The Beginnings of Modern Industrial and Regional Policies: The Example of Lower Austria

The profound changes affecting Western and Eastern Europe lead to a new division of labor in Europe; in this new setting, Austria's Eastern region is well positioned to play a leading role. A well planned structural policy, coordinated at the national and international level, might well establish Lower Austria as a location of specialized manufacturing firms in Western Europe and as an area that can function as a core manufacturing region for Central Europe. Lower Austria's economy has been relatively dynamic, expanding at a faster pace than the rest of the Eastern region and, for the last two decades, faster than Austria on average. Especially in the eighties the opening to the international economy has brought about some success in restructuring the economy of Lower Austria. Nonetheless, weaknesses remain; the capacity of enterprises to innovate and to make strategic moves is low. If Lower Austria is to cope with the intensified international competition, economic policy measures will have to contribute toward solving these problems. Modern organization and production processes must be introduced to improve the competitive position of manufacturing in Lower Austria. These changes should enable the manufacturing sector to exploit the advantages of flexible specialization and develop the capacity to offer complete systems instead of producing single components that require little effort in the development phase. Such an organizational and technological upgrading would be facilitated by assistance programs that support both single enterprises and networks of enterprises (with a large firm assuming a leading role). These technology-intensive strategies might be complemented by developing a location near Vienna into a specialized center of innovation. A network of innovative firms, grouped around a science park and closely linked to the universities, might assume the leadership in areas intensive in research and development. Special programs (across-the-border processing, market offensives) should assist firms in using the new possibilities offered by the Eastern European markets in purchasing and selling. The strategic opportunity of the Eastern region to establish itself as a core area for Central Europe requires a more intensive integration of the Austrian economy and those of its neighbors in the East. The long-term goal of a Single Market in Central Europe might improve the competitive position of manufacturing firms in Lower Austria by enabling them to produce in a central location for a much larger market. Necessary steps in this direction would be a liberal trade policy, a coordinated industrial policy with regard to energy and capital intensive industries producing basic goods and construction materials, as well as the development of efficient transport and communications systems. The establishment of specialized technology and industrial parks along main transport routes would then make the Eastern region an attractive location of foreign direct investment. In peripheral regions (such as the Waldviertel and the northern Weinviertel) many low-wage jobs are being lost to Eastern Europe, and agriculture is likely to face an accelerated structural change. These regions will require, in addition to active labor market policies, measures that foster the joined development of agriculture, arts and crafts, and tourism in a form that respects the environment and conserves energy. The development of a network to maintain a cooperative organization that coordinates all the major decisions is proposed.