors, and many others would most likely be lost to the aforementioned advantages. In this context it has been estimated that the mere deletion of tariff and quota restrictions would increase the gross national product by an insig nificant 1 per cent, unless attended by complementary measures designed to intensify competition and its productive amplification. As a second disadvantage, it may be noted that a nation merely associated with the EEC is most unlikely to be able to exert any sort of influence upon the general process of integration within the Community. Such associated members will no doubt be 109 confronted by numerous fait aecomplis regarding integration policies, without having been afforded an opportunity to influence either their formation or other members with like-minded propensities. III. AUSTRIA'S CONTINGENT CIRCUMSTANCES As a small nation, Austria is especially dependent upon the international division of labor, i.e. much more so than the larger world economies. It is lacking certain vital raw materials and must also import certain foodstuffs, though in progres sively decreasing quantities. Resources in industry can be applied efficiently and rationally only if limited domestic markets with strongly differentiated needs and demands are supplemented by larger foreign market potentials. In the event of the latter, optimal plant sizes, cost-reducing mass production, rational applications of resources, and the benefits of intensified competition would, without question, permit a general increase in the standard of life. However, various barriers to trade and resource move ments have prevented the realization of this desirable goal, though the trend toward economic integration is unquestionably discernible. 110 In spite of these international barriers, Austria has been able to export an ever increasing portion of its production. In industrial output, the rise in exports is particularly noteworthy (Table XXVIII). In relation to national income, Austria cur rently entertains greater export and import volumes than most other European nations. (In 1960, with a gross national product of 148 billion schillings, the economy exported and imported goods in the value of 29 billion and 36 billion schillings, respectively.) Association with the EEC would unquestionably engender extensive benefits in the long run. In the short interval, however, certain circumstances peculiar to the economy as a whole in the adverse sense must not be omitted. Adverse Geographic Position In conjunction with Switzerland, Austria is the only other landlocked Western European nation. But whereas Switzerland has direct access to the sea via the Rhine, Austria lacks such an opening. (The Danube as a water passage via the Black Sea is of no impor tance with respect to Western trade.) As a consequence, imported raw material costs are greater than those of competing nations. Whereas the enlargement of the Ill TABLE XXVIII PERCENTAGE OF INDUSTRIAL OUTPUT EXPORTED* (IN PER CENT) Year_______________________________Output 1952 20 1953 26 1954 28 1955 28 1956 30 1957 33 1958 31 1959 31.6 1960 33.1 *Industrial output comprises: minerals and raw materials, electricity, investment goods, con sumer goods. Source: Computed from data published in the Statistical Summary of the Monthly Report of the Austrian Institute for Economic Research, 1961. 112 ports of Triest and Rjeka have ameliorated the situation somewhat, it remains for the conclusion of construction on the Rhine-Main-Danube Canal to effect a marked change, a number of years hence (Table XXIX). In addition, Austria's inter-European competi tive position is unfavorably affected by its peripheral location. This is particularly the case with regard to firms located in the eastern and northeastern sectors of the country. As the nations bordering onto that part of the economy undoubtedly are never going to integrate with Western Europe, local industry there is subject to the double disadvantage of incurring excessive freight expenses, not only for necessary raw materials but for final products as well. In fact it appears very likely that, in the event of the final reduction of national tariffs and quota barriers, western domestic markets will be lost to manufacturers located in the eastern part of the nation, as the proximity of German, Swiss, and even Italian competing units will exert an insurmountable location preference. Lending ominous credence to the above observa tions and foreshadowing their only all to prevalent eminence are recently published provisional 1961 census figures relating to population shifts. Of the twenty-nine border districts adjacent to communist TABLE XXIX COMPARISONS OF RAIL FREIGHT RATES AMONG SEVERAL WEST EUROPEAN CITIES AND THEIR PORTS* Vienna- Bremen Vienna- Triest Frankfurt- Bremen Zurich- Genoa Milan- Genoa Paris- Le Havre Brussels- Antwerp Wheat $ 1.14 .80 .64 .61 .25 .38 .17 % 100.0 70.5 56.1 53.5 21.9 33.3 14.9 Cotton $ 1.57 1.28 1.14 1.32 .26 .55 .26 % 100.0 81.5 72.6 84.1 16.6 35.0 16.6 Coal $ 1.51 .80 .72 .76 .18 .45 .16 % 100.0 52.9 47.7 50.3 11.9 29.8 10.6 Copper $ 1.58 1.33 1.11 1.41 .29 .52 .26 % 100.0 84.2 70.3 89.2 18.4 32.9 16.5 Machines $ 1.44 1.19 1.11 1.49 .31 .56 .26 % 100.0 82.6 77.1 103.5 21.5 38.9 18.1 Hard Rubber $ 1.52 1.33 .71 1.50 .29 .49 .26 % 100.0 87.5 46.7 98.7 19.1 32.2 17.1 ♦Figures as of April 1957; in dollars per 100 kilograms Source: Austrian Institute for Economic Research, Austria and the European Integration (Vienna: The Institute, 1960), p. 62. 114 countries (Czechoslovakia, Hungary, Jugoslavia), nineteen (nearly 66 per cent) have shown an average population loss of 6.5 per cent, in single instances rising to 13 per cent within the last decade. Imbalance in Economic Structure Although not peculiarly Austrian in appearance, political events during the past forty years have repeatedly disfigured the fundamental economic struc ture of the country. As cases in point may be men tioned the aftermath of the first World War (see Chapter III), the dissolution of the monarchy, the annexation and absorption by Germany, World War II, and the reestablishment of the republic at the junction between East and West. These, as well as the severe economic setbacks suffered from the postwar division of Austria into four zones, and particularly the com plete disassociation of the industrial Eastern Zone from the other three Western Zones and its ruthless and nearly irreparable exploitation on the part of the Soviets, have created problems of structural realign ment not solved in their entirety to this day. Preponderance of Small and Medium-Sized Weak Businesses Evolving out of historic elements and because 115 of the narrowness of their domestic markets, there developed in Austria predominantly small and medium sized firms. In spite of the erection of several large manufacturing entities during and after World War II, the economic structure remains dominated by small labor intensive, capital deficient establishments. In September 1961 only 1.8 per cent of all manufacturing entities employed more than 1,000 workers, whereas 55 per cent had less than fifty employees on their pay rolls. In 1957 approximately 510,000 persons were employed in the trades, 642,000 in the manufacturing O industry; i.e. not too many more than in the trades. In spite of these figures it should be noted that percentage-wise they indicate but a slight variance from those reflecting equal conditions in France, Western Germany, the United States, and other nations; i.e. even in highly industrialized economies there appears to be a place for small-sized enterprise. 8 Neues Oesterreich. Economic Section, March 25, 1962, p. 31, gave some available comparative statistics as follows: Number of Firms with (in Per Cent) Less than More than 10 Employees 1.000 Employees France 91 0.1 Great Britain 5.0 Western Germany 44.4 1.2 Switzerland 88.1 U.S.A. 0.5 116 Nevertheless, the by far most distinguishing feature manifests itself in the application of resources within these firms* Whereas United States and German small enterprise are able to utilize their resources rationally, assisted by modern machinery and production methods, their Austrian counterparts are dependent to a much larger degree on outdated and obsolete tools and on considerable custom and piece work, a particular characteristic of the deficient capital supplies. Their continued existence is generally explained as a phenomenon of governmental protectionist and subsidiza tion policies. It appears most likely that association with the EEC and attendant tariff reductions will be of particular advantage to mass production, and conse quently will exert beneficial pressures on those firms and industries which are already producing on larger scales. Of these, the number in EEC member countries lies considerably above that in Austria. Therefore, it may be advisable to permit special cognizance of this factor in according small Austrian firms time and capital resources to raise their productivity and ability to compete. Deficiency of Capital Although already alluded to, it may be well to separately mention this point once again. In order for Austrian industry to be able to compete success fully in integrated Western European markets, con siderable sums of capital for investment purposes will have to be put at its disposal. For various reasons, however, such capital may be difficult to obtain. First, in spite of relatively high saving rates, deficiencies manifest themselves due to comparatively low standards of life and income. Second, in view of Austria's obligatory, unrequited shipments to the Soviet Union (in 1961 twenty-three million dollars), a considerable portion of funds which might otherwise have been directed into investment were diverted into unproductive uses. In this connection, the building of minimum-standard military defenses represents a further drain on available funds. Third, may be mentioned the relatively low mobility of capital within the economy. This is attributable to the populace's adverse experiences with inflations dating back to the monarchy, forced savings during the wars, and a profound antipathy on the part of the average saver for any sort of stock or bond certificates. Thus, slow progress through a tedious reeducation 118 program appears likely, with continued shortages of private investment capital. And finally, even though considerable foreign investment capital has intermit tently entered the country, encouraged in part by relatively high interest rates, the fulfillment of capital needs in their entirety has fallen short of that goal, presumably due to the country's politically exposed peripheral location. Retarded Economic Development With the exception of Greece, Portugal, and Turkey, which occupy positions of special considera tion, and with the exclusion of Italy, Austria exhibits the lowest per capita Gross National Product (GNP) of all presently integrated economies (Table XXX). (Italy's developmental problems in its southern portion were given individual attention in the Treaty of Rome.) The divergence is particularly pronounced with regard to the highly industrialized European nations. Competition among countries of varied economic and industrial development intrinsically harbors the peril that potential development and growth of industry will remain unutilized and handicapped. This may prove particularly valid in the long run when a less devel oped economy is thrown open to resolute foreign 119 TABLE XXX PER CAPITA GNP FOR WESTERN EUROPE AND THE UNITED STATES, 1960 In Dollars Austria = 100 Belgium 1,261* 172* West Germany 1,239 155 France 1,276 159 Italy 650 81 Netherlands 982 123 Denmark 1,300 162 Great Britain 1,241 155 Norway 1,236 154 Austria 801 100 Switzerland 1,503* 188* Sweden 1,631 204 U.S.A. 2,730* 373* *1959 Source: Special Report No. 16 prepared by the Austrian Institute Tor Economic Research and based upon computation from "OEEC General Statistics,1 1 No. 1 and No. 4, Part IX (Vienna: The Institute, 1961), p. 22. 120 competition within a short period of time* The above delineated point directs attention to the common polemic that Austria, as precedent setting Italy, be given special consideration in the event of its association with the EEC; i.e. if trade were liberalized, tariffs deleted, and the movement of labor within EEC borders freed from all restric tions, Austria could well find its one alleged advan tage— namely, a relatively low wage level— neutralized through the migration of a portion of its work force to its German speaking, higher paying northern neighbor* In that event, industry would most likely be unable to attain a level of productivity prevalent in the more highly industrialized nations. IV. INDUSTRY ADAPTATION In the realm of industry opinion there occurred in the past six years a discernible shift in allegiance to first an OEEC-sponsored free trade zone, and sub sequently to an acquiescence in the principles expressed by the EEC. In the first instance, industry displayed in general a marked apprehension about parting with relatively high protective tariffs and other measures favoring domestic production. With the successful conclusion of the Treaty of Rome, 121 however, a definite shift became apparent, motivated less, as previously, by fear of foreign competition in domestic markets, but more by a profound realiza tion of eventual, undeniable discrimination against Austrian exports to EEC members, de facto affecting more than 50 per cent of total exports. Also of consequence became the realization that intensive EFTA competition in the sphere of Austrian freight sensitive goods was bound to display detri mental effects (steel, wood, paper, magnesite). In addition, as EFTA member economies exhibited efficient and capacious finished goods industries, it became manifestly clear that interarea tariff reductions would much more favor the imports of EFTA goods than the exports of finished items into the zonal area. This circumstance was reenforced by the fact that Austrian tariffs as a whole are considerably higher than those of the other members. It is against this background that the major industries are briefly examined in this section with respect to their subjection to intense competition from EEC members. 122 The Projected Development of Industry The more directly the economy adapts itself to international divisions of labor, find the more pro nounced the weakening of the war conditioned boom becomes, the greater will be the need for a reversal of many economic-political practices which have grown out of conditions prevalent some forty years ago and which are seriously undermining the full potential and rational adjustment process of industry to inte grated European markets. One case in point may be the federal budget, which appears overburdened by obligations of many typed subsidies and constraints, permitting scant flexibility and mobility in the direction of encouraging anticipated competitive 9 structural changes. In this sense it may be suggested that the progress of integration will, in great meas ure, depend upon the successful solution of these obstructive domestic practices. 9 As another example may be cited regulations pertaining to living accommodations which are based on the year 1917, unmindful of two "periods of infla tion," completely void of social criteria, and seri ously undermining the potential mobility of labor. The building program is directed toward areas of greatest population concentration without regard to potentialities of industrial growth and rational expansion. 123 Industrial growth as part of economic growth. Industry contributes the largest component to GNP; in 1959, 38 per cent. To a large degree, the rapid rise in postwar GNP may be attributed to above average expansion of industry. Up to 1959 GNP increased by 201 per cent over 1937; industrial output, however, by 265 per cent, thereby enlarging its share from 28 per cent to 38 per cent (Table XXXI). Regarding the projected growth of industrial output from 1937 to 1959, it may be constituted that it exceeded that of GNP by roughly 40 per cent, i.e. it recorded an average growth of 4.5 per cent, whereas GNP grew in real terms by 3.2 per cent. The yearly fluctuations were considerable of course. The growth differential may, in great measure, be attributed to intense industrialization efforts pursued by Germany in Austria during World War II, and second, to high postwar world-wide demand for industrial products. With relatively low labor costs, Austria found itself in a very favorable position, limited only by defi ciencies in expansion capital. In the future it may be expected that industrial production will outgrow GNP by approximately 1.15 per cent, i.e. anticipated average GNP growth is 3.5 per cent, that for industry, however, 4.0 per cent 124 TABLE XXXI CONTRIBUTION OF INDUSTRY TO GNP Industrial Production Year GNP 1937 = 100 1937 = 100 Share of GNP in Per Cent 1937 100 100 28 1948 91 92 29 1955 169 225 37 1959 201 265 38 Source: Compiled from Statistical Summary of Monthly Report published by the Austrian Institute for Economic Research, Vienna, 1960. 125 (Table XXXII). This projection is based upon con tinuing increases in industrial productivity with attendant growth in export demand, especially on the part of Eastern Europe and underdeveloped nations. The prognosis for the United States to 1975 encompasses average GNP growth of 3.7 per cent, but with an increase in employment of 32 per cent, thereby reducing the growth rate of GNP per worker to 2.1 per cent.^ The OEEC computed average GNP growth figures for member nations to 1975 stand at 3.1 per cent, for industry 3.7 per cent, both without additions to labor force. From the above figures it becomes evident that the growth relationship between GNP and industry is likely to follow that of recent years. This observa tion is based upon the fact that, contrary to other developing nations, Austria must achieve its growth with a stagnating population and labor force pool. In fact, the number of employable persons will probably decrease slightly. With the lowering of the retirement age, the already extended school age, and the diminish ing work week, the volume of total hours worked is also *®Alvin H. Hansen, The American Economy (New York: McGraw-Hill Publishing Company, 1958). 126 TABLE XXXII ANTICIPATED GROWTH TO 1970 Year GNP Industrial Sector* 1959 100 100 1970 146 154 Growth in Per Cent 46 54 Rate of Growth 3.5 4o0 "■Industrial sector is divided into: minerals and resource materials, electricity, investment goods, consumer goods. Source: Unpublished study of Austrian Institute for Economic Research, Vienna. 127 expected to decrease. Growth is contingent, therefore, essentially upon rises in productivity. (Up to 1960 the labor resource potential had not been exhausted in its entirety; per capita output, therefore, increased at a lower rate than GNP.) In essence, then, economic growth will depend upon productivity increases within industry, but as well upon shifts of resources from less to more productive employments. The extent to which this is possible is expected to depend in great measure upon the shift of resources from the trades to industry, and on intra-industry reallocations of resources. Prospective departing agricultural labor (97,000 by 1975) is expected to be absorbed by an increase of equal number in the service sector, but with no major consequence upon the economy, due to the relatively small number of workers involved (4.3 per cent of the total labor force; Table XXXIII). Anticipated growth of industry. Whereas it appeared relatively easy for industry to grow and expand during the past decade, encouraged by consider able productivity increases based on comparatively small investments and enhanced by the facile removal of bottlenecks, it would be misleading to project these manifestations into the future (Table XXXIV). TABLE XXXIII VALUE OF OUTPUT PER WORKER IN INDUSTRY AND TRADE (1953) Sector Net Production Value in Million Schillings 1 Employed .000 Persons Value of Net Production Per Worker— 1,000 Schillines Industry 25,541.2 484.2 52.7 Trade 8,314.6 205.0 40.6 Building Trade 4.606.9 127.2 36.2 Total 38,462.7 816.5 47.1 Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Humblot, 1961), pe 37. w o o TABLE XXXIV INCREASE IN AND UTILIZATION OF CAPACITY IN INDUSTRY 1955 1956 1958 1959 Utilization of Capacity♦ Industry 83 80 80 82 Investment goods 84 77 80 81 Consumption goods 82 82 80 83 Increase in Capacity^ Industry 12 6 7 6 Investment goods 5 4 Consumption goods 7 7 ♦In per cent of full capacity ♦♦Increase over previous year Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Humblot, 1961), p. 39. 129 130 This fact may be attributed to a marked structural change which is, no doubt, going to appear with inter- European association, in addition to the observations that first, certain vital domestic raw materials are rapidly approaching exhaustion, and second, that changes in demand are making their presence felt. An interesting comparison grows out of the indexes of industrial production, pointing to the conclusion that Austria and Italy were able to achieve the greatest growth from 1938 to 1959 (Table XXXV). As noted earlier, but hesitant significance may be attributed to growth figures of past decades for purposes of projection, as too many variables are manifesting their structural influence. Nevertheless, as a consequence of more sophisticated demand of a rising standard of life, notable expansion is likely to occur, particularly in areas of new product develop ment. This may be ascribed to the fact that, in recent years, demand for household investment goods has been satisfied to a large degree by foreign manufacturers. Alterations in the structure of exports. In the past eight years it was the increase in industrial exports which represented the motivating force behind economic expansion, rising from 19.7 per cent of total TABLE XXXV GROWTH COMPARISONS OF EUROPEAN NATIONS (1938 = 100) Year Austria West Germany France Great Britain Belgium Italy 1948 92 52 108 127 121 102 1950 145 94 121 145 128 163 1955 225 170 160 179 167 198 1959 265 211 207 190 170 259 Source: Organization for European Economic Cooperation, Industrial Statistics (Paris: The Organization, 1958); and General Statistics (Paris: The Organization, 1960). 132 industrial output in 1952 to 33.1 per cent in 1960. This means that nearly 52 per cent of the increase in production during these years was exported (see Table XXVIII, page 111). Particularly noticeable were the favorable conditions prevailing in postwar Europe for exports of goods in the production of which Austria was able to supply considerable capacity. (The capacity in the iron-ore, aluminum, fertilizer, and machine-building / industries grew comprehensively between 1938 and 1948.) Thus, whereas the textile, paper, and leather indus tries lost in significance during the interwar years, the iron producing industry, with its subsidiary industries, moved into the foreground (Table XXXVI). Their combined share in total exports rose from 25 per cent in 1937 to 36 per cent in 1959. Textiles fell from first place in exports to fifth, whereas the iron-steel industry moved from sixth to first. The wood, chemicals, minerals, aluminum, and electrical energy industries also increased in greater than average proportions. The fact, however, that the high export ratio of Austrian industry rests on a rather narrow basis warrants emphasis. The very vigorous expansion in a few industries, even firms, is for the most part TABLE XXXVI RATE OF GROWTH OF SIGNIFICANT INDUSTRIAL SECTORS (1937-1959) Industry Industrial 1937 = 100 Production 1959 Share in Per Cent Average Growth in Per Cent (1937-1959) Total Industry* 265 100 4.5 Metals 830 4.7 10.1 Iron-Ore 415 11.0 6.7 Motor Vehicles 391 5.2 6.4 Electrical goods 369 8.4 6.1 Machines 355 13.4 5.9 Building Materials 348 6.5 5.8 Chemicals 325 12.2 5.5 Magnesite 313 2.3 5.3 Pouring equipment 287 2.2 4.9 Mining accessories 204 4.6 3.3 Foodstuffs 189 7.1 2.9 Paper 175 5.3 2.6 Tobacco 172 3.2 2.5 Leather 140 2.1 1.5 Textiles 121 9.2 0.9 *Including power production Source: Austrian Institute for Economic Research, Monthly Report, Statistical Summary (Vienna: The Institute! September, 1961), p. 9. 133 134 responsible for the emphatic expansion (Table XXXVII). (Iron and steel, aluminum, magnesite, fertilizer, paper, and other industries have an export quota of over 50 per cent, and some up to 80 per cent.) These industries appear also as the most likely to be sub jected to extraterritorial influences, as the experi ence of the 1958-1959 and 1960-1961 slowdowns exempli fied. Nevertheless, the subsequent recoveries compensated quickly for the temporary setbacks. In this context it may well be noteworthy that roughly one-third of Austrian exports is composed of goods emanating from basic capital intensive indus tries, i.e. out of sources not.commonly found in countries with relatively weak capital formation reserves. The future of these industries must therefore appear in the realm of long-run phenomena, not merely contingent upon short-run periods of boom and prosperity. The Ma.ior Industries It may be contended without reservation that Austrian industry is presently standing on the threshold of a major structural alignment. The policy of trade liberalization pursued by the govern ment since 1954, though unquestionably motivated by TABLE XXXVII SHARE OF IMPORTANT INDUSTRIAL COMMODITIES IN EXPORT 1937 Million Schillings Per Cent 1959 Million Schillings Per Cent Iron and Steel 119.1 9.8 4,244.6 16.9 Machines and Transportation Vehicles 118.6 9.7 3,848.4 15.3 Wood 130.1 10.7 3,410.6 13.6 Paper products 133.6 11.0 2,122.8 8.4 Textiles 164.4 13.5 1,993.3 7.9 Minerals 42.7 3.5 1,289.1 * 5.1 Raw Materials (w/o wood and paper) 121.3 10.0 1,061.7 4.2 Chemical products 33.1 2.7 991.8 3.9 Metal products 66.5 5.5 958.5 3.8 Aluminum 7.2 0.6 682.6 2.7 Electrical energy 1.6 0.1 660.7 2.6 Hard Rubber products 12.5 1.0 231.2 0.9 Wood products 6.4 0.5 201.2 0.8 Leather and leather goods 27.1 2.2 133.2 0.5 Other finished goods 118.9 9.8 1,738.9 6.9 Industrial goods 1,103.1 90.6 23,568.6 93.7 Total Exports 1,217.8 100.0 25,160.9 100.0 Source: Austrian Governmental Printing Office, Statistical Handbook for Austria (Vienna: The Office, 1961), p. 63. 136 beneficial intentions, has nevertheless created in final analysis little basic change. In other words, the volume of trade has expanded without pronounced shifts in composition. This is probably so as most deletions of protectionism were greatly overshadowed by the vigor of expansionism manifested throughout most of Europe. At present, however, and with pro jected association, any further changes in the direc tion of liberalization of inter-European trade rela tions are likely to bring about marked repercussions in those domestic industries which heretofore have relied on excessive protectionism of one kind or another. In the section below a closer examination will be undertaken of the most significant branches of Austrian industry in order to ascertain their relative strength and future role in an integrated European market. The basic industries— the steel industry. By 1960 the production of steel in Austria had reached a fivefold level over 1937, thereby having grown twice as rapidly as total industrial production and having outpaced the steel industries of all other European nations in the realm of rate of expansion. 137 The industry encompasses seventeen firms with a total of 40,000 employees, i.e. 6 per cent of total industrial employment, and is nationalized almost in its entirety. Its considerable current capacity is traceable in large measure to war conditioned German investments as well as ERP funds. Of significance in raising productivity was the L-D oxygen injection process developed in Austria after the war and since then widely utilized throughout the world. With reference to location, by far the two largest steel producing, vertically integrated firms are located in Donawitz and Linz, respectively. Their geographic position, however, poses certain disadvan tages in relation to extraterritorial competition. Whereas they are situated in relative proximity to domestic iron-ore deposits, roughly ninety and thirty miles, respectively, their content no longer suffices to satisfy domestic quality requirements. Thus, in 1959 more than 42 per cent of the steel produced in Austria found its origin in imported raw materials from Italy, Germany, Sweden, Norway, and also overseas suppliers. In the case of coal for use in the steel industry, the major supplier is the United States. Despite vast differences in distance, German Ruhr coal travels to Linz 400 miles by rail and 160 miles on the 138 Danube; American coal is less expensive so long as Atlantic freight charges remain unchanged. It may further be noted that throughout Europe steel industries are located with overwhelming regard to nearness of iron-ore sources, proximity to coal supplies being secondary in nature. The tendency in Austria, however, is to progressively import greater quantities of iron-ore, a function of the diminishing iron content of materials mined domestically. The disadvantageous location variance is in this manner accentuated, as transportation differentials of raw materials as well as final output must be taken into consideration when gauging the future competitive ability of domestic industry. From 1937 to 1950 steel production rose from 650,000 tons to 947,000 tons and accounted for 2.5 million tons in 1959 (Table XXXVIII). By far the greatest expansion took place at the plants in Linz and Donawitz, propelled by the development of the oxygen injection process.