Social Partnership and Growth of the Austrian Economy

Over the past five decades of the Second Republic, Austria has advanced from one of the poorest among the industrialized European countries to one of the richest. While many observers agree that rapid economic growth was favored to a large extent by the system of social partnership, this judgment has always been difficult to support by economic theory; the only promising approaches were offered by game theory and decision making under uncertainty. Further theoretical considerations have been advanced more recently to capture the economic effects of social partnership. Among these are the (though more empirically oriented) debate about corporatism and the New Institutional Economics. The latter emphasizes the importance of the "rules of the game" for economic development. They comprise not only efficient legal institutions and regulations, but also the manifold informal guidelines which govern the economic process. This comprehensive network designed for the long perspective may not only lower the cost of economic transactions, but also reduce uncertainties and therefore stabilize expectations of economic agents. In this way, an explanation of economic growth is offered not only for the past (industrialization) and for different regions (developing countries), but also for growth differentials in highly advanced societies. A number of international studies showed social partnership to be among those institutions which may effectively boost the rate of growth of an economy. Highly centralized labor unions tend to pay more heed to macroeconomic realities and requirements when formulating their wage demands than smaller ones competing among each other. In this way, wage behavior may adjust timely and with little social cost to external shocks whereas otherwise it will often do so only under the pressure of higher unemployment. The existence of social partnership and its bodies (Parity Commission) guarantees that different economic interests will not lead to severe social conflicts – as is demonstrated by the fact that Austria, together with Switzerland, exhibits the lowest ratio of labor strikes among all industrialized countries. The stability which rests on the sustainability of these relations reduces the uncertainty for corporate management decisions and thereby exerts a positive effect on investment. In this context, foreign authors stress the important role of the Austrian Chambers; their strong position, based on compulsory membership, would allow them to go a long way in respecting macroeconomic concerns. Austria's access to the EU, while narrowing the scope for economic policy, should rather strengthen the role of social partnership: with the implementation of the European Monetary Union wage policy will become the single most important instrument remaining within the responsibility of national authorities to secure a country's international competitiveness.