3 November 1999 • The Austrian Paradox: "Old" Structures but High Performance • Michael Peneder

This article addresses the familiar problem of two ambiguous empirical findings concerning the Austrian economy. On the one hand, macroeconomic indicators on productivity, growth, employment and foreign direct investment indicate that overall performance is stable and highly competitive. On the other hand, an international comparison of industrial structures reveals a severe gap in the most technologically advanced branches of manufacturing, suggesting that Austria is having problems establishing a foothold in the dynamic markets of the future.

The main results indicate that Austria's manufacturing sector is nestled for the most part in traditional industries, characterised by a rather average or even low level of R&D activity. In contrast, Austria's positive macroeconomic development and the steady increase in nominal value added shares and stable export shares within the EU show that Austria's manufacturing sector is doing well within these markets. Similarly, the most recent survey data on innovation lead to the conclusion that the low national level of research inputs (as measured by the lag in per-capita R&D expenditures compared to other countries) does not signify a problem for innovation in the narrow sense. Rather, it must be understood as a direct consequence of the low level of specialisation in technology-driven industries.

This view puts the targets of technology policy and industrial policy in a totally new perspective. The one-sided fixation on achieving an increase in R&D expenditure ratios entirely fails to capture the economic point. The consequences regarding the formulation of more particular strategies for economic policy are equally far-reaching. As Austria's low R&D ratio can no longer be attributed to a failing innovation system in the narrow sense (consisting of financial support payments, tax incentives, etc.), it appears increasingly related to the farther-reaching institutional factors influencing the firm's capabilities to adjust rapidly in fast-moving business environments. Such examples are the regulation of crucial infrastructures, the labour and capital markets, or the university system.