^ However, demand for oxygen processed steel, equal in quality to that 11 The L-D (Linz-Donawitz) process is of par ticular advantage to countries in which scrap iron is expensive, as the process eliminates a good deal of the necessity of using scrap iron as an oxygen carrier. TABLE XXXVIII STEEL PRODUCTION ACCORDING TO TYPE IN AUSTRIA (1,000 TONS) Year Total Steel Production Siemens Martin Oxygen Electro . * Others 1937 649.8 1950 946.6 769.2 1.9 175.1 .4 1954 1,653.0 803.9 593.2 255.8 1956 2,077.5 912.3 849.9 315.8 1959 2,512.1 867.9 1,292.6 351.6 Source: Austrian Institute for Economic Research, Austria's Industry and the European Market (Vienna: The Institute, 1960), Part II, p. 14. X40 produced by the Siemens-Martin process, is contingent upon a general shortage of steel, i.e. an excess demand, as for most common uses Bessemer- or Thomas- processed steel, of somewhat lower quality and price, suffices. In the sector of rolled steel, Austrian exports have shown particular orientation toward foreign markets, generated in recent years almost exclusively by commercial rolled steel products (Table XXXIX). Thus, in 1959, 47 per cent of total commercial rolled steel produced was sold domestically, whereas 53 per cent was exported. The attempt to compare the competitive potential of the Austrian steel industry on hand of domestic prices permits only inconclusive results, as domestic prices do not reflect real differences in production costs but are rather officially set, artificially depressed schedules, compensated for by higher charges realized in foreign markets and by low domestic scrap iron costs, the latter attributable to export pro hibitions of scrap iron. It may, however, be well to note that insofar as labor costs enter into the determination of price in the capital intensive steel industry, Austrian producers are able to record a definite cost advantage. TABLE XXXIX ROLLED STEEL PRODUCTION AND EXPORTS (1,000 TONS) Exports Year Total Production Commercial Rolled Steel Alloys Total Exports Quota in Per Cent 1951 648.1 76.2 61.1 137.3 21.2 1954 1,009.3 339.0 66.7 405.7 40.2 1956 1,386.0 445.9 100.9 546.8 39.5 1959 1,721.4 818.4 101.0 919.4 53.4 Source: Austrian Institute for Economic Research, Austria's Industry and the European Market (Vienna: The Institute, 1960), Part II, pp. 15-16. 141 142 Up to 1961 average Austrian wages were two-thirds those of Germany, Switzerland, and Great Britain, and three-fourths those of Belgium and France. The extent to which productivity variations are responsible for this heterogeneity is not ascertainable accurately, and no universally used methods of measurement are applicable. The progressively adverse location differential of the Austrian steel industry has been alluded to earlier. It remains perhaps to give cognizance to the industry's superior and technically highly advanced production facilities. As no other European country was able to expand its steel industry in equal pro portions, it is reasonable to assume that modern and technically advanced facilities represent a larger portion of total capacity in Austria than in the case of competing nations. As a whole, it may be concluded that so long as a seller's market prevails in steel, price dif ferentials generated by tariff discrimination against Austrian imports are not likely to adversely affect the industry's position. It appears likely that even in the event of a regression of steel demand, as is occurring presently, Austrian industry can command adequate export profit margins to permit it to reduce 143 prices for competitive purposes in accordance with relative elasticities. On the other hand it should be mentioned that, in the case of association with the EEC, domestic scrap iron prices are unlikely to continue at prevail ing, artificially depressed prices based on export prohibitions. Thus, whereas this latter trade restriction was conceded to Austria in the Stockholm Treaty, it undoubtedly will not be made by the EEC as these countries would immediately be affected themselves. It may therefore be deduced that, as a consequence of association, domestic production costs would tend to rise. It remains, finally, to briefly examine the industry's export orientation. Prior to 1937, 28 per cent of Austrian steel and iron exports went to East European nations, 47 per cent to Western Europe (Italy in particular), and 25 per cent to other countries, mainly overseas. In 1957, on the other hand, 57 per cent of exports went to Western Europe (OECD nations), of this 75 per cent alone to the EEC, 21 per cent was shipped to Eastern Europe, and the remaining 22 per cent to other areas (Table XL). Thus, whereas according to geographic location, export markets to South and Southeast Europe (e.g. 144 TABLE XL EXPORT ORIENTATION OF THE IRON AND STEEL INDUSTRY (1959) Grouping of Countries Exports Million Schillings Share in Per Cent Total Exports 4,244.6 100 Of that: EEC 1,811.3 42.7 EFTA 585.3 13.8 Eastern Europe 884.5 20.8 Others 963.5 22.7 Source: Austrian Central Statistical Office, Austria^ Foreign Trade, 1959 (Vienna: The Office, 1960), p. 23. 145 Italy and the COMECON) should be much more highly developed, the actual course of events has considerably favored Western Europe. This fact, while no doubt conditioned in part by political phenomena, may never theless be explained in great measure by the continued sellers' markets in European steel industries. In the event of progressive abolition of tariffs between the ECSC and Austria, exports to Italy, Switzerland, and Southern Germany are likely to find additional markets. This may be attributed to the more favorable location of specifically the export-oriented Linz plant as contrasted with Germany's Ruhr steel plants. On the other hand, marketability is unlikely to increase in the northern states— France, Holland, and Portugal— due, primarily, to already mentioned excessive trans portation differentials. Association with the EEC does not necessarily imply association with the ECSC as well, although the / latter may reasonably be expected. As no internal tariffs prevail for ECSC members in coal, iron, and steel, Austrian steel and sheet metals will no doubt find price reductions of up to 10 per cent a welcome 12 attribute. In the event of continued expansionary 12 ECSC member tariffs vary four points at present. For instance, tariffs on precious rolled 146 demands emanating particularly from Italy, exports to that nation are likely to increase considerably due to competitively superior transportation advantages and the alluded to price reductions. Current German tariff conditioned price differentials and advantages would then be negated. The question of the external tariff for Austria would be subjected to negotiations, its level pre sumably to be decided in accordance with that of Italy. It is significant to note that in spite of the realization of full benefits of union on the part of ECSC members by 1958, Austria was still able to expand total iron and steel exports to the union up to 1959 by 95 per cent, whereas the same rose by only 79 per cent within the ECSC. The letter's share in total Austrian exports declined valuewise from 47.6 per cent to 43o9 per cent, but rose from 48.9 per cent to 53.8 per cent measured in weight. Within individual ECSC economies, development of Austrian imports varied. Thus valuewise German imports rose from 36 per cent 12 Continued sheet metals come to 6 per cent in Germany and Belgium, Netherland and Luxemburg, to 7 per cent in France, and 10 per cent in Italy. These variations are intended to provide geographically staggered preferences to ECSC members in relation to third country imports. 14? to 54 per cent, Italy's decreased from 50 per cent to 33 per cent (Table XLI). Italy's decreasing share may be ascribed to considerably reduced precious metal and pig iron imports from Austria. This decline, however, is not only a result of discrimination conceded on the part of the ECSC to France and Italy, but also of a marked expansion of Italian capacity. Thus, whereas ECSC precious metals capacity rose by 80 per cent from 1953 to 1959, Italy's gained nearly 150 per cent (Table XLII). Increased and less favorable Western European competitive conditions for Austrian steel makers have also induced them to search for markets without EEC and EFTA bounds. In this manner they were able to increase precious metal exports to overseas economies from 15 per cent to 22 per cent of total. In 1959 COMECON nations took 34.4 per cent and China 4.4 per cent of Austrian precious metal exports. The nonferrous metals industry. The index of production of the nonferrous metals foundries stood, in 1959, at 830 per cent of 1937. It thus exemplified the most active growth of all branches of industry. This expansion, however, was not equally distributed, TABLE XLI ECSC COUNTRIES' SHARE IN AUSTRIAN IRON AND STEEL EXPORTS TO THE ECSC (IN PER CENT) 1954 Volume Value 1959 Volume Value West Germany (Saar included) 32.7 35.7 46.9 54.1 Italy 58.2 50.3 41.5 33.0 Belgium-Luxemburg 7.0 8.2 9.4 7.9 France 1.3 3.1 0.5 2.1 Netherlands 0.8 2.7 1.7 2.9 Total 100.0 100.0 100.0 100.0 Source: Austrian Institute for Economic Research, Austria's Industry and the European Market (Vienna: The Institute, 1960), Part II, p. 19. 149 TABLE XLII PRECIOUS METALS PRODUCTION IN ITALY Year Tons Per Cent 1953 530 100.0 1954 630 118.9 1955 838 158.1 1956 882 166.4 1957 1,008 190.2 1958 1,110 209.4 1959 1,293 244.0 Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Humblot, 1961), p. 162. 150 but was almost exclusively centered in the profound rise in capacity and production of aluminum. Growth was accomplished in spite of generally falling world demand for nonferrous metals, and the handicap of insufficient low quality domestic resources. As a consequence considerable quantities of clay and other materials were imported in unworked form even prior to the war, which fact gave rise to a relatively well- developed semifinished metals sector. The nonferrous metals industry currently employs approximately 9,000 workers, of which one-third are engaged in the production of metals, two-thirds in the manufacture of semifinished items. The foundries are located in Oberoesterreich and Salzburg (aluminum), Kaernten (lead and zinc), and Tirol (copper). The semifinished goods production takes place almost exclusively in Niederoesterreich (Table XLIII). As but slight protection in the form of tariffs prevails for nonferrous metals in Austria, domestic manufacturers are exposed to world prices. The post war period with attendant high demands generated by military outlays and strategic stockpiling kept world prices elevated, thereby permitting considerable profit volumes. With the severe slowdown in world markets of nonferrous metals between 1955 and 1957, however, 151 TABLE XLIII NONFERROUS FOUNDRY AND SEMIFINISHED GOODS PRODUCTION (I960) Number of Share of Federal State Firms Employees Employees Niederoesterreich 11 3,116 35.6 Oberoesterreich 1 2,639 30.1 Tirol 2 1,340 15.3 Wien 8 587 6.7 Kaernten 3 580 6.6 Salzburg 2 480 5.6 Steiermark 1 7 0.1 Burgenland Austria 28 8,757 100.0 Source: W. Austria (Berlin: Weber, The Dunker and Economic Humblot, Structure of 1961), p. 165. 152 structural domestic constrictions began to manifest 13 their detrimental effects. Subsidization was found to be contrary to the objectives of European integra tion and was therefore not instituted. Subsequent betterment on world markets alleviated the situation somewhat thereafter. Whereas nonferrous metal foundries are of relatively slight European significance, the aluminum sector has assumed world market proportions. Thus, in 1937, Western Europe (OEEC countries) produced altogether 195,000 tons of aluminum, Austria with 4,400 contributing 2 per cent. Since then European production has risen threefold, whereas Austria's increased twentyfold. In 1959 Austria produced 85,000 tons of aluminum, i.e. 8 per cent of European output, more than Italy, Great Britain, or Switzerland. Domestic demand accounts for less than a quarter of production, total output having reached its highest level in 1959 (Table XLIV). Since aluminum is sig nificantly export oriented, the temporary 1960 slow down in world demand manifested itself in a salient manner in the above statistics. 13 Copper prices on the London market dropped by 44 per cent from 1955 to 1958. TABLE XLIV EXPORTS OF ALUMINUM Year Million Schillings 1956 486.3 1957 462.3 1958 530.3 1959 683.2 1960 545.2 1961 653.6 Source: Austrian Institute for Economic Research, Monthly Report, Statistical Summary (Vienna: The Institute, March, 1962), p. 29. 154 On total balance more nonferrous metals are exported than imported (Table XLV). Copper imports are almost exclusively destined for the electro industry, nickel for the precious metals sector. With the addition of aforementioned clay imports necessary in the production of aluminum, the balance shifts slightly into a deficit (1959 clay imports amounted to 256 million schillings). In final assessment it may be well to note that, as a whole, the Austrian aluminum industry is well disposed to international competition. Of the two largest producers, who are both a part of the nationalized industries, the Lend (Salzburg) plant was greatly expanded and modernized after the war, whereas the Ranshofen plant (Oberoesterreich) was erected during the war with a capacity so great as never to have been fully utilized then. 14 The cost of electric current is overwhelm ingly the determining factor in the location of aluminum producing facilities. In that respect both plants are amply and relatively inexpensively supplied by their own productive output of electric power as well as by their annexation into the national power 14 The production of one ton of aluminum con sumes 20,000 kilowatt hours of electric power. 155 TABLE XLV FOREIGN TRADE BALANCE OF METALS (1959) (Million Schillings) Type of Good Imports Exports Aluminum 50.6 682.6 Copper 380.5 70.9 Lead 53.2 20.6 Zinc 22.3 28.2 Tin 37.9 2.2 Nickel 143.4 3.5 Other Metals 38.8 54.2 Total 726.6 862.3 Source: Austrian Central Statistical Office, Austrian Foreign Trade, 1959 (Vienna: The Office, 1960), p. 41. 156 net. On the other hand, and competitively speaking, a disadvantage appears as a result of the conspicuous absence of an ores or alumina supplying industry. Consequently, as all of these raw and semifinished materials have to be imported, cost differences of significance come into sight. All of these basic materials are amply available in France, Switzerland, Germany, and to some extent in Italy. In final determination it may perhaps be pre sumed that the aluminum industry as an entity, in spite of twofold transportation differentials, will be quite favorably affected by the reduction or dele tion of discriminating trade restrictions. The resolving factor is likely to be the extent to which world demand utilizes existing capacity. The paper industry. This industry depends in its entirety upon domestic resource supplies. As a consequence, further extensive growth appears unlikely in view of current utilization of raw materials. Roughly one-half of production is exported, rendering Austria the only central European economy producing in excess of domestic demand. Only Norway, Sweden, and Finland are also excess paper products producers. Notwithstanding a more favorable location, Austria 157 appears in a less advantageous competitive situation due to superior quantitative productive facilities prevalent in the northern countries. In spite of a relative slackening of demand in recent years after quite vigorous orders during the early postwar period, considerable advantages are expected to flow to the industry as a result of asso ciation with the EEC. Thus important European nations continue to protect their indigenous paper industries via relatively high tariff and quota limitations. As a result only small, widely varied contracts are generally made with Austria, making efficient alloca tions of resources on large scales an impossibility. Liberalized trade, therefore, would not only delete tariff and quota discrimination, but would also permit the employment of more efficient, cost reducing output facilities. Nevertheless, as a whole, postwar ERP and World Bank investment funds have enabled domestic industry to reach technical and quality levels cor responding to those found in the northern countries. With regard to structural data, it may be observed that the paper industry employs over 21,000 workers in eighty-nine firms. Exports in 1961 amounted to somewhat over 2.1 billion schillings, i.e. roughly 7.5 per cent of total exports. The states of 158 Oberoesterreich and Steiermark together accounted for nearly 60 per cent of employment and most of the paper and cellulose manufacturing. Most firms are of middle and large size. Most of the wood pulp and paper board factories are located in Niederoesterreich and Kaernten, dominated by small enterprises with a conspicuous absence of large firms (Table XLVI). In spite of the above-mentioned modernization of production equipment within the past ten years, competitive capabilities of the industry remain some what inferior. Investment in capacity in a few instances was not justified by subsequent demand, leading to underutilization and bottlenecks in a few plants. Large-scale plants of the magnitude avail able in the United States, Canada, and also the Scandinavian countries do not exist in Austria. For both reasons production costs tend to remain at levels considerably above those attainable under conditions of full utilization of plant or optimal plant size. The industry suffers therefore from certain incipient afflictions not shared by its most important competi tors. This fact is easily ascertainable from pro duction and employment figures listed in Table XLVII. As may be easily computed, output per employee is considerably higher in Sweden, Norway, and Finland TABLE XLVI PAPER FIRMS DISTRIBUTION ACCORDING TO SIZE (1960) Firms with ... Employees Paper and Cellulose Firms Wood Pulp and Cardboard Firms Firms Employees Firms Employees 6 - 20 16 216 21 - 50 22 762 51 - 100 1 99 10 681 101 - 250 4 747 6 978 251 - 500 17 6,056 1 372 501 - 1,000 7 5,188 Over 1,000 5 6,143 Total 34 18,233 55 3,009 Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Humblot, 1961), p. 174. TABLE XLVII PRODUCTION AND EMPLOYMENT IN NATIONS PRODUCING PAPER SURPLUSES (1955) Production (in Million Tons) Country Wood Pulp and Cellulose Paper and Paper Board Total Employment (in Thousands) Austria 0.5 0.5 1.0 22.0 Sweden 3.8 1.3 5.3 41.0 Norway 1.3 0.6 1.9 19.8 Finland 2.7 1.3 4.0 23.0 Source: Austrian Institute for Economic Research, Austria1s Industry and the European Market (Vienna: The Institute, 1960), Part I, p. 61. than in Austria. The structure of exports of the industry has changed significantly since 1937. Thus, only paper was able to retain its export volume, rising by 1 per cent over 1937 (Table XLVIII). All other sectors are exporting considerably less than previously. This change may be attributed to a conscious shift from exports to domestic consumption. Accentuating the considerable growth of exports of the paper sector are absolute quantities exported on an industry-wide basis (Table XLIX). The remarkable growth of the paper sector was motivated particularly by excess world demand for "rotation paper," i.e. printing paper, up to 1956. Thereafter, following extensive domestic capacity enlargements, world demand weakened and has remained roughly the same, leaving Austrian excess capacity a prevalent factor (Table L). As the consumption of printing paper in Austria has risen only very slightly, it has been unable to 15 take up some of the excess capacity built before 1956. j 15 Consumption of printing paper for newspapers rose within the OEEC area from 1950 to 1955, on the average, 51 per cent; in Austria, only 15 per cent. Organization for European Economic Cooperation, The Pulp and Paper Industry in Europe (Paris: The Organ ization, 1956) . 162 TABLE XLVIII EXPORT VOLUME OF THE PAPER INDUSTRY (EXPORTS IN PER CENT OF PRODUCTION) Year Paper Cellulose Wood Pulp Paper Board 1937 54.5 57.6 19.4 51.0 1950 47.1 43.3 6.2 21.2 1955 58.9 40.4 5.0 30.7 1957 57.3 42.7 4.3 27.2 1959 55.9 42.6 6.1 26.5 Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Humblot, 1961), p. 176. 163 TABLE XLIX EXPORTS OF THE PAPER (1,000 TONS) INDUSTRY Year Cellulose Wood Pulp Paper Board Paper 1937 161.1 20.9 32.7 117.2 1950 109.0 6.5 12.7 112.9 1955 166.0 8.3 25.9 232 o 6 1957 176.5 12.4 24.9 247.6 1959 198.5 10.4 24.3 251.3 Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Humblot, 1961), p. 176. 164 TABLE L EXPORTS OF PAPER ACCORDING TO TYPE (1,000 TONS) Year Rotation Paper Graphic Paper Packing Paper Other Paper 1937 35.0 50.3 26.5 5.4 1950 44.1 47.0 13.9 7.8 1955 92.6 88.4 29.9 21.6 1959 106.2 85.8 34.3 25.0 Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Humblot, 1961), p. 178. 165 It remains, finally, to briefly examine the effects of the various economic blocs on the paper industry (Table LI). Overwhelmingly, exports are directed to the OECD area, particularly the EEC. The latter's share in Austrian exports accounts for 47 per cent in paper; 82, 75, and 68 per cent cellulose, ground wood, and paper board, respectively. In the EFTA area, Austrian exports can account for little volume and scant prospects. And on the basis of advantageous freight cost differentials, Canada and the Scandinavian countries have become Great Britain's sole suppliers. The relatively extensive distribution, as well as the highly differentiated domestic demand, have up to now prohibited standardization of production so as to permit greater cost reducing scale of operation. As a whole it should be observed that the Austrian paper industry is supplied with production equipment of equal quality as that of its European competitors. However, in spite of advantages in location, the Scandinavian countries have command over nearly inexhaustible wood resources which per mits the establishment of optimally sized firms. Swedish and Norwegian paper machines are many fold larger in capacity and possess a much greater scope 166 TABLE LI SHARE OF ECONOMIC BLOCS IN AUSTRIAN EXPORTS (Share in Per Cent in 1959 EEC EFTA COMECON Others Paper 47.4 4.8 6.9 34.1 Cellulose 81.9 8.6 6.9 Wood pulp 75.2 5.3 Paper board 67.5 8.3 11.4 11.7 Source: Austrian Central Statistical Office, Austrian Foreign Trade, 1959 (Vienna: The Office, 1960), p. 63. 167 of diversification than those in Austria. In the area of standardization their advantage as well appears quite pronounced. As Norway has applied for full membership in the EEC, with fewer attendant difficulties to be expected than in the case of Austria's proposed asso ciation, it may reasonably be expected that, with tariff deletions, Norwegian paper product exports to EEC members would find a considerable stimulus. It may be prognosticated, therefore, that only in the event of an early agreement of association may Austrian industry find cost advantages in exports, conditioned in part by its preferable location and greater expected scale of production. However, once Scandinavian countries are able to penetrate EEC markets under preferred tariff conditions as opposed to Austria's, EEC markets may well prove unrecoverable to domestic producers. The investment goods industries— the heavy machinery industry. The general tendency of a rise in importance of investment goods industries through out most of the world has also manifested itself within the last decade in Austria's exports. In this context, the export of investment goods has increased its share in total Austrian exports considerably, rising from 8 per cent in 1950 to 15 per cent in 1961 (Table LII). The overwhelming portion, i.e. 80 per cent in 1960, of these exports is made up of industrial and building machinery and electro-technical products. The dispersion of exports of investment goods is much greater than in other export categories and therefore less concentrated on EEC and EFTA regions, which take roughly 50 per cent of total exports. The remainder is divided equally between COMECON nations and overseas markets, exclusive of the United States. Of significance also are subse quent or supplementary exports of parts and acces sories which altogether make up one-fifth of investment goods exports. Whereas prior to 1937 consumption industries predominated, the postwar era witnessed a rapid structural transformation in favor of the investment goods industries. This fact found its origin par tially in war conditioned expansion, but also in technological alterations of world productive methods with continuing vigorous demand. Also of aid to domestic growth of industry were relatively inexpen sive sources of electric power, domestic coal and oil products, the postwar inflationary period which TABLE LII REGIONAL STRUCTURE OF INVESTMENT GOODS EXPORTS (1960 AND 1961) (IN PER CENT OF TOTAL) Countries of Destination EFTA + EEC COMECON♦♦ North America^ ♦ Others Total Total Exports 1960 1961 12.5 14.4 50.2 49.5 13.7 14.6 5.0 4.4 18.6 17.1 100.0 100.0 Investment Goods Exports 1960 1961 11.1 14.5 29.1 33.8 24.9 23.4 3.4 2.6 31.5 25.7 100.0 100.0 *Without Finland ♦♦Without Jugoslavia ♦♦♦United States and Canada Source: Austrian Institute for Economic Research, Monthly Report. Statistical Summary (Vienna: The Institute, March, 1962), p. 9. 169 170 enhanced investment activity considerably, and a generally favorable tax disposition on the part of governments toward investment outlays and capital imports. Thus, in spite of war damage and intensive dismantling procedures on the part of the occupation forces, there remained comprehensive structural foundations for prospective productive output (Table LIII). The heavy machinery industry employed 60,000 workers in 1959; i.e. roughly one-tenth of industrial employment; and exported in the amount of 2.1 billion schillings, or one-third of its production. The industry's postwar growth was enhanced by severe import restrictions generated on the part of acute foreign exchange deficiencies. Protected and sup ported by a healthy domestic demand, a great many firms of varying sizes, with divergent and not always efficient productive methods, came into existence. The Austrian Institute of Economic Research estimated that, by 1957, only one-third of all firms were truly competitive in international markets; another third could attain such competitive stature within a few years if certain investment, procedural, and pro duction realignments were instituted. The final third was held to be immune to short-run improvements TABLE LIII THE DEVELOPMENT OF AUSTRIAN INVESTMENT GOODS EXPORTS Exports of Nonelectrical Machines, Electrical Apparatus and Machines« and Tools__________________ Year_______Million Schillings______1950 = 100______In Per Cent of Total Exports 1937 99.5 19 8.2 1950 516.1 100 7.9 1955 1,692.4 328 9.3 1958 2,848.5 552 11.9 1960 3,811.2 738 13.1 1961 4,641.2 899 14.8 Source: Austrian Institute for Economic Research, Monthly Report, Statistical Summary (Vienna: The Institute, March, 1962), p. 9. 172 and assistance, as fundamental transformations with new functions would appear necessary. In the event of association and economic inte gration, the fact that the heavy machinery industry belongs to those industries which demonstrate dynamic growth potential is likely to be of aid in reducing initial transformative difficulties. Austrian manu facturers on the whole produce rather conservative apparatus, i.e. machinery intended predominantly for countries of low developmental levels, even though the quality of products is universally regarded as rather high. Machinery production destined for highly industrialized economies and subject to the continuous incorporation of newly developed and improved modifica tions is practically nonexistent in Austria, even though internationally it accounts for great potency. This fact unquestionably found its origin in the narrow domestic market and in attendant profound research and development costs, attainable by small economies only under severe strain. The small share of domestically produced invest ment goods for automated and advanced mechanization purposes has found its manifestation in considerable investment goods imports. Thus, in spite of dis criminating import restrictions, the domestically 173 purchased share of total machinery production has declined from 75 per cent in 1950 to 48 per cent in 1959, in part an indication of the continuing auto mation of Austrian industry in toto. In the realm of general productive activity, in 1959 the machine industry reached a level three and a half times that of 1937. This development, of course, was not uniform in all branches, centering mainly on the production of machinery for mining, building, and steel foundries. For instance, the production of modern harvesting machines was unable to keep pace with international technological develop ments, leading to a reduction in output even though agricultural investments are continuing to expand (Table LIV). A particular impetus for heavy machinery exports represented the development of the L-D (oxygen injec tion) steel making process which led directly to the exportation of substantial machinery products. Also partaking in great measure in expanding output were the paper machinery sector, already highly efficient for many years, as well as the sectors of lift and moving equipment and ball bearing production. In 1959 the share of exports in total heavy machinery production revolved around 30 per cent. TABLE LIV PRODUCTION OF HEAVY MACHINERY INDUSTRY (MONTHLY AVERAGE) Item Unit 1950 1954 1956 1959 Index of Production 1937 = 100 195.7 233.6 316.6 355.1 Machines for: Agriculture Mining and Foundries Paper Industry t t t 1,540 661 72 1,163 1,458 64 1,537 2,079 285 1,427 2,578 535 Lathes Pumps Lifts Steel Construction Machines Bearings t t t t 1,000 pieces 73 506 115 3,559 345 82 495 159 3,023 620 111 611 276 5,631 971 92 528 300 5,886 1,059 Source: W. Weber, The and Humblot, 1961), p. 189. Economic Structure of Austria (Berlin: Dunker 175 This roughly represents double the amount of the prewar period. In spite of certain domestic cost advantages, Western European markets remain less significant than those of overseas areas. In 1937, 48 per cent of machinery exports went to EEC and EFTA countries versus only 36 per cent in 1959. The share of overseas economies, however, nearly tripled in the same time span, i.e. it rose from 11 to 32 per cent (Table LV). The above figures lend credence to the earlier contention that Austrian machinery exports are essen tially conservative in nature, designed on balance for less developed economies, and therefore likely to gain in only minor degree from intra-European tariff deletions. On the other hand, 91 per cent of 1959 machine and vehicle imports into Austria originated in Western Europe. It must, however, be pointed out that the dominant share of exports finds its origin in a relatively small number of large size enterprises. According to a study conducted by the Austrian Insti tute of Economic Research in 1956, 40 per cent of the firms export 5 per cent or less of their individual production, whereas 25 per cent of the enterprises export over 50 per cent of their output (Table LVI). 176 TABLE LV REGIONAL EXPORTS DISTRIBUTION OF MACHINES AND VEHICLES (1959) Region Exports Million Schillings Share in Per Cent EEC 729.4 25.5 EFTA 311.6 10.9 Eastern Europe 891.2 31.3 Overseas 922.1 32.3 Source: Austrian Central Statistical Office, Austrian Foreign Trade, 1959 (Vienna: The Office, l9607Tp. 73. 177 TABLE LVI EXPORTS SHARE OF THE HEAVY MACHINERY INDUSTRY (1955) Exports of Per Cent of Firms Who Reported ... Per Cent *______________an Export Quota of ... ** 0 - 5 40 6 - 10 3 11 - 15 10 16 - 20 10 21 - 30 10 31 - 40 2 41 - 50 0 Over 50 25 *Exports in per cent of total output **Weighed with share of firms in employment Source: Austrian Institute for Economic Research, Austria1s Industry and the European Market (Vienna: The Institute, 1960), Part I, p. 34. 178 It may finally be observed that a considerable portion of the industry is still protected from foreign competition, as only those foreign products are permitted free access to Austrian markets which are, for the most part, not produced domestically. Therefore, most branches of the industry include firms approximately a third of whom are able to com pete internationally, another third of whom may reach such a level given certain technological investments, and the remainder of whom are most likely to dissolve without protection. It may perhaps be prognosticated that, in the machinery industry possible to a larger degree than in other industries, adjustment processes to European integration are apt to call forth ques tions of profound proportions. The electrical machinery and apparatus indus- 1 fi try. After remaining quite static during the inter war period, the electrical machinery and apparatus industry began to mushroom into a major industrial sector after 1945. This drive found its origin 1 ft This industry encompasses the production of electric motors, transformers, generators, technical apparatus for telegraph, telephone, television, air planes, automobiles and trucks, electro-medical pur poses, heating, traffic control, measurement, batteries, etc. 179 first in the need for electric investment goods to keep pace with the extensive postwar electrification program, and second, in the transformation of firms and households into electric current consuming units* The growth rate of electric power output between 1945 and 1959 was ten times that recorded between 1920 and 1938. In 1959 the industry employed 48,000 persons producing three and a half times the output of 1937. Larger scale production in conjunction with high investment outlays were, in part, responsible for this rise in output, exemplified by a 52 per cent increase in productivity from 1950 to 1959 (output per employee) in spite of a shortening of the work week (Table LVII). The size of firms is much more adaptable to EEC association in this industry than in most other manufacturing sectors. Fifty-three per cent of all employees work in large enterprises, i.e. those with more than 1,000 employees, and only 4 per cent in small units with less than fifty persons (Table LVIII). Just as a majority of workers is concentrated in twenty-three firms (actually 69.2 per cent if firms with over 500 workers are grouped together), so 180 TABLE LVII PRODUCTION AND PRODUCTIVITY OF ELECTRICAL INDUSTRY (1950 = 100) Year Production Productivity 1954 112 108 1956 151 124 1958 176 140 1959 198 152 Source: Austrian Institute for Economic Research, Austria1s Industry and the European Market (Vienna: The Institute, 1960), Part I, p* 47. TABLE LVIII SIZE OF FIRMS IN ELECTRICAL INDUSTRY (1960) Firms with ... Employees Firms Number of Employees Share in Per Cent* 6 - 20 40 549 1.1 21 - 50 39 1,378 2.9 51 - 100 47 3,349 7.0 101 - 250 31 4,796 10.0 251 - 500 12 4,710 9.8 501 - 1,000 11 7,749 16.2 Over 1,000 12 25,321 53.0 Total 192 47,852 100.0 *01“ total employment Source: Austrian Institute for Economic Research, Austria's Industry and the European Market (Vienna: The Institute, I960), Part I, p. 47. 182 76 per cent of employment manifests itself in Vienna where 119 firms are located with 36,483 persons. Of the various sectors within the industry, high-current motor production was able to expand the fastest, motivated by extensive domestic demand during the course of electrification of industry and the railroads. The sector employs 40 per cent of the industry's workers, is organized on a large scale, and is quite able to compete internationally. Roughly one-quarter of output is exported, mostly overseas and to Eastern Europe, where further market expansion is not limited by price and quality competition but only by a lack of ability to extend credits further to between five and ten years, as is the practice with West Germany and other European competitors. The weak-current goods industry is less able to compete internationally. It employs 30 per cent of the industry's workers and encompasses a great many small firms. It may be divided into two seg ments: the domestically oriented telephone portion, which depends upon government contracts for business; and the radio and television producing section which, i though highly protected by quota and tariff restric tions, does not appear greatly in arrear in inter national competition. 183 In the case of durable household goods, only a small portion is manufactured domestically, with excess demand satisfied by imports. As in 1953 most quotas on such investment goods were eliminated, foreign manufacturers were able to secure irrevocable marketing privileges in spite of ad valorem tariffs of 30 per cent. Since domestic industry was and still is developing very slowly in this sector, this may be taken as an example of a case where even high tariffs are unable to stifle international trade in finished industrial commodities as, for example, quota restric tion can. The growth of the electrical machinery and apparatus industry is not based only upon rises in domestic demand but also upon increases in exports. From 1953 to 1961 the value of exported articles expanded threefold. Of these, 41 per cent were directed toward Western Europe, 32 per cent toward Eastern Europe, and 27 per cent into other countries. Particularly significant is the 41 per cent to EEC and EFTA nations if consideration is given to the fact that these economies generally possess similar industries of adequate technological efficiency and scale, and maintain trade restrictions of varying proportions (Table LIX). TABLE LIX REGIONAL DISTRIBUTION OF ELECTRICAL EXPORTS AND IMPORTS (1959) Exports Imports Area Million Schillings Share in Per Cent Million Schillings Share in Per Cent EEC 241.2 24.3 893.5 80.9 EFTA 169.1 17.0 147.6 13.4 Eastern Europe 315.0 31.7 12.9 1.2 Other countries 268.8 27.0 50.0 4.5 Total 994.1 100.0 1,104.0 100.0 Source: Austrian Central Statistical Office, Austrian Foreign Trade, 1959 (Vienna: The Office, 1960), p. 78. 184 185 Imports originate preponderately in EEC nations, principally Western Germany, which in 1959 accounted for 81 per cent. Thirteen per cent came from the EFTA area. In this commodity group, imports have grown even more vigorously than domestic production and exports (Table LX). Expected problems of integration currently appear to center upon the industry's small and middle- sized firms, representing 126 units with a working force of roughly 11 per cent. These smaller enter prises, some of which export but a very small portion of their total production due to lack of capital and initiative in searching for markets in undeveloped areas, will no doubt be exposed to increased domestic competition from foreign manufacturers once trade restrictions are lowered or deleted. Their survival is rather questionable as a result of inabilities to secure adequate investment capital for purposes of automation. Similarly situated are those small firms which do not export at all and have, to the present, been relying upon tariff and quota restrictions for support. It may be expected that the greater number of these firms will be faced with insurmountable difficulties in the process of adjustment, even in the early phases. Subsidization is not expected to 186 TABLE LX EXPORTS AND IMPORTS OF ELECTRICAL ARTICLES Year (Million Schillings. Current Prices) Exports Imports Import Surplus 1953 356 357 1 1954 418 535 117 1956 671 939 258 1958 977 1,351 374 1959 994 1,104 112 Source: Austrian Central Statistical Office, Austrian Foreign Trade, 1959 (Vienna: The Office, 1960), p. 78. 187 be of assistance to them indefinitely, if at all. Those able to survive will most likely do so only on the basis of orders let by the larger firms, special custom work rejected by more standardized enterprises, and localized markets not sought out by larger competitors. The firms engaged in high-current motor pro duction stand to gain most from a lowering of intra- European trade barriers. Their technical capacity and productive efficiency compare favorably with that of competing foreign firms. Collateral investment capital appears securable without difficulty. Increased imports are not likely to affect their domestic markets greatly. Trained and semitrained supplementary labor resources are also expected to be available from those smaller firms forced into dis solution by more aggressive foreign competition. The motor vehicle industry, bicycles included. While prior to World War I the Austrian motor vehicle industry adequately supplied not only today's Austria but the entire monarchy, the two wars and the inter mediate period with concomitant industrial realignments left the industry, in 1945, poorly equipped to resume prewar production. With vigorous postwar demand in 188 the truck and tractor sectors, however, substantial investments were channeled into expansion of both, resulting in overcapacity due to subsequent stagna tions of demand. The third pillar of the industry, the motorcycle industry, was initially confronted with a rather brisk demand. A few years later, how ever, slackening demand encouraged the development of mopeds. The production of both reached its high in 1957. The subsequent decrease in demand was, in part at least, offset by the introduction of the first domestically assembled small car. The motor vehicle industry employed, in 1960, roughly 25,000 persons, of which 54 per cent worked in four large firms. The two with the greatest capacity employ 5,700 and 5,100 workers, respectively, and manufacture trucks, tractors, autobuses, and assemble automobiles, motorbikes, mopeds, and bicycles. Production as a whole is not carried on in the most optimal sense, as domestic markets are too narrow to permit large-scale output. The latter would depend upon exports of sizeable proportions. These, however, can only be realized after an adequate net of service stations, requiring considerable investment, has been established extraterritorially. 189 Up to now the total motor vehicle industry has been able to expand in equal proportion with that of other Western nations, even though it has lacked the stimulus of a vigorous automobile demand sectoro Since 1956, after having increased production over 1937 fourfold, output as a whole has been declining. The only sector indicating some strength is the truck producing segment, which exclusively manufactures Diesel trucks with a load potential of 3.5 tons and higher. All other sectors, with the exception of bicycle production, have shown decreases in output since 1957 (Table LXI). Significant is the reduction of tractor demand, which illustrates the fact that agriculture in Austria has been mechanized to a degree undreamed of a mere decade ago. When it became apparent that in the long run motorbikes were apt to prove a declining commodity in the light of rapidly rising standards of life, efforts were made in the direction of a small car industry. As competition in the compact and somewhat smaller model European industry seemed most unfavor able for Austrian manufacture, it was decided to attempt to bridge the gap between motorbike and com pact car with an inbetween automobile. To that extent, TABLE LXI PRODUCTION OF MOTOR VEHICLES ________________(Average Monthly Output) Auto- Motor- Year Trucks mobiles Buses Tractors bikes Rollers Mopeds Bicycles 1937 90 10 9 630 12,445 1950 170 160 472 1,641 9,275 1954 363 414 38 707 3,186 1,763 1,885 15,450 1956 352 930 33 1,536 2,269 1,532 9,688 12,822 1958 351 1,208 37 1,233 1,408 899 10,138 10,273 1960 372 1,252 17 1,204 797 436 9,560 11,931 1961 414 1,132 16 1,322 419 213 7,831 15,558 Source: Austrian Institute for Economic Research, Monthly Report (Vienna: The Institute, March, 1962), p. 5.12. 191 licensing agreements were consummated with Fiat of Italy to assemble various models in Austria. However, as tariffs on imports stand at only 20 per cent, foreign competition in domestic markets proved insur mountable. In addition, rising incomes increased demand for compact sized autos of more luxurious appointments. The direction of demand, therefore, 17 tended away from the stopgap Austrian product. Foreign trade in the motor vehicle industry has, as a whole, been less successful than in other branches of the investment goods industries (Table LXII). The motivating force behind the considerable import surplus is, as may well be anticipated, the very vigorous demand for automobiles. This demand is being overwhelmingly satisfied by imports from Western Germany (making up more than 60 per cent of autos imported; Table LXIII). The rate of growth of motor vehicle imports is attributable to automobiles at no less than 64 per cent. Exports of the industry between 1954 to 1959 rose from 330 million schillings to 460 million. 17 The dominant Austrian product is the equiva lent of the Fiat 600, called Puch 600, and related series. 192 TABLE LXII FOREIGN TRADE IN THE MOTOR VEHICLE INDUSTRY Year (Million Schillings» Current Prices) Exports Imports Import Surplus 1954 522.9 1,042.7 509.8 1956 705.8 1,746.2 1,040.4 1957 933.4 2,011.8 1,078.4 1958 730.5 2,105.5 1,375.0 1959 732.8 2,556.3 1,823.5 Source: Austrian Central Statistical Office, Austrian Foreign Trade, 1959 (Vienna: The Office, 1960), p. 82. 193 TABLE LXIII IMPORTS OF AUTOMOBILES (1959) Country of Origin Units Value in Million Schillings Total 61,784 1,598.9 Of this: West Germany 38,852 1,049.4 France 8,730 217.6 Italy 6,556 141.9 Great Britain 4,865 120.9 Czechoslovakia 1,467 29.1 U.S.S.R. 703 14.6 U.S.A. 210 14.7 Sweden 152 4.3 Source: Austrian Central Statistical Office, Austrian Foreign Trade, 1959 (Vienna: The Office, 1960), p. 83. 194 This gain is ascribable almost in its entirety to the motorbike sector, which was able to achieve significant markets for its mopeds in overseas areas. Prospects in the case of integration do not appear very favorable for the Austrian motor vehicle i industry. Throughout Europe as a whole, only those motor vehicle industries appear to be expanding vigorously which are able to satisfy the voluminous demand for the many varied types of automobiles. As Austria is, for practical purposes, not represented in this group, its growth potential is severely handi capped and its survival in question. In the tractor producing sectors in European industries there prevails an overcapacity of sizeable proportions. This same phenomenon began to manifest itself in Austria as well after 1955. It may be I ascribed to the existence of a very high proportion of tractors per acre of agricultural land in Europe ! (Austria included), surpassing even the ratio preva- j lent in the United States (Table LXIV). A few years ago the Economic Commission for Europe (ECE) in Geneva published an assessment of optimal size tractor pro ducers. According to this report the number was set at 10,000 per year. If this figure is taken to be valid, then the most important Austrian manufacturer i 195 TABLE LXIV NUMBER OF TRACTORS PER HECTARE OF LAND IN AGRICULTURAL USE* Number of Tractors Number of Per 1,000 Hectares Tractors Agri- in Agri- cultural Plowed Country culture Land Soil Austria 38,230 13.4 21.6 Belgium-Luxemburg 24,113 12.8 22.2 Denmark 51,345 16.9 18.8 France 275,783 9.6 13.0 West Germany 370,710 26.0 42.5 Greece 8,430 2.3 2.4 Ireland 26,569 5.7 10.9 Italy 124,928 7.4 8.0 Netherland 36,000 15.5 34.0 Norway 25,000 24.7 30.3 Portugal 3,968 0.8 1.2 Sweden** 105,400 27.7 28.7 Switzerland 24,240 20.3 54.2 Turkey 37,832 1.5 1.8 Great Britain*** 398,221 31.1 54.9 U.S.A. 4,300,000 9.6 22.2 Canada**** 399,686 6.5 10.2 Argentina***** 45,000 0.3 1.5 Brazil****** 40,000 0.3 2.0 India**** 8,354 0.05 0.06 Union of South Africa*** 74,610 0.8 0.9 Australia** * 170,905 0.4 8.1 *1954; European countries without Alpine green land and pasture meadows ♦♦Forestry tractors included ***1953 ****1951 *****1953, unofficial * * * * **Unofficial Source: Austrian Institute for Economic Research, Austria1s Industry and the European Market (Vienna: The Institute, 1960), Part II, p. 18. 196 would appear to hold a rather satisfactory competitive position with a 1959 output of 14,000 units. Perhaps the greatest opportunities for expansion of the tractor sector are to be found in overseas markets where more intensive sales efforts have already commenced to show results. In order to recapitulate briefly, it should be noted that only the tractor and bicycle manufacturing sectors are, on balance, likely to be favorably affected by tariff deletions in the course of integra tion. As throughout Europe the motorbike industries are in a stagnating position, and in essence domes tically oriented, Austrian exports, or imports for that matter, are apt to display only minor effects. The production of trucks and buses will also show only slight changes as no European manufacturers pro duce on scales significantly greater than those prevailing in Austria. In the case of bicycles, recent gains in production are a reflection of expand ing markets abroad, particularly in the United States. As virtually no intra-European bicycle trade presently exists, nearly every OECD member has a bicycle indus try and protects domestic markets, the elimination of trade restrictions is likely to create considerable competitive effects. Austrian manufacturers, however, 197 attended by relatively low labor costs, are not expected to be faced with insurmountable difficulties. The consumption goods industries— the textile industry. As appears discernible in most less indus trialized economies, so in the case of Austria were the consumption goods industries more highly developed at the turn of the century than the other economic sectors. The years immediately succeeding 1918 left the First Republic with a relatively capacious invest ment goods industry and a badly lacking consumption goods sector as the latter had remained within the bounds of the newly created nation states. The years between the wars witnessed few alterations, as pro tectionist world economic policies prevented first the full utilization of existing surplus investment goods capacity, and second, led to an enhancement of particularly those consumption goods industries which were left impaired by the dissolution of the mon archy.'*'® At the end of World War II a similar situation was witnessed in Austria. Investment goods industries, 18 Within the then newly created Republic of Czechoslovakia the sugar beet and weaving industries; within newly independent Jugoslavia the liquor indus try, etc. 198 which had been greatly expanded during the war, were at first unable to fully utilize their capacity. The widespread European reconstruction and indus trialization period, however, enabled investment goods industries not only to take full advantage of their capacity, but to expand as well in considerable measure. Thus, the consumption goods industry was only able to develop at a less rapid pace, remaining considerably behind total consumption demand. With the attainment, however, of prewar levels of consump tion in textiles, clothing, and food articles, an ever increasing share of national income additions was diverted to other consumption purchases. While total industrial production in 1959 stood at 165 per cent of 1937, the textile, leather and shoe, and food articles industries had recorded growths of only 21, 40, and 89 per cent, respectively. This relatively slower progress is to be noted in nearly all industrialized Western nations, having thereby considerably intensified international compe tition. Also magnified were problems attending economic integration as most of these industries had increasingly sought refuge in protectionistic and subventionistic policies. 199 A relatively new trend manifested itself in Western Europe, and particularly in Austria, during 1961. As the year moved toward its conclusion, unutilized capacities began to make their appearance, and primarily in investment goods industries. The continued growth of the economy as a whole was there fore ascribable essentially to renewed and more vigorous consumption goods demand exhibited by the household sector. This is thought to be an outgrowth of continuing full employment and rapidly rising incomes. Since the end of the war the European textile industry has been the subject of severe structural problems. Domestic demand has been growing slowly, and overseas exports have declined considerably since Asia and Latin America developed their own industries under cost advantages of low wages. In the less expensive staple goods, Japanese, Chinese, and Indian manufacturers have competed successfully in Europe. In view of these occurrences it may be assumed that European textile industries would gladly submit to expected adjustment problems called forth by conti nental integration, if only adequate restrictive trade policies were adopted against East-Asiatic competition. 200 Whereas, theoretically, a decrease in textile capacity would appear opportune, the actual course of events tends to the contrary. This fact has its roots in the modernization of textile equipment as, for instance, spinning machines and looms, which, though reducing the number of machines used, never theless, through technological advancements, actually are expanding existing capacity. In this situation, therefore, technological progress in fact bears the danger of even greater idle capacities. It may be noted that during the first postwar decade the Austrian textile industry was able to develop somewhat more favorably than the average of 19 the European industry. Undoubtedly this was gen erated by the greater discrepancy in level of living standard which existed between Europe and Austria than prevailed within Europe as a whole. Thus, by 1957, the production index had reached its up to then highest level. After 1957 the production index first declined, then revived, and only during 1961 somewhat surpassed its previous high while total industrial productive 19 Only Belgium and Germany expanded their pro duction more rapidly than Austria, whereas France, Italy, and Great Britain lagged behind considerably. 201 output rose in the same period by roughly one-fourth (Table LXV). Employment in the textile industry currently stands at 74,300, of which over 65 per cent are women. Firms are concentrated mainly in three areas: Lower Austria contains the woolens industry, Vienna contains the knitted goods and woven articles industry, and Vorarlberg contains the cotton goods industry. All remaining industry branches are fairly evenly dis persed throughout the rest of Austria. Most highly developed is the cotton industry, encompassing about one-third of total employment. The second largest sector is the knitted and woven goods industry with 20 per cent of total workers, followed by the wool industry with an 18 per cent share. All remaining sectors are much smaller. Distribution according to size in the textile industry conveys a picture of the dominance of middle- sized firms. Only 17 per cent of employees may be imputed to the eight largest firms with more than 1,000 workers each, and 24 per cent to units with 500 to 1,000 persons. Nearly one-half of all firms (256) employ less than fifty workers. Most highly concentrated is the cotton goods industry with more than two-thirds of workers employed 202 TABLE LXV INDEX OF TEXTILE PRODUCTION (1961) Year Index 1937 100* 1953 100.8 1954 111.7 1955 118.2 1956 124.0 1957 129.4 1958 121.5 1959 121.0 1960 130.1 1961 133.5 ♦Based on physical volume Source: Austrian Institute for Economic Research, Austria*s Industry and the European Market (Vienna: The Institute, 1961), Part I, p. 81. 203 by units with over 500 persons. Small firms with less than fifty workers account for only 2 per cent of total employed. In the whole industry more than one-half of workers find employment in middle-sized firms, and in the knitting and woven goods industry concentration is least pronounced, with barely 35 per cent of the employees engaged by firms with more than 500 workers (Table LXVI). In the remaining sectors of the industry large size firms do not exist, nor are demand conditions such as to warrant their establishment. As a whole, therefore, and judging on the basis of employment, the position of the textile industry does not appear adverse in the light of its competi tors. In the cotton industry firm sizes correspond with those found in most other Western European nations, and even with those of the entire industry in the United States where 12 per cent of workers are employed by firms with an employment of less them 100; in Austria the ratio is 18 per cent. However, a warn ing seems in order here, namely, that United States output per worker is considerably higher due to vastly more advanced machinery and production methods. Capacity of domestic industry is, on the average, greater than demand, particularly in the cotton and TABLE LXVI DISTRIBUTION OF MAJOR SECTORS BY FIRM SIZE (1960) Firms with Cotton Goods Woolens Knit and Woven Goods ..» Employees Firms Employees Firms Employees Firms Employees 6 - 20 14 194 14 161 42 574 21 - 50 11 364 26 931 46 1,484 51 - 100 12 905 16 1,073 34 2,379 101 - 250 16 2,668 16 2,550 23 3,471 251 - 500 13 4,569 10 3,676 8 2,794 501 - 1,000 13 9,313 3 1,795 4 2,915 Over 1,000 3 5,825 2 3,231 2 2,551 Source: W. and Humblot, 1961) Weber, The , p. 214. Economic Structure of Austria (Berlin: Dunker 204 205 woolen sectors. Up to 1955 domestic consumption absorbed all of textile production and achieved export surpluses. After that time, however, and with effec tive liberalization, foreign competition was able to penetrate the Austrian market considerably. As exports were increasing less rapidly an annual import surplus of 100 to 200 million schillings developed initially, which in the past two years rose further. Only the year 1958 represented a recession conditioned favorable surplus (Table LXVII). The Austrian textile industry does not depend upon exports in prepondering fashion. In 1959 it produced goods in the value of 9.2 billion schillings, of which it exported 2.0 billion, or 22 per cent (Table LXVIII). All sectors do not export equal shares, i.e. most export oriented are the synthetic fiber manufacturing firms, a part of the cotton sector, the woolens, hemp and flax spinning sectors, and the knitting and weaving sectors; in fact, all those sectors whose output is easily adaptable to current changes in fashion. One sector which exports nearly its entire production is the embroidery segment located in Vorarlberg, which produces 5 per cent of total textile output but partakes in textile exports to the extent of 25 per cent of total. 206 TABLE LXVII FOREIGN TRADE IN TEXTILES Year (Million Schillings) Imports Exports Surplus 1954 932.3 1,225.6 +293.3 1956 1,789.0 1,682.9 -106.1 1958 1,884.9 2,035.6 +150.7 1959 2,151.2 1,993.3 -157.9 1960 2,767.2 2,282.1 -480.1 1961 2,922.5 2,369.6 -552.9 Source: Austrian Central Statistical Office, Austrian Foreign Trade, 1961 (Vienna: The Office, 1962), p. 70. 207 TABLE LXVIII FOREIGN TRADE STRUCTURE OF TEXTILE INDUSTRY (1960) (Million Imports Schillings) Exports Total Textiles 2,151.2 1,993.3 Of this: Yarn 864.5 610.1 Cotton materials 433.0 265.2 Woolen materials 317.2 111.9 Synthetic materials 228.9 217.1 Embroideries, lace 36.9 542.2 Special materials 94.8 130.7 Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Humblot, 1961), p. 219. 208 As noted earlier, with the liberalization of quotas textile imports increased rapidly. From 1954 to 1961 imports rose by 194 per cent, whereas exports increased by only 93 per cent (see Table LXVII, page 206). Currently, roughly four-fifths of domestic production are exposed to liberalized foreign competi tion; only one-fifth remains protected by quantitative restrictions. However, regarded as a whole, the textile industry is safeguarded by a relatively high tariff which, in the case of finished products, lies between 20 and 30 per cent. From the point of view of the industry, integra tion or association means the abolition of relatively high tariff rates and of the remaining quote restric tions. Intensified competition will unquestionably ensue. On the other hand, a radical realignment of production processes in line with larger markets will undoubtedly generate cost reductions due to larger scales of operation, enhanced by the ability to acquire modern equipment. A small economy obviously has more potential in this respect than one already functioning on a generally optimal scale. Significant in this case is the observation that that part of the industry located in areas previously occupied by Soviet forces is much less advanced technologically, 209 as early investment capital has moved only into the Western sector and away from the uncertainties of the Eastern sector. This lag in comparative development 20 has not been fully overcome up to now. Few precise predictions may be made for the small-sized branches of the industry whose competitors in foreign nations also are not organized on large scales. Significant here is the extent to which specialties and efficient production methods, along with lower wages and adaptation to specific inter national consumption trends, can be utilized in accordance with the advantages of comparative costs. Also indispensable is likely to be the creation of an efficient and commercially sustainable marketing organization with extensive foreign connections. It finally remains to be observed that, as is the case with most other industries, in the textile industry raw material must be imported. Because of 20 Noticeably evident is the disparity in the cotton goods and knitting and woven goods sectors. Those firms located in Western Austria (Vorarlberg) are almost all well equipped and presumably able to integrate without difficulties. On the other hand, a substantial portion of firms located in Lower Austria and Vienna are still considerably in arrear and therefore would be less able to compete inten sively. 210 their bulky character and the economy's peripheral location, transportation differentials arising out of the shipment of final products into Western Europe are apt to be enhanced. The natural direction of trade into Southeast and East Europe has been severed as a consequence of political restraints. Whereas 49 per cent of textile exports went to Eastern Europe in 1937, this percentage had dropped to 9 per cent by 1956. This fact is also a result of the Eastern de emphasis on consumption goods imports with the con comitant articulation of investment goods purchases abroad. This loss of Eastern markets was never fully compensated for by increased exports to Western Europe. The clothing industry. Nearly all European nations have at their disposal a clothing industry large enough to satisfy domestic demand conditions. International trade, therefore, concentrates pre- 21 dominantly on specialty and haute couture items. In fact, it is widely assumed that prevailing tariff restrictions are unnecessary in most instances as individual fashion and taste differentials are, in themselves, adequate deterrents to import competition. 21 Austrian blouses and jersey products. 211 Past developments and future prospects are expected to favor the clothing industry. This is attributed, in part, to increased demand motivated by rising incomes, and in part to a transformation of the industry from custom work to ready-made clothing. The latter is an outgrowth of rapidly rising wages in the industry which increased the price differential considerably. The ready-made clothing sector was able to offset increased labor unit costs by rises in productivity; the custom shops, however, were forced to raise prices, being unable to increase output per man hour without attendant quality reductions. In addition, with rising total demand most producers of ready-made clothing are able to increase selection and quality of output, thereby further widening the gap between themselves and the custom shops whose only remaining advantage, that of superior finish, is continually losing significance. It is remarkable to observe that, in economies with a higher standard of life and average income, custom clothing has lost its proportionate share in total production. In 1960 the Austrian clothing industry employed nearly 28,000 workers (over 80 per cent women) in more than 400 firms. The dominant portion are small 212 and middle-sized units, many of which were, up to recent times, engaged in custom work. In all of Austria there exists but three firms with between 500 and 1,000 employees (Table LXIX). / The relatively pronounced absence of concentra tion in the industry does not, however, necessarily represent a fundamental disadvantage. The character of industry appears to call for middle-sized units as extensive capital investments, as in other economic sectors, are not warranted. On the other hand, small sized firms are able to take advantage of technological developments only if they can eventuate at least a certain standardization of production. The optimal size of plant varies, of course, from product to product, pointing to relative smallness where frequent fashion changes manifest their presence, and to some what greater capacity where special and coincidental influences are less pronounced. The industry is located overwhelmingly in Vienna, where 64 per cent of workers find employment. This represents a relative drawback as a substantial portion of the firms are housed in confining surround ings whose original functions were those of a one family apartment or those of a small craftsman. Rational and spacious division of labor appears TABLE LXIX DISTRIBUTION OF CLOTHING MANUFACTURING FIRMS ACCORDING TO SIZE (1960) Firms with •t• Employees Number of Firms Employees Share in Per Cent* 6 - 20 97 1,292 4.7 21 - 50 141 4,690 17.0 51 - 100 96 6,841 24.7 101 - 250 62 8,880 32.1 251 - 500 13 3,992 14.4 501 - 1,000 3 1,956 7.1 Over 1,000 Total 412 27,651 100.0 Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Iiumblot, 1961), p. 223. 213 unattainable in most instances. The value of current production has risen, from 1954 to 1959, by nearly 80 per cent (Table LXX). Many firms were easily able to satisfy increasing demand and enlarge their facilities in the process as well, as some surplus capacity had already existed at the outset. Appearing bottlenecks were eliminated without difficulty as investment capital requirements for purposes of expansion are not particularly great, A working capital playing a much more significant role. The clothing industry's dominant market is domestic in nature; exports accounting for only 16 per cent of total production in 1959 (Table LXXI). And even these exports are imputable almost exclusively to furs, hats, artificial flowers, and specialties of ladies' underwear. More than three-fourths of exports were directed to Western Europe. Previous export alignments with East and Southeast Europe were severed during the 1930's as a result of extreme protectionism 22 then prevalent. Exports are not likely to expand greatly as a consequence of projected reductions of trade barriers 22 The share of today's COMECON nations declined, between 1927 to 1937, from 21 to 4 per cent. 215 TABLE LXX GROSS PRODUCTION OF CLOTHING Year Million Schillings 1954 1,454.4 1955 1,807.6 1956 2,039.0 1957 2,312.6 1958 2,346.0 1959 2,587.9 1960 3,020.3 1961 3,700.0 Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Humblot, 1961), p. 229. TABLE LXXI IMPORTS AND EXPORTS OF CLOTHING (MILLION SCHILLINGS) Exports Imports Commodities 1954 1959 1954 1959 Total Clothing (without Furs and Shoes 277.8 417.2 26.7 86.2 Stockings 29.2 20.4 9.0 9.7 Woven upper clothing 148.2 211.8 5.0 31.3 Other upper clothing 32.9 69.9 0.7 4.8 Hats, caps, etc. 15.2 28.2 0.3 1.3 Others 52.3 86.9 11.7 39.1 Source: Austrian Central Statistical Office, Austrian Foreign Trade, 1959 (Vienna: The Office, 1960), p. 90 217 within an integrated Western Europe. It is expected that indigenous industries will continue to supply domestic markets. This expectation is reenforced by the likelihood of relatively facile adjustment to an international technical standard once trade restric tions have been eliminated, as no great capital investments are required for attainment of such a level. This does not preclude, of course, trade in specialties and mass produced items of homogeneous international quality (gloves, underwear, etc.). Up to now such imports, burdened by high tariffs, were relatively low, reaching barely 3 per cent of total domestic production in 1959. Liberal trade policies will unquestionably increase competition, but not necessarily to the detriment of Austrian manufacturers. The shoe industry. Similarly inclined as the clothing industry is the structural transformation occurring within the shoe industry, i.e. from custom to ready-made wares. Due to quota and tariff restric tions, native industry is free from foreign competi tion. It is observed that the protection afforded is far greater than the structural differential would warrant. 218 The size of firms within the industry is not markedly less favorable them in competing economies. Of the 13,000 workers more than 62 per cent are employed by middle- and large-sized units, and less than one-tenth in typically small firms (Table LXXII). Average employment per firm is nearly as large in Austria as in Germany (Austria 135, Germany 147). No disadvantage accrues to Austria in this respect. However, German output per worker is nearly twice that 23 of his Austrian counterpart. This productivity gap is of course not compensated for by lower domestic wages. The differential may be explained not so much by superior capital machinery, Austrian firms are quite well advanced technologically on the average, but rather by more efficient division of labor and greater standardization of production. In part, how ever, and this point unfortunately is beyond accurate verification, Austrian industry is said to be pro ducing shoes of superior quality, and therefore at a smaller output per man. In 1961, with 1.1 million pairs, the leather shoe industry reached its highest level of production, 23 In 1957, despite shorter hours worked, a German employee was able to turn out eighty-eight pairs of shoes per month, an Austrian only fifty-one. TABLE LXXII DISTRIBUTION OF SHOE MANUFACTURERS ACCORDING TO SIZE (1960) Firms with ..o Employees Firms Number of Employees Share in Per Cent* 6 - 20 13 154 1.2 21 - 50 30 951 7.2 51 - 100 18 1,265 9.5 101 - 250 18 2,504 18.9 251 - 500 14 4,682 35.3 501 - 1,000 3 2,235 16.9 Over 1,000 1 1,465 11.0 Total 97 13,256 100.0 *In total employment Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Humblot, 1961), p. 236. 220 238.5 per cent of 1937, thereby having expanded output by roughly one-third within 1961 alone (Table LXXI1I). The growth of the industry particularly is reflected in the years 1959 to 1961, and especially the rise in exports from 1960 to 1961 (Table LXXIV). But increases of imports, mostly from more stylishly inclined Italian manufacturers, also find their reflection in a more than doubling of volume. Thus it may be observed that, with rises in Austrian incomes, fashion consciousness is also increasing, thereby, however, preventing the standardization of production methods. This is so as only relatively narrow series may be produced of each style or model. It should finally be observed that one of the most vigorously expanding sectors of the industry is the production and export of ski and mountain boots and houseshoes. The shoe industry is geared predominantly to domestic markets; of the nearly 100 firms, but fourteen export. Exports in 1959 accounted for only 6 per cent of total domestic shoe production (Table LXXV). Almost two-thirds of exports are directed to the United States, mostly ski and mountain shoes; the rest to Germany, primarily style accentuated products. TABLE LXXIII PRODUCTION OF SHOES (MONTHLY AVERAGES) Year (in 1.000 Pairs) Leather Shoes Textile Shoes House shoes Galoshes Tennis and Athletic Shoes 1937 458.0 1950 348.8 52.4 91.6 44.9 36.0 1955 570.5 44.1 107.8 2.3 48.6 1957 689.5 25.4 139.3 1.7 48.9 1959 794.2 21.3 164.8 0.6 49.9 1960 819.9 17.4 167.5 0.4 49.3 1961 1,092.4 13.5 205.8 50.9 Source: Austrian Institute for Economic Research, Monthly Report, Statistical Summary (Vienna: The Institute, March, 1962), p. 5.26. 221 222 TABLE LXXIV EXPORTS AND IMPORTS OF LEATHER SHOES Year (Million Schillings) Imports Exports 1959 13.3 82.6 1960 19.0 107.5 1961 30.4 143.7 Source: Austrian Governmental Printing Office, Statistical Handbook for Austria (Vienna: The Office, 1962), p. 52. TABLE LXXV EXPORTS AND IMPORTS OF SHOES (Million Schillings) Exports Imports Commodities 1954 1959 1954 1959 All Shoes 22.6 82.6 2.9 13.3 Of those: Slippers 0.0 0.8 0.3 3.4 Leather Shoes 20.9 75.5 1.0 6.5 Rubber Shoes 1.7 3.3 1.5 2.0 Other Shoes 0.0 3.0 0.1 1.0 Source: Austrian Central Statistical Office, Austrian Foreign Trade, 1959 (Vienna: The Office, 1960), p. 112. 223 224 Integration or association is not expected to be attended by extreme difficulties for the Austrian shoe industry. The majority of middle- and large sized firms are well equipped technologically. They are lacking however in standardization and therefore in rationalization of production, as the variety of styles created and supplied prevents concentration of production methods. Also noticeably absent are ade quate sales branches for, and organization of, the industry. At present there exists no domestic whole sale shoe trade, nor an export traffic of substance. Therefore, before exports can be expanded on a large scale, adequate national and international sales 24 organizations would have to be created. The dele tion of trade restrictions may generate increased domestic competition from high-styled Italian shoes and some from less expensive mass produced German items. No imports of consequence are expected from Switzerland, as substantial Swiss capital is invested in Austrian manufacturing firms. In final analysis, therefore, it may be predicted that the Austrian shoe 24 At present most shoe manufacturers sell their products in their own retail stores. Others produce for department stores exclusively. 225 industry may, after an initial period of general reassessment, adapt itself satisfactorily to Italian styling and German mass production, presumably as an exporter of shoes which have incorporated in them the desirable features of both. The food articles industry. This industry encompasses twenty-seven sectors of which a portion is based upon completely heterogeneous foundations and many of which point toward very different patterns of development. In general it may be observed that in nearly all European nations the food industry is, in essence, domestically oriented, with only a few special items exported. As transportation costs play a vital role in competition, most firms are induced to locate near their markets. In other instances protective trade restrictions make imports greatly unprofitable, and certain types of commodities are a specific outgrowth of particular domestic tastes. At best it may be suggested that the food articles industry has a growth potential of but medium magnitude, though greatly varying in different sectors. Even though the income elasticity of demand for food articles is rather low in countries with higher standards of life, the share of the industry 226 in the satisfaction of total demand is constantly rising. This phenomenon may be ascribed to the shift in demand away from staple foods and simply produced products to items ready for cooking or requiring a minimum of preparation. This tendency, in turn, may be traced to the ever increasing number of working women, to the new way of life, and to the relative scarcity of domestic employees. Thus, expansion is taking place essentially in the highly developed or prepared food articles sector where the income elas ticity of demand is considerably greater. In contrast, the production of certain basic foods, viz. milling and bakery goods, is retreating relatively and absolutely. In toto, the industry encompasses 510 firms employing 46,000 workers. Regional distribution corresponds to location of markets. Most units fall into the middle-sized category. In the fifteen larger enterprises (more than 500 workers) and the two largest firms (over 1,000 workers) nearly 30 per cent of total employment takes place (Table LXXVI). Ranking first in size among the twenty-seven sectors of the industry are the breweries, with sixty-nine member firms and an employment of 7,000. This sector is followed by the sweets segment, the TABLE LXXVI DISTRIBUTION OF FOOD ARTICLES INDUSTRY ACCORDING TO SIZE OF FIRM (1960) Firms with ... Employees Firms Number of Employees ' Share in Per Cent of Employment 6 - 20 172 2,179 4.7 21 - 50 141 4,700 10,1 51 - 100 88 6,275 13.6 101 - 250 60 9,432 20.3 251 - 500 32 10,467 22.6 501 - 1,000 15 9,923 21.4 Over 1,000 2 3,376 7.3 Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Humblot, 1961), p. 241. 227 228 bread producers, the milk sector, the sugar manu facturers, and the mill groups. All together they give employment to 70 per cent of the industry's labor pool. All other segments are much smaller in sig nificance. In 1959 total production of the food articles industry was greater by 89 per cent than that in 1937, thus having grown faster than the other con sumption goods industries but slower than industrial production (165 per cent; Table LXXVII). The output of bread and related items barely reached prewar levels, whereas the production of beer rose more than twofold and that of chocolates and sweets more than threefold. Also vigorous growth was recorded by the manufacturers of sugar, margarine, oils, dough articles, etc. (Table LXXVIII). Faced with structural problems is the milling industry, which possesses considerable excess capacity due to poor prewar planning as well as the declining current demand. Inasmuch as difficulties in Austria, as in other industrialized nations, are dealt with not by adjusting capacity but rather by market manipu lations, and furthermore, as the basic foodstuffs industries are at this time excluded from EEC regula tions, it may be expected that current import TABLE LXXVII GROWTH OF FOODSTUFFS PRODUCTION IN FIVE EUROPEAN NATIONS (1938 = 100) Year Austria* Germany Italy Netherlands Sweden Total Food stuffs** Total Food stuffs** Total Food stuffs** Total Food stuffs** Total Food stuffs** 1950 145 118 93 97 127 137 139 112 161 141 1951 165 123 111 110 143 141 144 113 169 139 1953 170 134 130 138 162 151 157 122 169 145 1955 225 146 166 160 190 160 186 133 187 154 1957 248 170 *1936 « 100 **Tobacco and tobacco products included Source: German Governmental Printing Office, Statistical Yearbook for West Germany, 1957, International Summary (Bonn: The Office, 1957), p. 19. 229 TABLE LXXVIII PRODUCTION OF FOOD ARTICLES INDUSTRY (MONTHLY AVERAGES) Commodity Unit 1937 1950 1959 Index of Production♦ 1937 - 100 100 117.7 189.1 Flower and Semolina t 54,167 26,317 30,311 Bread^ t 5,000 4,873 4,080 Beer 1,000 hi 184 240 407 Chocolates t 542 726 1,717 Sugar items t 417 1,027 1,298 Durable baked items t 458 402 1,299 Dough items t 833 1,924 1,667 Marmalade t 208 519 663 Margarine t 832 783 2,830 Sugar t 12,500 13,964 26,398 ♦Index of the Institute for Economic Research ♦♦Industrial production only, without local bakeries' output Source: Austrian Institute for Economic Research, Monthly Report, Statistical Summary (Vienna: The Institute, September, 1961), p. 5.29. 230 231 restrictions are going to continue for some time. In spite of the fact that the brewing industry has regulated markets in overt cartel fashion, prices have remained well below those prevailing in other nations, presumably in response to strong public 25 opinion and governmental pressures. Integration can affect the industry in relation to peripheral markets only. The sugar industry, as other food sectors, is excluded from EEC regulations, its liberalization deferred for extensive future negotiations. The sweets industry was able in recent years, after prolonged periods of overcapacity, to finally fully exploit its capacity. To the present, however, exports are small as almost all countries maintain very high tariffs, most of which may be found at the top of the respective tariff lists. As a consequence, the sector, in depending upon domestic consumption only, has been unable to utilize technologically advanced machinery, as for the latter the market is far too small within Austria. Most larger European nations, on the other hand, have developed a sweets 25 One liter, slightly more than a quart, costs retail approximately eleven cents, bottled. 232 industry in accordance with their larger domestic markets, i.e. much more efficiently organized. The production of margarine concentrated in recent years to the extent of 80 per cent within one firm, a phenomenon occurring in other countries as well where sizeable portions of the factories are fully automated. The general consequences of integration of the food articles industry do not lend themselves to accurate ascertainment, as the outcome depends in large measure upon the future integration of agri culture, and thereby, of the basic foods industries. Most likely to remain subject to extraordinary regu lations are the food sectors engaged in first stage processing, as they are nearly universally subject to structural maladjustments. Other industry sectors, such as the bakeries and breweries, are not faced with international competition in view of their proximity to domestic markets. In the higher stages of the processed foods sectors, which are relatively poorly developed in Austria due to the heretofore limited scope of the market, international competition, if freed from discrimination, is likely to achieve substantial domestic marketing gains. The major determining factor, therefore, in resolving the 233 future course of the industry, would appear to be the outcome of the treatment of agriculture on the part of the current EEC membership. V. STRUCTURAL DEFICIENCIES IN AUSTRIAN EXPORT TRADE Observed all inclusively, it may be contended that Austrian exports in recent years have indeed recorded a quite satisfactory growth, having reached a yearly real growth rate of somewhat more than 12 per cent. Only Italy and Germany were able to raise their exports in greater measure (Table LXXIX). Despite obvious statistical accomplishments, there prevail certain indications of structural mal adjustments in the composition of Austria's export trade. Structural Export Maladjustments One of the clearest points of weakness in international trade is the sensitivity of Austrian exports to international economic fluctuations. Thus the vigorous growth of exports was interrupted both in 1952 and in 1958. In the latter year the decline appeared all the more significant as total West European exports did not decrease but rather con tinued to grow, though admittedly at a very slow pace. VOLUME TABLE LXXIX INDEX OF FOREIGN TRADE (1953 = 100) 1956 1958 1960 Imports Exports Imports Exports Imports Exports Belgium-Luxemburg 136 136 137 136 175 172 Germany 171 165 205 195 294 256 France 142 120 149 138 175 193 Great Britain 112 119 116 116 140 128 Italy 131 155 143 189 229 280 Netherlands 154 130 149 147 193 187 Switzerland 151 128 147 135 168* 151* Austria 195 160 227 177 304 214 U.S. 112 117 119 107 137 121 *1959 Source: United Nations, Monthly Bulletin of Statistics (New York: The Organization, October, 1961), p. 18. [ S 3 0 1 235 Another sign of weakness may be observed in the relative slowdown in the rate of export expansion. Since 1956 Austria's share in Western European exports has been declining. Its segment in OEEC exports decreased from a high of 2.42 per cent in 1957 to 2.18 per cent in 1960 (Table LXXX). Most injurious to the level of Austrian exports during years of European recessionary conditions proved to be the fact that exports are concentrated in a few groups of commodities subject to considerable fluctuations in world demand, which tend to succumb in such years to stronger foreign competition. Among these may be found steel, iron, wood, chemical ferti lizer, paper products, machines, and others. In toto they comprise 52 per cent of total exports, against an OEEC average of but 35 per cent. Many firms engaged in the production of the above items are highly dependent upon exports. Taken as a whole, the iron industry exported, in 1959, 57.8 per cent of output, the paper products industry 38.1 per cent, the mining industry 37.3 per cent, the machine and steel industries 33.5 per cent, and so on. In general, exports based predominantly upon products subject to wide fluctuations in world demand in response to economic conditions should not be 236 TABLE LXXX AUSTRIA'S SHARE IN OEEC EXPORTS Year Per Cent 1928 2.29 1937 2.19 1950 1.61 1953 1.92 1957 2.42 1958 2.26 1959 2.19 1960 2.18 Source: Organization for European Economic Cooperation, General Statistics (Paris: The Organization, I960), Part II, p. 16. 237 disapproved of a priori. The export positions of these industries may rather be subjected to analysis with the preconceived objective of strengthening their competitive positions through cost reductions and specializations, as well as the production of custom items in times of excess capacity. Prospects of Growth Of vital importance to the growth of exports is the projected development of international demand for those products which occupy a determining position in the export trades. Based on a study completed by St. Spiegelglass in May 1959, Austrian export industries were cate gorized in accordance with expanding, static, or Og contracting branches. Seventeen groupings were utilized over the period 1937-1956, and industries categorized in relation to their relative growth. Using this system for Austrian industries, a struc tural realignment was discernible between 1956 and 1959 (Table LXXXI). With the exception of the agricultural machinery and railroad and shipping equipment branches, all 26 St. Spiegelglass, World Exports of Manu factures. 1956 vs. 1937 (London: The Manchester School of Economics and Social Studies, 1959). TABLE LXXXI AUSTRIAN INDUSTRIAL EXPORTS ACCORDING TO EXPANDING, STATIC, AND DECLINING SECTORS Exports 1956 Exports 1959 Million Per Million Per Schillings Cent Schillings Cent Expanding Export Sectors Industrial Investment Goods Airplanes, Autos, etc. Electro-Technical Products Finished Products not otherwise Railroads, Ships Agricultural Equipment Chemical Products classified 1,428.2 541.7 670.9 278.0* 278.7* 118.1 925.2 2,020.0 697.0 994.1 567.8 227.9 101.5 991.8 Total 4,240.8 27.7 5,600.1 30.8 Static Export Sectors Nonmetallic Mineral Products Iron and Steel Nonferrous Metals 1,243.2 3,609.2** 675.0 1,289.1 4,224.6 871.0 Total 5,527.4 36.0 6,404.7 35.3 (Continued) 238 TABLE LXXXI (Continued) Exports 1956 Exports 1959 Million Per Million Per Schillings Cent Schillings Cent Declining Export Sectors Drinking Products and Tobacco Wares Metal Goods not otherwise classified Clothing Various Semi and Finished Products*** Books, Films, Cameras, etc. Textiles 35.4 1,325.3 423.1 1,792.8 280.5 1,685.2 36.3 1,283.7 529.1 1.830.2 389.5 1.993.3 Total 5,542.3 36.1 6,056.1 33.4 Other Products 22.4 0.2 85.0 0.5 Total Industrial Exports 15,332.9 100.0 18,145.9 100.0 *Long run static (1899-1956) **Long run expanding (1899-1956) ***Paper, paper and wood products included Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Humblot, 1961), p. 179. 239 240 industrial branches included in the expanding exports sector were able to increase their share in total exports between 1957 and 1959. This fact lends sup port to the contention that it is, as a rule, the industrial investment and chemical goods industries which are most vigorously responsible Tor the recent upsurge in Austria's foreign trade. The direction of the latter tends more toward overseas markets and less toward the EEC, areas which in fact hold the promise of rapid expansion due to the pronounced effort of many underdeveloped nations to industrialize rapidly. The export significance of the static and declining branches appears to have decreased between 1957 and 1959. This leads one to presume that the semifinished and finished products branches (other than investment goods) of Austrian industry will in the future have to reassess their position in the light of more intensive and extensive world competi tion. Compared with the nine countries used by Spiegelglass in his study, Austria did not occupy a singularly advantageous position (Table LXXXII). With the exception of Canada, all other countries show a greater percentage of expanding TABLE LXXXII STRUCTURE OF INDUSTRIAL EXPORTS IN AUSTRIA AND OTHER COUNTRIES Country 1956 Percentage Export Branches Share in Industrial Exports* Expanding Static Declining Austria 27.7 36.0 36.1 Germany 63.5 16.6 19.8 France 41.0 25.3 33.6 Great Britain 58.1 14.3 25.7 Italy 49.5 11.9 37.8 Belgium 29.0 47.4 22.5 Sweden 49.7 17.6 31.3 U.S.A. 73.3 11.0 14.0 Canada 26.6 31.7 41.7 Japan 34.6 17.8 47.6 ♦Percentages do not add up to quite 100 as residual category of "other goods" was omitted. Source: St. Spiegelglass, World Exports of Manufactures. 1956 vs. 1937 (London: The Manchester School of Economics and Social Studies, 1959), p. 37 and table pp. 49-50. 241 242 branches than Austria, and in the declining sector Austria's share is smaller than that of only Japan, Canada, and Italy, but greater than that of all other economies. It must be emphasized, however, that had Austria been compared with less important industrial nations, it unquestionably would have occupied a more favorable position. Be this as it may, the long run export potential could be enhanced if those Austrian industries whose projected trend is expansionary were i to increase their total export share. The industrial and electro-technical investment goods and products industries may be mentioned as cases in point. Constricting Distribution A distribution of exports over a very small number of countries may contribute significantly to an instability of the entire economy, particularly when a large portion of domestic production is exported. Cases in point from the aspect of product distribution are those economies whose entire well being depends upon the export of one or two basic products or raw materials to a limited number of markets. The composition of exports. Based upon natural resources available, raw and half finished wood and iron products represent a sizeable share in total Austrian imports. In 1959 wood, paper products, iron and steel combined made up 33 per cent of total exports; in 1957 even 37 per cent. In a recent study by M. Michaely, the author attempted to categorize forty-four economies accord ing to the concentration of total exports in number 27 of products. Exports were divided into 150 product 28 categories or groups. Utilizing a special formula, concentration was measured which led to a very high index number (100 in extreme cases, where only one category prevailed) in the case of concentration of exports in only a few commodity groups, and to a rather low index number when exports were distributed over many categories as in the case of the most OQ industrialized nations of the world (Table LXXXIII). With the exception of Sweden, Austria's exports structure was more highly concentrated in 1954 than 27M. Michaely, "The Shares of Countries in World Trade," The Review of Economics and Statistics. August, 1960, p. 309* 28 The three Digit numbers of the UN goods codes 29 The index is based on the following formula: 2 X Where ij = exports of group i by country j V and d = total exports of country j. 244 TABLE LXXXIII INDEX OF EXPORT GOODS CONCENTRATION (1954) Country Index Austria 27.7 Sweden 28.1 Denmark 27.1 Belgium 25.5 Norway 25.5 Portugal 24.7 Germany 22.3 Italy 20.5 Great Britain 19.2 France 18.0 Netherlands 16.9 Greece 46.2 Turkey 39.7 Finland 38.1 U.S.A. 18.8 Egypt 84.2 Brazil 61.5 Australia 50.8 Source: M. Michaely, "The Share of Countries in World Trade," The Review of Economics and Statistics, August, 1960, p. 309, 245 that of all other EEC and EFTA member nations. This fact obviously implies that the Austrian economy would be less subject to external economic influences transmitted via its export sector if the composition of exports were less concentrated on wood and steel products, i.e. if other industrial sectors were to attempt an enlargement of their export share. The direction of exports. Austrian exports are directed in great measure toward two countries: 27.6 per cent of total exports to Germany, and 13.8 per cent to Italy in 1961. Together these two EEC countries account for 41.4 per cent of total Austrian exports. The remainder of exports is highly diversi fied in the spatial sense. Concentration of exports within such a rela tively narrow range naturally endangers the stability of exports, and derived therefrom that of the economy as a whole. Up to 1961 economic expansion favored the above concentration of exports. With 1962, how ever, a marked slowdown in economic activity began to manifest its presence in Germany. Its future magnitude can well affect adversely imports from Austria. In the case of Italy, strained political relations as well as vastly expanded domestic capacity have, in 246 part, been responsible for a slowdown in imports from 30 Austria. (Italy's share in Austrian exports stood at 16.5 per cent in 1959.) As a consequence a marked reversal of output has been occurring in Austrian iron, steel, and other export sensitive product sectors. A comparison with all EFTA and EEC countries points to the fact that only Denmark has greater concentration of exports to its two largest customers than Austria. It should be noted, however, that as a rule exports of smaller nations are found to be regionally more concentrated than larger economies (Table LXXXIV). Among EEC and EFTA members the large nations export, on the average, 23 per cent of total to their two largest purchasers; smaller nations, on the other hand, an average of only 37 per cent of total. Never theless, Sweden and Switzerland indicate a position proximate to that of the large nations. The regional distribution of exports can be raised only if new markets are sought out by Austrian 30 Italy currently requires all Austrian citizens to obtain a visa when wishing to enter, a consequence of the politically quite potent South Tyrol issue, which has also adversely affected economic relations. TABLE LXXXIV THE SHARE IN EXPORTS OF THE MOST SIGNIFICANT PURCHASING NATIONS IN 1959 (IN PER CENT) Country Most Important Export Share of Two Most Important the Three Most Important Austria 26.5 43.0 48.9 Belgium-Luxemburg 21.2 34.7 48.0 Denmark 26.5 46.8 57.1 Germany 9.3 17.7 25.7 France 17.0 30.1 38.3 Great Britain 11.1 17.3 22.3 Italy 16.2 28.2 35.7 Netherlands 21.6 36.2 46.9 Norway 20.4 35.1 45.5 Portugal 28.1 39.4 49.2 Sweden 15.1 30.1 40.0 Switzerland 17.1 28.3 36.5 Source: Austrian Central Statistical Office, Austrian Foreign Trade, 1959 (Vienna: The Office, 1960), p. 84; Organization for European Economic Cooperation, OEEC Foreign Trade, February, 1960 (Paris: The Organization, 1960), p. 17. 247 248 exporters or old markets are exploited more inten sively. Also of favorable consequence would appear to be more liberal export credit concessions. Second, a certain structural realignment may be necessary, i.e. one which would promote the development of high quality or vigorously specialized products for export to distant markets. Standardized products, due to Austria's peripheral location, may find intense compe- i tition rather confining in view of greater transporta tion costs incurred particularly on the part of bulky and low priced items. VI. AUSTRIAN TERMS OF TRADE Price fluctuations, or rather price decreases in response to the leveling off of economic activity, after the boom years of 1956-1957 were much more pro nounced in Western Europe as a whole than in Austria. With the recurrence of expansive manifestations in 1960, however, prices began to recover once again (Table LXXXV). The increase in prices since 1960 has encom passed almost all nations in Europe. A rise of 5 per cent during 1961 has particularly endangered the competitive position of Austrian exports. TABLE LXXXV RECENT PRICE DEVELOPMENTS IN FOREIGN TRADE (PRICE INDEXES, 1957 = 100) Year Austria EEC OEEC Imports Exports Imports Export s Imports Exports 1958 93.6 98.0 91.7 97.1 93.3 98.1 1959 90.0 95.7 87.2 93.2 89.5 95.2 1960 91.9 98.0 88.1 95.1 90.5 96.6 Source: W. Weber, The Economic Structure of Austria (Berlin: Dunker and Hurablot, 1961), p. 185. 249 250 The Terms of Trade Since import prices declined more rapidly than export prices, Austria's terms of trade improved from 1957 to 1956 by 6 per cent (Table LXXXVT). Thus, at 1957 prices, imports in 1960 would have cost 40.1 billion schillings in place of the actual 36.8 billion schillings. Exports, likewise, would have earned 29.7 billion schillings instead of 29.1 billion schillings. The import surplus, therefore, would have been 10.7 billion schillings rather than the actual 7.7 billion schillings. From 1959 to 1961 a further improvement, to the extent of nearly 5 per cent, occurred in the terms of trade. The general price tendencies of imports and exports were not equally distributed throughout all categories of goods. In the most important groups, however, there did prevail a general decline in prices after 1957, most of which were still lower in 1960. A significant exception were the machine and motor vehicle industries, which displayed prices 16 per cent higher in 1960 than in 1957 (Table LXXXVII). As prices of exports and imports rose equally in that sector, no change occurred in its terras of trade. 251 TABLE LXXXVT THE TERMS OF FOREIGN TRADE (1937 = 100) Index the of Export Prices Divided by Index of Total Import Prices 1929 . . 1937 . . 1950 . . 1953 . . 1955 . . 1957 . . .......................... 78 1958 . . 1959 . . 1960 . . 1961 . . .......................... 87 Source: Austrian Institute for Economic Research, Monthly Report, Statistical Summary (Vienna: The Institute, March, 1962), p. 9.1. TABLE LXXXVII PRICE INDEXES OF IMPORTANT EXPORT GROUPS (1957 = 100) 1937 1958 1959 1960 Food articles 11.0 96.5 98.1 100.2 Drinks and Tobacco 16.6 97.5 80.1 92.9 Raw materials 7.8 94.2 88.1 90.2 Minerals, Fuels, and Energy 12.6 101.3 77.5 70.8 Chemical products 16.6 93.8 80.0 77.2 Half and Finished products 14.7 95.9 98.2 105.3 Machines and Transport Vehicles 13.3 110.2 112.7 116.4 Other Finished products 17.3 97.1 84.1 76.9 Source: W. Weber, The Economic and Humblot, 1961), p. 69. Structure of Austria (Berlin: Dunker 253 Substantial declines in prices were recorded by the fuel materials, the price index of which dropped to 61 per cent of its 1957 level. Accompany ing this decline were consumption oriented manufactured products, presumably as a consequence of productivity increases and intensified overseas competition from the United States and Japan (Table LXXXVIII). Similarly inclined as the fuels and consumption goods of the "other finished products" on the import side were the same products on the export side* In the category of half finished and manu factured goods imports behaved differently from exports. The latter rose over the 1957 high by 5 per cent, mostly as a result of rising textile goods prices and a firming of steel prices. In the food sector import prices declined mainly on the basis of less expensive wheat imports, whereas export prices remained the same due, primarily, to favorable cattle exports. Import prices of raw materials recovered con siderably by 1960, whereas export prices in this sector decreased somewhat in response to weak paper and cellulose-wool price levels. The terms of trade in the chemical products sector worsened from 1957 to 1960 as the export price TABLE LXXXVIII PRICE INDEXES OF IMPORTANT IMPORT GROUPS (1957 « = 100) 1937 1958 1959 1960 Food articles 8.7 98.4 88.1 88.3 Drinks and Tobacco 15.8 99.7 76.6 78.0 Raw materials 9.3 88.6 85.7 97.1 Minerals, Fuels, and Energy 6.0 82.1 66.4 60.9 Chemical products 13.9 95.1 87.7 92.3 Half and Finished products 12.0 95.2 95.9 96.0 Machines and Transport Vehicles 10.8 102.4 113.8 116.1 Other Finished products 13.5 85.1 79.4 79.4 Source; W. Weber, The Economic and Humblot, 1961), p. 69. Structure of Austria (Berlin: Dunker 255 index dropped much more rapidly there than the import index. VII. THE LEVEL OF TARIFFS AND QUOTAS As noted in an early section of this chapter (see page 105), the average Austrian tariff level approximates that of the EEC to a very high degree. Thus, when nearly three-fourths of Austrian imports are taken under consideration, an average tariff level of 13.6 per cent may be computed. Under the EEC common external tariff this figure would be 12.1 per cent, i.e. but one and a half percentage points lower. The Assumption of a New External Tariff Level Recognizing that average tariff levels can conceal potential variations of considerable magnitude with attendant adjustment difficulties, it may never theless be assumed that Austrian adaptation to the scarcely lower EEC level is unlikely to generate problematical phenomena. As a second allegation it may be pointed out that the common EEC external tariff is only of minor significance to Austria, as after the initial adjustment 256 period but a small portion of total imports will originate without the bounds of the enlarged union and its associated areas. Thus, in 1961, 59.5 per cent of total imports originated in the EEC and 12.7 per cent came from the EFTA, i.e. a total of 72.2 per cent of imports will therefore presumably enter duty free. That this percentage is likely to increase considerably in the process of integration needs little emphasis. In toto, then, but one-quarter to one-fifth of imports will be subject to the EEC external tariff, and a large share of these will be accorded free entry or will be burdened with only a nominal tariff as they fall within the category of basic foodstuffs or raw materials. The only sectors which may be faced with increases in costs are those which import certain machinery and investment goods products from non-EEC and EFTA countries which are not manufactured domes tically. Under Austrian regulations these enter duty free; under EEC terms, on the other hand, a tariff of up to 18.3 per cent may find utilization. Unless a special status is accorded the United States under the auspices of the OECD or GATT, finished and semifinished products originating in the United States are likely to find an 18 per cent tariff discrimination 257 insurmountable and therefore sales to Austria may be 31 curtailed significantly. As a whole, Austria is likely to encounter fewer problems of adjustment and realignment of import sources than the other two neutral European nations. This is so as Sweden and Switzerland are currently importing a greater share from non—EEC and EFTA economies than Austria (Table LXXXIX). The Deletion of Tariffs between Austria and the EEC Considered in the aggregate, it may readily be assumed that the deletion of tariffs, even though extending over a number of years, is likely to manifest favorable results. That trade and competition will intensify considerably has been alluded to earlier in this chapter, specifically with relation to major industries. Despite significant realignment appre hensions, it is not expected that Austrian industry will encounter problems whose nature defy solution. 31 Imports from the United States dropped 15.4 per cent in 1961, so that their share shrunk to 5.9 per cent of total Austrian imports. Roughly one- fourth of these would be discriminated against more heavily under the common EEC external tariff than under current Austrian duties. TABLE LXXXIX IMPORTS OF INDUSTRIAL PRODUCTS FROM NONUNION MEMBERS (1960) Share in Nations Total Imports from Nonunion for Each Product Category Austria Sweden Switzerland Chemical Products 15.5 25.3 21.6 Semifinished and Finished Goods 34.1 24.3 18.3 Machines and Transport Vehicles 10.9 21.2 17.9 Other Finished Goods 6.9 23.0 15.5 Total Industrial Goods 12.2 23.1 18.3 Source: Organization for European Economic Cooperation, OEEC Foreign Trade (Paris: The Organization, 1960), p. 63. 258 259 Fostered by a step by step reduction of internal tariff levels, inefficient allocation of resources is likely to give way to more efficient utilization under the pressure of foreign competition. As the nature of the external EEC tariff may certainly not be regarded as protectionist in character, the adverse phenomenon of trade diversion is expected to play but a subordinate role. Trade creation, on the other hand, with its attendant cost reducing characteristics, is likely to find fertile grounds for enhancement though restricted, in part, by discriminating trans portation differentials. Of particular regard, as noted earlier, are expected to be trade relations with Germany, Italy, and the Benelux nations. In 1961 West Germany took 27.4 per cent of total exports, and 43 per cent of total Austrian imports originated there. More machines, electrical apparatus, and transport vehicles were exported to West Germany in 1961 than to the EFTA in its entirety* The same may be observed of semifinished and finished goods (EFTA, 187.9 million schillings; West Germany, 296.0 million schillings) and nearly all other categories with the exception of chemical products. In the event of association or integration, the reduction or elimination of tariff 260 discrimination, which presently is increasing due to Germany's need to reach the higher common EEC tariff level, is unquestionably going to stimulate 32 exports to that country greatly (Table XC). That similar effects are likely to appear with reduced tariffs on the import side as well may reasonably be deduced. The precise tariff burden which would be eliminated in the process of adjustment is at present difficult to ascertain as its exact level is subject to yearly and even more frequent adjustment negotia tions with many nations, and further, the common external EEC tariff has not as yet been fully realized by its members. Under United Nations classification, however, it may perhaps be stated in its expected final form as illustrated in Table XCI. According to a recent unpublished survey of thirty-three finished goods tariff positions com pleted by the Austrian Institute for Economic Research, tariff levels for various countries and the EEC were shown in some detail (Table XCII). 32 Including the rescission of Germany's 1957 unilateral 25 per cent tariff reduction motivated by balance-of-payments surpluses. TABLE XC SEVERAL EXAMPLES OF GERMAN TARIFF DISCRIMINATIONS AGAINST AUSTRIAN PRODUCTS AS OF JANUARY 1, 1962* (IN PER CENT) Commodities EEC Internal Tariff Tariff Burden on Austrian Products Discrimination (Difference in Per Cent Points) Leather Clothing 7.5 16 8.5 Fur Products 9 19 10 Paper 7 14.5 7.5 Other cotton weavings 7 13.5 6.5 Cellulose wool weavings 8.5 17 8.5 Knotted Rugs 10.5 27.5 17 Embroidery 7.5 13.5 6 Unworked fabrics 6.5 13-15 8 Ladies1 Blouses 7.5 16 8.5 Shoes 8.5 16 7.5 Hats 7.5 13.5 6 Glassware 9.5 (Continued) 19 9.5 261 TABLE XC (Continued) Commodities EEC Internal Tariff Tariff Burden on Austrian Products Discrimination (Difference in Per Cent Points) Regulators for Water Turbines 4 10.5 6.5 Various Electro-Technical Apparatus 2.5 8.5 6 Lathes 0 5 5 Sound Tape Apparatus 6 14 8 Furniture 6 14 8 " ‘ Under the following assumptions; (1) EEC internal tariffs reduced to 50 per cent of initial level; (2) the external tariff lowered by 20 per cent; (3) the second adjustment of the national tariffs to the common external level com pleted, i.e. the difference between national tariffs and the common external level has been reduced by 60 per cent; (4) Germany rescinds its boom conditioned tariff reduction of 1957. One, three, and four increase discrimination; two mitigates it. Source: Austrian Institute for Economic Research, Austria and the European Integration. Special Report No. 14 (Vienna: The Institute, 1960), p. 11. 262 263 TABLE XCI EEC COMMON EXTERNAL TARIFF Category In Per Cent Foodstuffs and Delicacies 14.4 Raw Materials 0.5 Semifinished Goods 10.3 Finished Goods 18.3 Other Goods 1.7 Total Average 12.1 Source: Austrian Institute for Economic Research, Aspects of Austrian Integration. Special Report No. 16 (Vienna: The Institute, 1961), p. 16 TABLE XCII AVERAGE TARIFF LEVEL FOR THIRTY-THREE IMPORTANT MANUFACTURED GOODS POSITIONS* (1960) Tariff Number Type of Commodity Sweden Switzerland Great Britain West Germany EEC Austria 3.003 Medicines 0 1-24 10 10 12 15-34 4.011 Tires and Tubes 13 3-6 20-33.3 0-19 18-23 35 4.803 Parchment Paper 5 3-18 14-20 13-14 18 6-14 5.311- Seven averaged positions of 6.202 Textile Categories 14.7 12.3 25.7 15.1 20 25.1 6.401 Rubber Shoes 14 10-13 20-40 19 20 28-32 6.402 Leather Shoes 14 8-14 10-30 11-19 20 28-32 8.205 Exchangeable Tools 5-8 2-10 15-17.5 6 9-13 18-25 8.410- Nine averaged positions of 8.452 Boilers, Machines, and Apparatus 9.4 6.1 15.9 5.3 11.8 14.2 8.501 Electro-Motors and Generators 10 2-7 17.5-20 0-10 12-17 16-24 8.702/11-13 Trucks 15 14-25 30 21 25-29 20-32 8.702/20 Passenger Cars 15 14-25 30 17-21 25-29 20 8.702/30 Buses 15 14-25 30 21 25-29 29 9.002- Four averaged positions of 9.028 Optical Products and Apparatus 8.3 4.4 34 6.1 17.3 13.9 9.101 Watches 5 1-3 20-33.3 4-6.5 13 5.8 9.401 Seating Furniture 10 3-18 20 4-12 12-18 10-30 9.805 Pencils 10 8-10 20 8 10-17 28 Average of Thirty-Three Manufactured Commodities 10.7 9.0 22.8 10.3 16.8 20.0 *These computations were based on those GATT tariffs which served as a foundation for EEC and EFTA tariff reductions. No consideration was accorded Germany's unilateral 25 per cent tariff decrease. The common EEC external tariff was used at its full value. Source: Unpublished study by the Austrian Institute for Economic Research, Vienna, 1961. 265 Of particular interest in Table XCII is the relatively high level of Austrian and British tariffs as opposed to those of Sweden and Switzerland, and the intermediate position of Germany and the EEC as a whole0 For Austria the rates clearly forecast a period of lesser reliance on protectionist measures and more on the rational tools of efficient production. Quota Restrictions With the beginning of 1962 liberalization of quantitative restrictions had been completed within the realm of the EEC in the categories of industrial products. Remaining quota restrictions against non members who are associated with the OECD are also being eliminated rapidly (Table XCIII). Austria's liberalization policies, though not as yet on equal level with those attained by the EEC, are nevertheless being directed toward elimination of quantitative restrictions entirely. The short run objective is that of reaching EEC levels in order to facilitate prospective economic adjustments generated by association or integration. TABLE XCIII PER CENT OF LIBERALIZATION OF OEEC IMPORTS (1960) Base Year Agricultural Products and Foodstuffs Raw Materials Finished Goods Total Austria 1957 79.4 98.6 87 o 2 90.3 Germany 1949 86.7 91.8 100.0 92.2 France 1957 74.8 97.9 86.7 89.4 Benelux 1955 89.8 99.5 96.6 97.0 Italy 1957 94.6 100.0 99.2 98.4 Source: European Economic Community, Third General Report (Brussels: The Community, 1960), p. 31; Organization for European Economic Cooperation, Europe Today and in 1960, OEEC Eighth Report (Paris: The Organization, 1957), p. 11. 266 CHAPTER VI THE THEORETICAL ASPECTS OF INDUSTRY ADAPTATION OF SMALL NON-EEC MEMBER ECONOMIES Considerable has been written about the rela tive welfare of economic integration, be it in the form of custom unions, free trade areas, or multi lateral trade agreements. Unfortunately, with the exception of a few basic and by now well known con clusions, few substantive precepts have been estab lished. As stated earlier, it is not the objective of this investigation to embark upon this area of analysis, but rather to indicate the expected course of and position retained by Austrian industry in the process of association or integration. The sections below, therefore, deal with the theoretical aspects of such an eventuality, assuming a priori Austrian acquiescence in the EEC principles of vigorous and unrestrained competition and factor movement. I. THE SMALL NATIONS AND ECONOMIES OF SCALE The discussion of the topics below is kept essentially general in nature, with but occasional reference to Austria's peculiar circumstances. This fact evolves out of the desire to permit, insofar as possible, the utilization of consequential observations 268 by other small national economies as well. The Small National Economy Most commonly used as points of reference when contending that a national economy is small are size of population and scope of geographic influence. But these two factors do not suffice in the modern world. It is necessary, therefore, to add the criteria of the intensity or volume of international trade as well as the diversification of the nation's export markets. A fifth and often neglected factor is that of gauging the size of an economy from the point of view of foreign trade, emphasized by George A. Duncan as the "diversification of production pattern,"'*' a factor of low magnitude in small nations being due to their usually narrow resource base. In summation, therefore, it is possible to observe: 1. Size of population 2. Geographic scope and influence 3. Relative volume of international trade 4. Diversification of export markets 5. Export product diversification *George A. Duncan, "The Small State and Inter national Equilibrium," Economica Internazionale, November, 1950, p. 937. 269 Obviously the above categories are neither mutually exclusive nor all-inclusive in scope. But they do represent the perhaps most commonly accepted criteria for measuring relative size and strength of a national economy. For instance, though Britain, Sweden, and Switzerland may be regarded as large nations by one standard, they may prove to be small by another. Or it may be contended that they perhaps represent special circumstances. Austria, on the other hand, as illustrated in the previous chapter (see Tables LXXX, LXXXIII, and LXXXIV on pages 236, 244, and 247, respectively), may well be considered a small nation by all of the above standards. G. Marcy suggests that a "nation is small from the point of view of foreign trade when its dependence on foreign markets is relatively great but its contribution to o them small in absolute terms." Economic Stability as a Function of Size Three commonly accepted advantages which accrue to nations of large size may be distinguished: o G. Marcy, "How Far Can Foreign Trade and Customs Agreements Confer upon Small Nations the Advantages of Large Nations?" in The Economic Conse quences of the Size of Nations, edited by E. A. G. Robinson (London: Macmillan and Company, 1960), p. 268. 270 1. Geographic size in conjunction with economic and political influence can mean consider able leverage in international trade rela tions . 2. Extensive domestic markets enable large economies to free themselves to a substantial degree from repercussions originating abroad. 3. A strong nation may take full advantage of the economies of scale based upon domestic consumption.3 One may easily contend that a small nation, desirous of realizing economies of scale, will pre sumably be able to do so only via export trade. But this fact, as a rule, exposes domestic economic activity to the vicissitudes of foreign markets. In the case of Austria, an obviously small economy, association or integration with the EEC would probably increase its reliance upon foreign trade. What is more, this rise in dependence would be less than proportionate when related to economic and politi cal influence. This fact is largely a consequence of the EEC's rather intransigent nature. The extent to 3Ibid., p. 270 271 which domestic fiscal and monetary policy can offset foreign influence will, at least in part, dictate economic stability. In addition, the influence of structural rigidities in the face of changes in world demand must be considered, if economic stability is at issue. Expansion as a Function of Size In the realm of the internetional market, production costs (ex factory) plus transportation expenses combined represent the competitive price. The expected gradual elimination of tariffs, quotas, and various government subsidies will increasingly subject manufacturers to equal competitive production costs, differentials appearing only insofar as they are a reflection of varying distances between origin of production and point of sale. With the exception of its immediate neighboring areas, and even in that case not without certain reservations, Austria's peripheral location, particularly that of its major industrial areas, subjects it to considerable trans portation differentials significantly prominent in great volume, low price manufactures (see Table XXIX, page 113). But in order to at least keep its markets 272 once integration has commenced) a small nation manu facturer will need to produce at equal costs with those of larger nations as well as with all other foreign competitors. In the event of desired expan sion, assuming aggregate demand unaltered, small nation entrepreneurs would have to produce at costs below those of other manufacturers. The question of currently prevailing internal productive efficiencies within small nations thus becomes of determining nature. If the gain potential through productivity increases is great, then substantial benefits can accrue in the area of cost reduction. This may be pointedly so as economies of scale can also be realized. However, it is often contended that those industries of small nations which are heavily export oriented, and have had to overcome varying foreign import barriers, are actually operating at points of factor combinations superior to those prevalent in many large nation industries which supply home markets and are sheltered from excessive foreign competition. A case in point may be Austria's steel industry, Finland's and Norway's wood industries, and others. If this above inferred condition is found to correspond to fact, then some industries or firms of smaller nations may actually be better prepared for economic integration 273 than is often presumed. In the case of Austria it is particularly the above-mentioned iron and steel industry and the nonferrous metals sectors which appear well disposed to assume a greater role in international trade. But also in the area of specialized and high quality products may small nation firms find fertile ground for expansion, particularly in cases of rela tively inelastic demand (Swiss watches, Swedish iron and steel, Austrian boots, skis, textiles, etc.). Especially under conditions of excess demand may large producers be unable to satisfy special requests and smaller orders, thereby diverting a certain share of output to smaller firms in weaker economies. G. Marcy observes in this context: A small nation's industry which produces specialized and high quality products for which there is a great demand, has every prospect of improving its position and expanding its markets, . . . but further expansion may in the future be held up by lack of capital, and above all, by lack of skilled labor.4 Even the free movements of international resources may be unable to remedy the situation due to long periods of training required as related to absences from home. 4lbid.. p. 274. 274 Integration Effects on Nonmember Smaller Nations As mentioned earlier, it lies beyond the scope of this writing to specifically evaluate the expected additions to welfare which are likely to grow out of Austria's association or integration with a large economic bloc. Any evidence would necessarily be inconclusive and greatly dependent upon elaborate research. But perhaps the by now well known criteria applied by J. Viner in his path-breaking book The Customs Union Issue may warrant brief recollection. Viner distinguishes between beneficial effects of trade creation versus adverse effects of trade diver sion. In the former high cost domestic production is replaced with low cost imports as a consequence of the elimination of intra-union duties. In the latter case low cost imports from a nonunion member are replaced by higher cost imports from a member nation as an obvious consequence of newly created tariff 5 discrimination. F. Gehrels and Bruce F. Johnston observe in a related study that, based on Viner's criterion of differences in costs between various ^Jacob Viner, The Customs Union Issue (London: Carnegie Endowment for International Peace, 1950), pp. 41-55. 275 areas of the customs union, considerable advantages are to be gained especially in the sphere of industrial production because there cost differences are most prevalent. Thus they arrive at the conclusion "that the increase in trade . . . would be quite signifi- cant." With relation to Austrian industrial exports, cost variations operate in its favor as attested to by the current volume of exports to the EEC which, though admittedly boom conditioned, is nevertheless discriminated against in no insignificant measure. The adverse effects of trade diversion are less likely to play a dominant role in the case of Western Europe as a whole, as lost cost sources of supply out side the union are not very great and represent primarily raw materials,, \ Little trade diversion is expected as neither Austria nor the EEC subject raw material imports to high tariffs but rather impose a mere nominal percentage, if at all. A related point of emphasis is suggested by Marcy, one which particularly attends Austria's asso ciation or integration efforts. He proposes: F. Gehrels and Bruce F. Johnston, "The Economic Gains of European Integration," Journal of Political Economy. August, 1955, p. 281. 276 . . • it is not enough to conclude that a small nation has every chance of increasing its total exports within a customs union. We must be sure that such a country's membership in one of these groups does not entail any diminution of its exports to non-member countries which would match or exceed the increase of sales within the group.? It should be pointed out that Austria will have had no say in setting past EEC policy which may be especially discriminatory against COMECON members. But perhaps even more important is likely to be politi cally inspired recrimination on the part of the Eastern Bloc against Austrian imports, thereby pro claiming its displeasure with the country's active, Western oriented disposition. II. EXPORT TRADE ADJUSTMENTS With the advent of mass production methods, industries, in order to be able to produce efficiently and profitably, began to rely increasingly on larger markets. In many situations, however, domestic markets do not suffice, thereby turning industries' attention toward foreign sources of demand. But here a dilemma appeared in the form of politically, sociologically, and very frequently balance-of-payments 7 Marcy, op. cit., p. 275. 277 inspired import restrictions which made reliance on foreign markets without specific long range trade and exchange agreements an all too often hazardous affair. An economy of limited size very obviously is unable to develop sufficiently extensive domestic markets. In turning to foreign trade, however, such an economy exposes itself to the disturbing potential of foreign influences. And as trade agreements are never all-inclusive in nature and scope, it appears that the impetus for investment outlays to attain optimal plant size, so far as it has not as yet been reached, would best be utilized under conditions of economic integration or association, guaranteeing relative long range stability in trade relations. Export Trade and Competition That competition encourages efficiency and the rational allocation of resources no doubt warrants little emphasis. However, it should be pointed out that in economies of very small size personal rela tions and market agreements frequently delete many of the beneficial aspects of competition, thereby creating in numerous instances situations of stagnating markets and amiable economic cooperation. Thus very small 278 economies not desirous of or unable to export effi ciently produced goods often lack adequate inter national economic intercourse with its attendant valuable infusion of new ideas, i.e. generally what T. Scitovsky calls the "tremendous national differ- g ences in temperament." As cases in point may be mentioned many of Austria's small unit firms in the wood and cardboard sectors, the electric industry, the knit and woven goods sectors, etc. A second harvest which may be reaped from economic integration is the likelihood of a more intensely competitive economic functioning which, in many instances, may force enterprises to adopt more impersonal and increasingly selfish profit orienta tions. Such effects are likely to initially originate abroad, nurtured by potential gains in export markets. But eventually, and as a function of time, domestic competition as well is likely to assume more intense proportions. This is generally quite beneficial, in that unproductive, poorly organized firms are faced Q T. Scitovsky, "International Trade and Economic Integration as a Means of Overcoming the Disadvantages of a Small Nation," in The Economic Consequences of the Size of Nations, edited by E. A. G. Robinson (London: Macmillan and Company, 1960), p. 285. 279 with either the rationalization of productive methods or the inevitable loss of domestic markets. Profit Mar/a;ins and Foreign Trade It frequently may be observed that manufacturers in small nations are unwilling to lower prices and extend production in order to avail themselves of potentially lower unit costs, greater turnover, and, if the price elasticity of demand is greater than one, greater profits. Small nation enterprisers often tenaciously hold to the belief that greater output necessarily implies lower quality, less free time, and that the price elasticities of demand are very low. They disregard the salient phenomenon that through lower prices real incomes are increased, thereby permitting additional consumption expenditures which may lead to further extensions of output and lower costs. The current "vicious circle" often found refers to the fact that many small producers regard low incomes as a barrier to mass markets, failing to take into account that lower prices based on lower per unit costs of increased output would in themselves raise 280 g real income and thereby aggregate demand. However, it must also be observed that, in certain instances, domestic price levels may be so high or international prices so low as to preclude price reductions which would be needed in order to substantially increase demand. The initial stimulus in small nation econo mies may, as Scitovsky suggests, perhaps be best accomplished through central planning. But another method, possibly less controversial though equal in expected effect, would be the integration of an economy with a larger union. Scitovsky summarizes the argument thus: . . . the increase in competition brought about by freer trade or economic union might well break the impasse and bring about a change in producers' thinking and policies. For increased competition would force prices down; and a forced price reduc tion would be likely to eliminate all the above cited reasons for the undue retention of the traditional policy of high margins, low turnover, and small scale production. To begin with a forcible price reduction would deprive entrepre neurs of their freedom of choice between high profits on the one hand, and pride or workmanship and quality or a quiet life and financial security on the other hand. For it would impose lower profit margins, and entrepreneurs, if they are to avoid losses, would be forced into a mass-production policy, the exploration of potentialities of market expansion, and the abandonment of the high technical g As an example may be cited Austria's television producing industry, greatly protected, but producing at low output, high profit margin. 281 standards and easy way of life that small scale production with high margins so often entails. Secondly, economic union or a general freeing of trade would bring about the all-around reduction of prices that would be necessary, . . . to create a mass market for certain consumers goods (pri marily consumers durable and semi-luxuries) through a raising of real incomes.*0 In conclusion it may perhaps be observed that the benefits of more intense competition carry with them the disadvantage of lesser economic security, i.e. the elimination from the competitive struggle of the least efficient, lest they be encouraged by government subsidies. But based on a value judgement, the benefits in the aggregate greatly outnumber the disadvantages. And for European small nations as a whole, accustomed to frequent economic sacrifices for nationalistic aims of questionable and uncertain rewards, the more secure and economically more com pensating prize of competitive prosperity should not prove difficult to accept, though presumably only over an extended period of time. III. SUMMARY AND CONCLUSION Austrian association or integration with the EEC focuses attention upon the competitive potential ^Scitovsky, oja. cit. , pp. 289-290. 282 of the country's industry. Unfortunately, it is very difficult to predict the course of events when one considers that on July 1, 1960 (the establishment of the EFTA) there existed 378 different quota restric tions with 422 tariff categories.'*'1 On the other hand, Austrian industry has, in recent years, demonstrated such a marked resiliency and vitality that one can only regard its adaptability to changed competitive conditions with great confidence. Many authorities in 1950 had assumed positions of unshakeable pessimism when the OEEC countries commenced the liberalization of international trade. Yet, after the stabilization of the schilling, in 1952, Austria became a prime example of economic resurgence. From 1953 to 1960 yearly GNP rose at an average of 8 per cent, a higher rate than Germany's 7 per cent or the EEC’s 5 per cent and EFTA's 3 per cent. The country as a whole has entered the 1960's with all the manifestations of a viable and potentially strong economic base, i.e. living standards are rising, investments are high, and there is full employment, a very sound currency, and a balanced payments account. ^At that time Switzerland had four quota categories, Sweden six, and England one. 283 Thus, whatever obstacles will arise in the course of association or integration, it may confidently be presumed that their economic solution will proceed from a sound fundamental base of substantial industrial strength. Trade Adjustments Even though Austria's foreign trade has, in recent years, exhibited very sound and vigorous growth, there exist a number of factors which tend to inhibit the full utilization of its potential. Thus it may first be observed that Austrian exports are concentrated in a small number of items, viz. steel, wood pulp, chemical fertilizers, paper products, and a few 12 others. Fluctuations in international demand tend to affect the economy in magnified proportions. Second, it may be observed that, as a whole, Austria's share in OECD exports has been dropping steadily over the past few years, reaching a low of 2.18 per cent in 1960. Third, only 28 per cent of Austrian export industries may properly be placed within the expanding category. Only Canada falls into the same percentage 12 In fact, they are more concentrated than those of any other EEC or EFTA nation, with the exception of Sweden. bracket. All other industrial nations' export industries may be regarded as of the expanding type to a much larger degree. And finally, Austrian exports are directed toward two primary economies: Germany and Italy. Thus the country's two largest customers take 43 per cent of total Austrian exports. Only Denmark's percentage is higher, i.e. 46.8 per cent. This fact implies excessive dependence upon demand emanating from Germany and Italy; a very hazardous condition to say the least. In addition, it may be observed that the largest share of Austrian exports is competitive with, rather than complementary to, German and Italian products. That is, foreign demand for Austrian exports is, in part, a function of the utilization of foreign capacity. To what degree Austria may be able to become price competitive is difficult to ascertain, for the basic and investment goods industries are subsidized in a variety of ways. Austrian export volume, therefore, becomes a function of domestic pricing policies as well as the realiza tion of real economies. It becomes quite clear that, even though Austria's domestic economy appears rather strong and viable, its dependence upon exports harbors substantial perils of economic as well as political nature. It 285 may therefore be suggested that Austrian exports become more diversified in product mix and that markets be expanded to include heretofore neglected sources of demand, particularly in overseas areas. In addition, it may prove beneficial if more indus tries were stimulated to become expanding in character, and if a greater share of markets were acquired within other OECD nations. Unless Austrian industries reassess their competitive position in the light of the above-suggested objectives, association or inte gration, when finally realized, may manifest adjustment problems of severe magnitude and prolonged duration. As far as Austria's terms of trade are con cerned they have shown a steady improvement from 1957 on which, as a whole, has been of considerable benefit to the economy. Inasmuch as Austria buys but 12.2 per cent of total industrial imports from non-EEC and non-EFTA sources, its adjustment to external tariffs dictated by the EEC and imposed upon these imports is likely to be rather easy. This is particularly so, as Austrian tariff rates are somewhat higher than the external EEC rates. As far as the deletion of tariffs between Austria and the EEC is concerned, it may be noted that the economy is unlikely to experience 286 difficulties of great magnitude. Indeed, under the pressures of foreign competition a more efficient allocation of resources is expected. One of the thorniest problems of Austrian association or integration is the uncertainty of the reaction on the part of Austria's COMECON trading partners. It must not be neglected to realize that, in 1961, 14.6 per cent of total Austrian exports were shipped to COMECON nations. Should these countries suddenly refuse to import from Austria for political reasons, severe repercussions could be felt domesti cally. Yet it is hoped that such reductions could be absorbed by increases in exports to EEC member nations. Industry Adjustment Industrial exports in recent years have not experienced significant changes in composition. Yet, under integrated or associated circumstances, struc tural changes may occur. Of the basic industries, the steel industry and nonferrous metals industries are in a fairly advantageous position. This is so as equipment in both industries permits high productivity output which, in the aluminum sector for instance, has been responsible in great measure for considerable exports. 287 The steel industry, despite its L-D process equipment, is subject to significant diseconomies due to its increasingly depleting iron ore resources and the importation of practically all coal. Trans portation charges, therefore, detract vitally from productivity motivated low costs and make the industry quite vulnerable to demand fluctuations. Tariff elimination in the future may tend in the short run to give Austrian steel manufacturers a competitive edge, but increasing purchases of foreign resources will tend to offset this advantage in the long run. Low electric power costs and practically no tariff protection have made Austria's nonferrous metals industry quite competitive internationally. Though raw materials do have to be imported, produc tivity in Austrian aluminum and nonferrous metals sectors is so high that the reduction of trade barriers is expected to stimulate their exports considerably. The paper and wood pulp industry, though highly automated and productive, currently suffers from lack of standardization and limited lumber supplies. The former problem can be easily overcome as trade barriers between Austria and the EEC are eliminated. The lack of adequate wood resources, 288 however, is not subject to remedial action. Enormous northern supplies permit Scandinavian nations to operate on much larger scales. Even though their equipment is not more automated than Austria's, sig nificant economies of optimum plant size operation do accrue to them. Tariff deletions may therefore bring Austrian producers closer to optimum plant operations, though they may be limited in the long run by severe deforestation. As a consequence, precise predictions cannot be made about the long run potential of the industry, though the short run may witness significant expansion of productive facilities. The investment goods industries, i.e. the machinery, electrical apparatus and machinery, and motor vehicles industry, have grown substantially during the postwar years. The heavy machinery indus try found its largest markets overseas where the demand for less sophisticated and more rudimentary types of machinery is more pronounced. This fact may be explained principally by the lack of production of highly advanced and complex machinery in Austria. Such machinery requires significant investment outlays for research, development, and service networks which are not available in Austria. Exports in their present stage will therefore continue to supply ready overseas 289 markets; association or integration probably will not affect them other than perhaps intensify competition domestically. The electrical machinery and apparatus industry is oriented somewhat more toward Western Europe, even though more than one-half of exports are directed toward overseas and COMECON countries. Integration or association is likely to detrimentally affect only the small firms which employ approximately 11 per cent of the industry's workers. The larger firms will stand to gain considerably when tariff barriers against their exports are removed. They are, as a whole, technically quite advanced and well able to compete int ernat i onally. Expansion of production in response to integra tion or association is unlikely to occur in Austria's motor vehicle industry. Output is essentially domestic and overseas oriented. Even though, in a few isolated cases, some producers appear to be operating at near optimum scale, competition from other economies would prove quite severe. Greatest gains are attainable in overseas and domestic markets, though not in automotive production, for practically the entire domestic demand is satisfied by Germany, France, and Italy. In fact, currently rising imports would probably expand greatly 290 with the reduction of Austrian trade barriers. The vigorous post-World War II reconstruction period established a profound demand for basic and investment goods and products. Resources, therefore, were not allocated in accordance with latent consumer demands. Not until reconstruction and industrializa tion had proceeded to relatively high levels were increasing resources diverted to the consumer goods industries. The textile industry is unlikely to experience severe competitive setbacks in response to integration or association. In fact, it is expected that enlarged European markets would permit larger scales of pro duction and the introduction of more automated machinery. At present it appears that Austrian textile manufacturers would gladly submit to European competition and its attendant structural realignments if only adequate restrictions could be instituted against the influx of Asian and Near Eastern textile products. The clothing industry probably would not be greatly affected by the reduction of trade barriers. Unquestionably, foreign competition would exert some influence upon domestic producers, particularly in stimulating them to employ more automated production 291 methods. But, as a whole, indigenous demand will probably continue to be satisfied by domestic pro duction, with a secular trend toward lesser custom output and greater ready-made production. The Austrian shoe industry is technologically well equipped but suffers from relatively inefficient production methods. This is so as a very marked lack of standardization prevails with an infinite number of styles. In addition, export markets have not been sought out by the industry, so that production is domestically oriented. The free flow of trade may bring some competition from mass produced German shoes and stylized Italian products. It is generally hoped that Austrian manufacturers will incorporate the advantages of both in their own products and thereupon extend their endeavors into expanded foreign markets. It finally remains to consider, in this summary, the food articles industry. This economic sector is essentially domestically oriented. The subsectors of the industry which are engaged in first stage processes probably will be subject to various types of subsidiza tion even after integration or association. Other types of producers, viz. breweries, bakeries, etc., will not face foreign competition due to transport and 292 time differentials. It is in the higher stages of processed foods where well established foreign pro ducers would most likely achieve significant inroads into Austrian markets. German firms in particular have made substantial advances in the processed foods field, motivated by full employment over many years, rising numbers of working women, shortages of domestic help, etc. As Austria is reaching higher levels of income, similar phenomena will no doubt offer ready markets for highly processed food products. Conclusion It may be well, in conclusion, to examine the potential gains which could accrue to Austria in the event of integration or association, bearing in mind the number of theoretical contributions made over the years by well-known writers. A good deal depends upon the swiftness and facility with which the country's economy will adapt itself to changed competitive and marketing institu tions and environments (the Appendix attempts to set up a possible measuring guide). But in its broader aspects we may first observe that, in the basic and investment goods industries, Austria's economy is quite competitive with similar sectors in the EEC. 293 And inasmuch as significant trade restrictions prevail in this area, substantial benefits are likely to accrue to Austria and the EEC, founded upon the very 13 dissimilarity of cost ratios within the two areas. Past experience shows that trade organizations such as the EEC and EFTA have greatly expanded their volume of trade once the respective organizations were established. To what degree the rise in volume is attributable to the reduction of trade barriers, or simply to rising standards of life with attendant demands for greater diversity, is, of course, difficult to say. Suffice it to observe that trade volume has risen profoundly, and if one acceded to Professor Meade's treatise regarding "trade expansion" this alone represents a rise in economic welfare. If, therefore, one presumes that in response to association or integration trade volume between Austria and the EEC will be enhanced, one may also state in general terms that economic welfare will have been increased. By another criterion, however, integration or association may bring but limited benefits. This is so for, as a rule, the larger the purchases of domestic 13 M. Makower and G. Morton, "A Contribution Towards a Theory of Customs Unions," The Economic Journal, LII (March, 1953), 33-49. 294 commodities and the smaller the purchases from the outside world, the greater is the likelihood that the 14 union will bring gain. In the case of Austria the economy has traditionally traded roughly one-fourth to one-third of its value product. This has not always been so; during the days of the monarchy there was very little trade, a consequence of its great geographic extent. Therefore, fewer benefits are likely to be realizable for Austria in the event of integration or association than if the economy depended less upon foreign and more upon domestic purchases. Based upon Professor Lipsey's second criterion, however, Austria may expect to gain considerably by joining the EEC. This is so as, given a country’s volume of international trade, it is more likely to raise welfare the higher the proportion of trade with the country’s potential union partners and the lower the proportion with the rest of the world. According to this criterion, therefore, and derived from the fact that more than one-half of Austria's trade emanates from or is directed to the EEC, expected gains from association or integration are likely to R. G. Lipsey, "The Theory of Customs Union: A General Survey," The Economic Journal, LXX (September, I960), 496-513. 295 be quite substantial. This may be even more so when one considers the likelihood of the ultimate inclusion of all EFTA members in the Community. In that event more than three-fourths of Austria's foreign trade would be conducted with Western Europe; potential gains in economic welfare would be most eminently present. It finally should be observed that Austria's advantages of trade do not necessarily lie along old i lines, but rather may prove to be a function of new products and services. A rapid and marked shift in the underlying structure of production is unlikely to occur; therefore fiscal, monetary, and market policies may be increasingly called upon to mitigate potentially harmful structural maladjustments. Of course, minimizing risk of instability is not ordinarily the sole objective of national policy of any economy, either explicitly or implicitly. It may be, as experience of other countries indicates, that a certain amount of instability will be accepted in order to raise per capita income. The striking of a proper balance between divergent or competing objectives becomes a most vital and arduous task of economic policy. / B I B L I O GR A PH Y BIBLIOGRAPHY A. BOOKS Benedikt, Heinrich. Geschichte der Republik Oesterreich. Vienna: Verlag ftier Geschichte und Politik, 1954. Benoit, Emile. Europe at Sixes and Sevens. New York: Columbia University Press, 1961. Bergson, A. The Real National Income of Soviet Russia Since 1928. Cambridge: Harvard University Press, 1961. Brady, Robert A. The Rationalization Movement in German Industry. Berkeley: University of California Press, 1933. Clark, Colin. Conditions of Economic Progress. London: Macmillan and Company, Limited, 1940. Gerschenkron, Alexander. A Dollar Index of Soviet Machinery Output, 1927-28 to 1937. Report R-197. Santa Monica: The Rand Corporation, 1951. Hansen, Alvin H. The American Economy. New York: McGraw-Hill Publishing Company, 1958. Kendrick, John W. Productivity Trends in the United States. Princeton: Princeton University Press, 1961. Litschauer, Gottfried F. Kleine Oesterreichische Geschichte. Vienna: Obelisk Verlag, 1961. Marcy, G. "How Far Can Foreign Trade and Customs Agreements Confer upon Small Nations the Advantages of Large Nations?" in The Economic Consequences of the Size of Nations. Edited by E. A. G. Robinson. London: Macmillan and Company, 1960. Meade, James E„ The Theory of Customs Unions. Amsterdam: North Holland Publishing Company, 1955. 298 Robinson, E. A. G. (editor). The Economic Consequences of the Size of Nations. London: Macmillan and Company, 1960. Roepke, W. International Order and Economic Integra tion, , Dordrecht-Holland: D. Reidel Publishing Company, 1959. Rothschild, K. W. Austria1s Economic Development between the Two Wars. London: Frederick Muller, Limited, 1947. Scitovsky, Tibor. Economic Theory and Western European Integration. London: George Allen and Unwin, Limited, 1958. _______ . "International Trade and Economic Integration as a Means of Overcoming the Disadvantages of a Small Nation," in The Economic Consequences of the Size of Nations. Edited by E. A. G. Robinson. London: Macmillan and Company, 1960. Spiegelglass, St. World Exports of Manufactures, 1956 vs. 1937. London: The Manchester School of Economics and Social Studies, 1959. Viner, Jacob. The Customs Union Issue. London: Carnegie Endowment for International Peace, 1950. Weber, W. Qesterreichische Wirtschaftsstruktur [The Economic Structure of AustriaJ. Volumes I and II. Berlin: Dunker and Humblot, 1961. _______ . Moeglichkeiten und Grenzen Einer Harmonischen Wirtschaftspolitik in Europa. Berlin: Dunker and Humblot, 1961. B. PUBLICATIONS OF LEARNED SOCIETIES Creditanstalt-Bankverein. Austria’s Relationship to the Larger European Market. Year 11, No„ 31. Vienna: The Bank, May, 1959. . Austria1s Share in the World Economy, Year 10, No. 30. Vienna: The Bank, July, 1958. 299 _______ . Economic Letter* Monthly publication, Nos. 40-52. Vienna: The Bank, 1961-1962. _______ „ Entwicklung in der Bankwirtschaft. Year 12, No0 32. Vienna: The Bank, November, I960. _______ . Austrian Economy in Figures, Years 1959- - 1962. Vienna: The Bank, 1960-1963. Oesterreichische Laenderbank. Economic Bulletin. Monthly publication, Nos. 1-12, 1961; Nos. 1-6, 1962. Vienna: The Bank, 1961-1962. . Statistical Data on Austria, Editions 1959-1962. Vienna: The Bank, 1960-1963. _______ . Wirtschaftliche Nachrichten. Semimonthly publication, Nos. 17-24, Year 16; Nos. 1-12, Year 17. Vienna: The Bank, 1961-1962. Oesterreichisches Institut fuer Wirtschaftsforschung [Austrian Institute for Economic Research]. Aspekte der Oesterreichischen Integrationspolitik LAspects of Austrian IntegrationJ. Special Report No. 16. Vienna: The Institute, 1961. . Die Zukunft der Oesterreichischen Wirtschaft LThe Future of the Austrian Economy]. Special Report No. 12. Vienna: The Institute, 1959. _______ . Monatsberichte des Oesterreichischen Institutes fuer Wirtschaftsforschung I Monthly Reports plus Supplements of the Austrian Institute for Economic Research]. Vienna: The Institute, 1961-1962. . Oesterreich und die Europaeische Integration [Austria and the European Integration J. Special Report No. 14. Vienna: The Institute, I960. _______ . Oesterreich's Industrie und der Europaeische Markt LAustria's Industry and the European Market J, Parts I find II, Vienna: The Institute, 1957-1958, 1960-1961. _______ . Zehn Jahre Oesterreichische Wirtschaft, 1945- 1955 [Ten Years of Austrian Economic Development, 1945-1955]. Vienna: The Institute, 1955. 300 Political and Economic Planning Organization. European Organizations. London: G. Allen and Unwin, Limited, 1959. _______ . The European Free Trade Association. Occasional Paper No. 4. London: G. Allen and Unwin, Limited, 1959. C. OFFICIAL PUBLICATIONS Arbeiterkammer der Stadt Wien. Handbuch Wirtschaftlich- er Statistiken. Vienna: The Department, 1961. Austrian Central Statistical Office. Austrian Foreign Trade, Editions 1959-1961. Vienna: The Office, 1960-1962. 1961 Census Publication. Vienna: The Office, 1962. _______ . Der Aussenhandel Qesterreichs in der Zeit Zwischen den Beiden Weltkriegen. Vienna: The Office, 1946. European Economic Community. Third General Report. Brussels: The Community, 1960. European Free Trade Association. The Bulletin. Geneva: The Association, March and November, 1961. Federal Press Service. Austria, Facts and Figures. Third edition. Vienna: The Service, 1959. German Governmental Printing Office. Statistical Yearbook for West Germany. 1957. Bonn: The Office, 1957. Organization for European Economic Cooperation. Austria. Paris: The Organization, 1961-1962. _______ . General Statistics, Part II, No. 4. Paris: The Organization, November, 1961. _______• OEEC Foreign Trade. Paris: The Organization, 1960-1961. 301 _______ o Industrial Statistics. . Paris: The Organiza tion, 1958. _______ . The OEEC and the Common Market. Paris: The Organization, 1958. _______ . Europe Today and in I960. Paris: The Organ ization, 1957. _______ . The Pulp and Paper Industry in Europe. Paris: The Organization, 1956. United Nations. Monthly Bulletin of Statistics. New York: The Organization, October, 1961. _______ . 1960 Economic Survey of Europe. Geneva: The Organization, 1961. United States Department of State. Bulletin XX. Washington: Government Printing Office, February 9, 1949. D. PERIODICALS Berry, Brian J. L„ "City Size Distribution and Economic Development," Journal of Economic Development and Cultural Change. IX (July, 1961),579-582. Duncan, George A. "The Small State and International Equilibrium," Economica Internazionale, November, 1950, p. 937. Ellis, Howard S. "Exchange Control in Austria and Hungary," Quarterly Journal of Economics, LIV (March, 1932), 47. Gehrels, F., and Bruce F. Johnston. "The Economic Gains of European Integration," Journal of Political Economy. August, 1955, p. 281. Kreinin, Mordecai E. "The 'Outer Seven' and European Integration," American Economic Review, L (June, 1960), 370-386. 302 Lipsey, R. G. "The Theory of Customs Union; A General Survey," The Economic Journal, LXX (September, 1960), 496-513. Makower, M., and G. Morton. "A Contribution Towards a Theory of Customs Unions," The Economic Journal, LII (March, 1953), 33-49. Michaely, M. "The Shares of Countries in World Trade," The Review of Economics and Statistics. August, 1960, p. 309. "Oesterreich und die Europaeische Wirtschaftsintegra- tion," Oesterreichische Zeitschrift fuer Aussen- politik (Austrian Journal of Foreign AffairsJ, II (November, 1961), 26-45. E. NEWSPAPERS Hallstein, W. "Progress Report of the EEC," The (London] Financial Times, November 27, 1961, p. 23. Neues Oesterreich (Vienna, Austria], Economic Section, March 25, 1962. New York Times, November 2, 1961, p. 16. APPENDIX A TOWARD AN IMPACT MODEL OF FACTOR MOBILITY TOWARD AN IMPACT MODEL OF FACTOR MOBILITY Uniquely significant in the determination of the relative facility with which an industry or an entire economy is likely to adapt itself to materially enlarged markets is the mobility of the resource factors of production. Upon their pliancy hinges the prospective transformation which may reasonably be expected from association or integration with an extended economic union. But in spite of their impor tance, or perhaps because of it, they have eluded accurate measurement, their a priori adjustment facility having been determined primarily by intuitive and nonempirical means. The succeeding section is devoted to an attempt to place the measurement of resource mobility into its proper perspective and of setting the respective limits within which further economic and statistical research combined may prove fruitful and crowned with at least some measure of success. It goes without saying that the following analysis is far from all- inclusive and harbors, no doubt, the potential of considerable modifications and revisions. But it is hoped that its scope will identify the relative problems to be encountered by further research. The Mobility of Labor Of all the factors of production labor may, perhaps, be considered the most likely to permit analytical measurement with reference to mobility, and thus adaptability. It may be prudent to enunciate at the outset that what is commonly referred to as "functional mobility" is left out of consideration in this initial analysis, i.e. the movement of labor within one firm, not necessarily on the basis of seniority or promotion but rather in response to perhaps greater productive contributions expected in another job classification. A second type of mobility, namely that denoted by "geographical mobility," is included in the basic formula only insofar as it is reflected in general statistics. If it is assumed that firm A moves to a new location or transfers some of its employees to a subsidiary plant, this would indeed represent a geographic relocation presumably in the interest of greater productivity. Nevertheless, as no worker actually left the employment of firm A to seek work in firm B, no movement of labor would be recorded in observable statistics. It therefore becomes clear that, in the interest of initial simplicity and clarity, only statistically manifested mobility is considered in the formulas below. 306 Mobility of one firm simply measured. A certain amount of mobility of labor manifested within an industry may be ascertained in most economies, its presence representing the constant shift of resources from less productive to more productive endeavors, i.e. to uses in which the marginal product of labor may be increased. From a welfare point of view this is a desirable shift, though relatively offset by costs incurred in the process of shifting, viz. training expenses, losses of social benefits, etc. As a whole, however, this analysis refrains from entanglement in welfare aspects of resource mobility and wishes merely to note that underlying welfare contingencies, though no doubt significant, are not specifically considered in the measurement. in the measurement of the mobility of labor for one firm may be expressed as follows: where I l[Cl is equal to the mobility of labor for one A suggested introductory relationship utilized firm, E and A the exit and addition of workers in time period (assumed throughout the analysis 307 and not specifically signified), and Qth the quantity of labor in actual employment at any one point in time. Some refinements. The mobility of labor for one firm within an industry as related to movement without the bounds of a predefined industry may be measured as follows: movement respectively (i.e. native and foreign to the industry or firm). This distinction would permit delineation of the expected phenomenon of intra industry movement and that of the perhaps less frequent and pronounced movement to other industrial sectors. Formula (2) thus represents merely the same measurement of mobility as formula (1), but gives attention to the item of movement within an industry versus without the industry. workers regardless of responsibility or supervisory duties may seriously distort the entrepreneurial category of resource factors of the economy. In order to prevent this potential detraction the exclusion of the managerial group, however defined, would appear with h and ( denoting intra- and inter-industry It may be contended that to group together all a valid proposal: • l a o ^ c L0- (Qth-*«) ffttu-w) 1 0 0 where e M * refers to mobility of labor for one firm in a closed economy, and ** to the managerial segment of the labor force within each firm. For purposes of simplification it may be suggested that the formula be restated as follows: cH_a - where (E. - + ■ f \ m) * 160 t 5t» E » Eh ' Ehtw A = A W - A hhi Q « Q-fc k ~ A - A{ - AfM Paying regard to the presumptive dependence of a small national economy on international trade and, in the case of EEC integration, to acquiescence in free international factor movements, the above rela tionships beg adaptation to open as opposed to closed analysis. There may be observed therefore: with o' 'La denoting the mobility of labor of one firm, managerial category excluded, making allowance for movement across national boundaries as well. £ refers to exports of domestic labor staying either within industrial bounds eV» , or finding employment in an industry other than that from which the movement emanated, . Analogously, in reflects the import of labor from the same industry in a foreign land, from an alternate foreign industry. The aggregate measurement of intra-economy labor mobility. Posterior to ascertaining the mobility of labor with reference to one firm, an attempt at meas uring the total mobility of the labor force within the entire economy may be endeavored. Considering a closed economy at first, the movement of labor across national boundaries is temporarily disregarded. But whereas both the exit of and additions to labor were considered in the case of the individual firm, the resultant sum in the case of the aggregate must be divided by two as otherwise a distorting system of double counting would find introduction. This is so as within a closed 310 economy it may reasonably be assumed that each employee's departure from a firm represents an addition to the staff of another business unit, and conversely, each exit from one firm may be regarded as an addition to another. In the case of the economy as a whole, however, enveloping all business units, due considera tion must be assigned to the above tautology. Thus the following measure may be used with ^(1^5 repre senting the average mobility of labor within a closed economic system: an open system. Increasingly emphatic appears to be the international movement of labor resources within the realm of the EEC or any other vigorous economic union. Recent indications in Austria appear to under line the observation that organized labor's resistance to the importation of badly needed foreign labor resources is waning rapidly. Some Austrian labor in search of higher wages has, in recent years, increas ingly accepted superior offers from nations located at the country's northwestern and western periphery. The aggregate measurement of labor mobility for 311 Thus it is evident that foreign factors warrant definite inclusion in the measurement of labor's mobility. This may perhaps be best expressed in the following manner: with q [£ denoting the mobility index of labor for one economy, exclusive of the managerial sector but inclusive of movements across national boundaries. The Mobility of Capital With the measurement of the labor factor, the determination of the mobility of the remaining pro ductive agents becomes at once more enigmatic, as therefore 312 fewer tangible guide lines are available. Realizing that there may prevail totally different fundamental problems, it may nevertheless be attempted to broadly formulate the adaptability of capital in terms of the same basic relationships expressed in the previous section. Thus there appears: with the mobility of capital of firm £L expressed as an index number of the exit of and addition to capital (E+A ) in time period , the latter implic itly assumed, over the quantity of capital or capital base (invested capital) at any one point in time which unquestionably would be facing the inquiring economist or statistician who had taken it upon himself to categorize various capital movement via definitive segments is not underestimated. The scope of capital movements which legitimately may be taken as a measure of their mobility encompasses a great variety of instruments. Nevertheless, it seems that financial capital movements, as opposed to real capital movements of which they are merely a reflection, are much to be preferred for purposes of measurement over the latter ( at-) It must be stressed that the monumental task 313 as they are considerably more definable. Some refinements. It may be desirable to exclude from reference those capital movements which represent merely loans on the part of banks or other institutions usually made for short durations of time. It may be held that such credit shifts do not in them selves reflect fundamental and structural capital movements, but essentially manifest individual rela tionships and industrial circumstances of great variety. exert their influence over longer periods of investment only, it is advisable to attempt to measure the magni tude of their mobility only over longer periods of time, with a suggested minimum of three years. For one firm the following modified formula appears tenable, taking into consideration the exclusion of short term loan capital: with € symbolizing loan capital. This formula may be restated in the following form: As capital movements, thusly limited, tend to resulting in E = E-l 314 A = A-/ Q-u-Z M A = (e ~ A ) • loo 4 5 u Distinguishing between capital movements within one industry and those into or from another industry within a closed economic system, it is possible to write: M ^ (£n + An)’l ( > 0 + +^l)-t0O with denoting the movement of capital for one firm within a closed economy, exclusive of loan capital. Tv represents capital movements from one firm to another but remaining within the confines of the industry, however defined, whereas / describes the movement of capital from or to another industry. Opening the model and expressing exports and imports of capital as ^ and -i respectively, the following formula may be constructed: 315 J V j ^ + + ^ [(iFf-t-ef) 4 (hf-t L ’ f j m O’ 'C ®U Qtn or M — / A i 4h + £j.t Ln + *-\+ I . | f l | ) ^ Qt k Qt i t Qu / where q expresses the movement of capital, loans excluded, of one firm within and across industry and national boundaries. It should be emphasized that, particularly in the case of the capital factor, international move ments of considerable magnitude and cumulative effect occur. Thus in recent years substantial capital imports have provided much of the impetus responsible for Austria's significant rises in productivity, sub stantial growth rates, and continuous surpluses on international account. The aggregate inter-economy measurement of capital movements. Based upon the mobility of capital of each firm, a measure may be constructed which would reflect the total movement of capital within a closed economic system. Discounting hoarding and idle balances-r-a vigorously growing economy is assumed— it may be postulated that each departure of capital 316 from one firm ultimately signifies an addition to another business unit, with short run leakages con sidered unimportant in the long run. There develops therefore: C M C . cAfL K with c* >c£ denoting the mobility of capital for a closed economy, loan movements excluded. f S The aggregate measurement of capital mobility in an open system. Adopting the above formula to a more realistic open system, the following may be written: A - F L - c - ^ • l ( ) i ) .+ * J f ) jOO 0 C Q C Qu therefore L ' - i = 4 |Uf £./ 317 with 0^C£ depicting the average mobility of capital for an open economic system, disregarding loan capital movements. It finally warrants emphasis that the above classical or neoclassical assumption of the automatic reinvestment of capital funds departed from any one firm may lack reality under conditions of extended unemployment of resources. It should be noted, how ever, that the entire analysis at hand applies essen tially to the Western European area, where unemployed resources have appeared very sporadically only in the last two decades, and where the full utilization of available resources is expected to prevail well into the foreseeable future. The Mobility of Entrepreneurship When considering this factor category one is immediately struck by the unquantifiable appearance of such phenomena as ability to organize and manage, to innovate, to take risks, of favoring low turnover— high profit margins versus the opposite, etc. Perhaps the most likely measuring procedure to succeed would be a sample study which would permit conclusions as to the general inclination and disposition of the entrepreneurial and managerial group with regard to 318 consequences arising out of integration or association. But for the immediate purpose it may perhaps be most advisable to obtain some other measure which could conceivably serve as a gauge to the general entrepre neurial character of risk.taking and organizational and innovational activity. With this objective in mind, attention may be focused on the basic formula uses in the analyses of the two previous factors. Thus it is possible to express the movement of managers and entrepreneurs, however defined, as follows: exit and addition respectively in time period ■ f c h - ^*-1 » an(* the number of managers and entre preneurs within one firm at any one point of time. of the movement into that within one industry as opposed to that without the bounds of a predefined industrial entity, the following relationship manifests itself for a closed economy: |Vj ^ (e+ iQioo with denoting the mobility for one firm, t, and Some refinements. Permitting the segregation 319 in which t ' X and { represent movement within and to without one industry, respectively. Adopting this formula to international influ ences, i.e. the exit and entry of managers and entrepreneurs to and from firms and industries without national boundaries, € may be added to denote exit * to foreign nations and c to denote entry from foreign sources. Therefore the following may be written: with o' '£*- depicting the movement of managers and entrepreneurs for one firm, within industry and non- industry limits, both nationally and internationally, i.e. in an open economic system. The aggregate measurement of intra-economy entrepreneurial mobility. When focusing upon the adaptability of entrepreneurial and managerial cate gories to newly created circumstances generated by integration, the above formula for one firm in a 320 closed system may be adapted to economy-wide utiliza tion as follows: with q ' V denoting the average mobility of entre preneurs and managers within a closed economic system, due regard having been assigned intra- and inter industry movements. vitality displayed by Western European economies, it may reasonably be assumed that no entrepreneurs or managers are likely to remain idle for any extended segment of time, and certainly not over the long period. Therefore, as each departure from one firm distinctly implies an additional unit to another, the sum of all firms' mobilities, divided by their number, must be halved. mobility for an open system. With the realization of progressively more advanced stages of integration, allowance must be made for a more realistic movement of entrepreneurial and managerial talent across national boundaries. Adapting the above formula, Referring once again to the uninterrupted The aggregate measurement of entrepreneurial 321 therefore, to the present objective, there may be written: with gl ( e£ reflecting the average mobility of the entrepreneurial and managerial segments in an open economic system and across industry boundaries. that the above formulas do not adequately reflect the organizational and risk taking adaptabilities inherent in the activities of entrepreneurial and managerial groups within one firm where no departures or additions prevail. That this type of "quasi functional mobil therefore A suggested modification. It may be contended 322 ity," referred to in the labor resource section, is very significant appears almost self-evident. What creates considerable difficulty, however, is its necessary transformation into quantifiable data as well as its incorporation, properly weighed according to the technological level prevalent, into an all- inclusive formula. product variety be utilized as a rudimentary measure. Thus the number of new products manufactured plus the number of commodity lines dropped from the pro duction process, over the variety of goods produced at any one point in time, may be taken as a basic formula. It may be expressed as follows: lines, and the number of different products pro duced at any one point in time. The above formula may be refined in the follow ing manner: It is suggested that the relative mobility of where IMp^d. reflects the mobility of product variety for firm a. , E the exit or the number of commodity removals from production, A the addition of new 323 &tu fit*1 with h and f reflecting product variety, in a closed system, added or deleted within one industry or outside of its bounds. Opening the system to permit international trade, it is possible to delin eate the cessation and addition of products destined for export only, i.e. € and respectively. The cumulative formula appears, therefore, in the follow ing manner: too 0 " ' <*u - loo ( Ejit-rti. + M- + - f idLt , c£ - \ fitn fitn therefore £.= • with £ depicting the mobility, i.e. the addition and deletion, of product variety for an open economic system. 324 A composite reformulation. It may finally be suggested that a composite measure for entrepreneurial and managerial adaptability be adopted, one that would include not only the physical movement but elements of risk and innovational activity as incorporated in product variety measurements as well. Toward this objective the following may be written: with 0 pye£ denoting the degree of the adaptability of entrepreneurial and managerial groups in an open economic system to economic integration, with physical as well as "quasi functional mobility” factors having been included. It should finally be observed that the above formulas represent but theoretical confines within which properly categorized and weighted sector analyses, unquestionably harboring immense restraints, can be exhaustively researched. 325 The Mobility of Raw Materials Whereas the preceding resource factor proved perhaps most intricate in ascertainment, the present factor of raw materials may be considered the most intangible for purposes of measurement of adaptability. Indeed, the relative merits of measurement, if such can be determined, appear in question. The adapt ability of raw materials to various uses is actually as much a function of the state of technology as of the natural physical properties by which they are characterized. Basic deficiencies in raw material endowments are generally closed through import chan nels, their volume determined by a variety of factors such as level of demand and its elasticity, national economic aims and deterrents, the level of technology, etc. It may perhaps be proposed that the relative adaptability of raw materials depends, in great measure, upon the available supply and dynamics of the other three factors of production, and though admittedly each is a function of the other three, in the case of raw materials this fact appears much more dominant than in the others. Thus it is possibly most prudent to observe that the adaptability of natural resources or raw materials to economic integration in final analysis will reflect, aside from underlying institu 326 tional influences, the general character and resolute ness of those interjectional economic factors of which they are a most pronounced function. A suggested measurement. For purposes of consistency and continuity, and in spite of possibly insurmountable attendant difficulties, it may never theless be attempted to formulate the following theoretical relationship: M _ (e*A)./oo 1 '* with M* expressing the mobility of one raw material type, i.e« the suspension and addition of new uses ( E and / \ ) in time period , over &tn » the number of uses at any one point in time. Elabo rating, new and suspended uses may first be categorized according to industries for which they are destined in a closed economy: M feht/ ] * ) . < * > , Ut+fyUoo H denoting fluctuations in the major industry of use, and § in all secondary industrial uses. Adapting these relationships to an open system, foreign suspensions of and additions to uses may be recorded, once again segregated according to major 327 and secondary uses. Of course, there will be con sidered not only exported raw materials but those imported as well. There may be written: both within and outside of major utilization, con sideration having also been accorded movements to and from foreign sources. observe the following relationship at first in a closed economic system: raw material types, however defined, I to >* , within major and within minor uses, foreign movements excluded entirely. Finally, regarding movements across national boundaries as well, there may be written: f(U ±£ loo at. at. denoting the fluctuations in raw material uses, In summation it is therefore possible to with expressing the average mobility of all 0 Mf£ = * 1 328 with a suggested measure of the average mobility of raw materials in an open economic system, as gauged by the relative frequency of suspensions of and additions to new utilizations. A Summary Conclusion Whereas the preceding suggested measures of the resiliency of individual factors of production may be of analytical value in sectoral areas, their perhaps greatest saliency is to be found as expressed in a cumulative model. Toward this end, when indi vidual factor indexes are summarized for an open system, with O' M expressing the mean adaptability of the factors of production in index form, inter-system comparisons may be attempted, though admittedly with but limited expected results and subject to consider able potential qualifications. For an open system, the adaptability index may be plotted as follows: * S . Ho • lof' with adaptability variances expressed as a function of t ime by / fa) . The following geometrical manifestation sug gests itself therefrom for two systems: kV /io- us- loS ■ with ft fa) denoting the adaptability <index as a function of time period tyj - , or above, for country A , and ft fa) analogously representing that for country B t For purposes of more definitive identification it may be proposed that, for instance, the shaded area 330 for country & be related to the area of country A . Though this may be done simply by summarizing the blank areas below (t) and above (t) , a more precise exposition would call for with denoting the mean difference between the adaptability of the factors of production for two systems in time period Cx-^/ . This divergence may also be expressed more simply as = i r * , / [a ® - with substituted for 0WpfE2.-0^/ef£i » the result of which may of course appear in negative as well as positive manner. The above-suggested procedure permits utiliza tion in the case of more than two countries, though only under greatly more intricate circumstances which necessarily multiply with the number of systems 331 considered.1 It must finally not be neglected to enunciate once again that the foregoing theoretical analyses attempt merely to delineate and catalogue presumptive boundaries within which further extensive research may prove rewarding. The diverse formulations presented should not be regarded as terminal solutions to a manifestly most intricate region of economic inquiry. Depending upon the number of systems considered, extraterritorial segments of the final formulas in each case would have to be qualified; viz. fc-i with vh denoting the number of entities under investi gation. APPENDIX B ECONOMIC MAP OF AUSTRIA 333 75 ’ "W ECONOMIC MAP OF AUSTRIA Aluminum Industry » Shipyards t f i Chemical Industry L Embroidery and Lacework Oil, Natural Gas Rubber Factories Iron and Steel Plants Textile Jndustiy I Niederosier re*eh Hydro-electnc Stations Electrical Goods Blast Furnaces Industry DONAU Lumber Industry o' Magnesite Industry M J Paper Industry Iron and Metal Manufacture <Sk Oberosterreich n c * l-MftHlET ’ v ' ^ ' ; r - y ^ L Steiermal; orarl SALZACH Salzbur Tirol VJEEEBT b ® K W ) arnten jNmJJndLUiM *

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Creator Harvey, Curtis Eric (author)

Core Title A Case Study Of The Adaptation Of A Small National Economy'S Industry To International Competition: Austria

Degree Doctor of Philosophy

Degree Program Economics

Publisher University of Southern California (original), University of Southern California. Libraries (digital)

Tag economics, general,OAI-PMH Harvest

Format dissertations (aat)

Language English

Contributor Digitized by ProQuest (provenance)

Advisor Grey, Arthur Leslie, Jr (committee chair), Collins, R. (committee member), Morgner, Aurelius (committee member)

Permanent Link (DOI) https://doi.org/10.25549/usctheses-c18-309424

Unique identifier UC11358818

Identifier 6403100.pdf (filename),usctheses-c18-309424 (legacy record id)

Legacy Identifier 6403100.pdf

Dmrecord 309424

Document Type Dissertation

Format dissertations (aat)

Rights Harvey, Curtis Eric

Type texts

Source University of Southern California (contributing entity), University of Southern California Dissertations and Theses (collection)

Access Conditions The author retains rights to his/her dissertation, thesis or other graduate work according to U.S. copyright law. Electronic access is being provided by the USC Libraries in agreement with the au...

Repository Name University of Southern California Digital Library

Repository Location USC Digital Library, University of Southern California, University Park Campus, Los Angeles, California 90089, USA