Austria: a social democracy that works

IMG_0311I have been on holiday to St Wolfgang in Austria in the last two weeks, which explains why I have not posted anything recently (NB the picture is of nearby Hallstatt, not St Wolfgang). This holiday was mainly about fresh air and relaxation. Political reflection was not on the agenda – but I just can’t help myself. Austria is a very interesting political case study.

The country is an overlooked success story. The area that we visited, the Salzkammergut, was pristine. Everything was neat and tidy. The state of public infrastructure, from roads to public footpaths, was excellent as well as highly extensive (hot water is supplied communally, for example – not to mention all those well marked and maintained foot and cycle paths)). This was a major tourist region, but no Cornwall, with tourist affluence co-existing alongside poverty. There was plenty of local industry, and quality medium-level jobs, tucked away on the edges of the villages.

Economic statistics bear this success story out. Income per head in 2013 was 11th highest in the world, according to the IMF – behind the USA, but comfortably ahead of Britain. Unemployment is low (4.7%), the trade balance is positive (2.9% of GDP), and there is a reasonable level of growth (1.4%). The government is in deficit, but the level of 2.8% of GDP looks much better than  Britain (4.6%). This is in spite of a high tax take (43% in 2012 according to the Heritage Foundation, compared to 39% in Britain and 27% in the USA). According to the OECD the Gini coefficient, measuring income inequality, was 0.261 after taxes and transfers, one of the lowest (i.e. most equal) in that group (Britain is 0.345, the US 0.378). The really interesting thing about this statistic is that this level of equality has been attained through redistribution. Before tax and transfers Austria’s Gini is 0.472, similar to that of the USA (0.486) and Britain (0.456). Austria taxes the wealthy highly and has a generous level of social security. It is a beacon of social democracy.

This is interesting because we are constantly told by economic liberals that high taxes and high social security is the path to doom and poverty. And, to challenge another piece of received economic wisdom, it does not even have its own currency, being part of the Euro zone. In America, you only have to mention “Europe” to a Republican, and it conjures up an image of economic failure. And yet Austria is no economic failure. It is not like France or Italy, whose economies are struggling. Why is Austria so successful? Well, I don’t know the country that well – but let me make three observations.

The first is that power is highly decentralised. Austria itself is not a large country, with 8.5 million people. It nevertheless has a Federal constitution, with nine states. These are highly visible on the ground (we were staying within a few hundred metres of the boundary between Upper Austria and Salzburg; we also visited Styria), on car number plates, and so forth. Local municipalities levy a payroll tax (about 3%) and as well as property taxes. In Britain, at least, there is a tendency to think that social democracy implies highly centralised governance, as shown by the last Labour governments highly prescriptive diktats on local government.

The second observation is that civic society is clearly very strong. You don’t achieve Austrian levels of order by government diktat and regulations alone. This requires active civic engagement – a bit like David Cameron’s “Big Society”. But what Mr Cameron failed to grasp is that big government (if highly localised) and high civic engagement work well together. Indeed, Austria’s political system looks like a bit of a stitch-up (two dull establishment parties, challenged by right-wing mavericks) – I am sure that it is high civic engagement that holds government services and public infrastructure to account, rather than the electoral process by itself. Again, Britain’s social democrats tend to view civic society as interfering busybodies with a NIMBYist agenda.

So far, this picture reinforces Liberal Democrats conventional wisdom: strong local government, linked to a high level of community engagement. The catch is my third observation: Austrian political culture is not liberal. In fact we would regard it as distinctly nasty. Ukip supporters would feel comfortable here (if you exclude the small government types). Unlike Germany, there is no public angst about Austria’s Nazi episode – though the country was highly complicit (Hitler was an Austrian after all). Immigrants face hostility. Austrians are very hospitable to visitors (more so, in my direct experience, than the Swiss, for example); but visitors go home and do not challenge for jobs and political influence. We did not see much sign of foreign staff in the restaurants and hotels – you meet more Poles in Cornwall. The EU is regarded with suspicion, if not hostility – even if it is accepted as an inevitability. Social attitudes tend to be conservative. In the hotels, the men tended to have the more authoritative jobs, with women running around as skivvies – though the shops tended to be run by highly capable women.

Perhaps the biggest question for British liberals is this. A fairer distribution of wealth and jobs seems to flow from strong local government, based on strong local communities; but is this compatible with more fluid liberal, human-rights based values? Or must strong liberal social values lead to economic liberalism, and the unequal, hollowed out society that seems to be taking root in the US, for example. Can you be both social democratic and liberal at the same time? To that critical question Austria does not provide an answer.

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4 thoughts on “Austria: a social democracy that works”

    1. I think Sweden shows that you can be social democratic and liberal at the same time in a socially homogenous society. But, from what I understand, this consensus is under real pressure as immigrants enter the picture. Sweden’s liberal values urge acceptance of the incomers, but lack of integration is a source of tension. As a result less liberal attitudes are coming to the fore, and elements of the social democratic setup are being eroded. We see similar in the Netherlands and Denmark.

      The Swedes may yet find a new balance though.

  1. I am an Austrian who has been living in the UK for 18 years (and a LibDem, too – back home there wasn’t ever a party that suited my views). I continue to observe Austria closely. I read your discussion with interest, and you are addressing a few questions I have been asking myself for some time, if from a different perspective.

    For me, Austria (and my experience of growing up there) is always a warning against the LibDems’ unquestioning enthusiasm for relentless devolution. What you can’t observe in two weeks is the corruption you get in those extremely small units (the local council I grew up in had 1700 inhabitants – a lot smaller than my current council ward). By corruption I don’t mean the usual brown-envelope stuff. It’s about who knows whom, and who can put who under pressure. This is particularly bad in a small village, where a mayor can’t stand up to people who own the businesses which pay the crucial local corporation tax (something I am generally in favour of, if your local unit isn’t too small). Look at how Austria’s landscape is marred by building everywhere – that’s due to local communities determining building regulations, and local councils simply being unable to uphold reasonable standards. Local councils also like building along the boundaries of their neighbouring councils, often distorting local economies in ways that make no sense. Extreme devolution is not a good idea, although I think some Austrian models would work for the kind of local authority size we have in the UK. (also note how rural Austria still is, with a large proportion of people living in rather small communities, so my example isn’t exceptional).

    The Bundesland is also problematic – I saw this close-up, where my father, as headmaster of a school financed by the land, being effectively a hostage of a local family who happened to be related to the governor of the province (the school had been built in the first place, in a place not actually suitable for it, because this was a village with which the governor had a persona connection – and this example was by no means unique, and isn’t now). I can’t think of examples quite as bad in the UK, but I am seeing similar effects in Wales, and it makes me even more sceptical about too much devolution to units which are too small to have proper scrutiny. And it has to be said, my Bundesland, Steiermark (Styria) actually has a fairly active media landscape, unlike Wales, where I live now, and with much frustration about regional government there.

    Austria generally has a pretty rotten government, and politics is thoroughly depressing (your remark about the two dull parties being challenged by right-wing mavericks is mild). I have been asking myself why Austria works so well nevertheless (and it does often work well *despite* government at all levels, not because of it!), and I have come to the same conclusion as you, namely that it is something along the lines of an actually working model of that ‘Big Society’ idea. What’s interesting in this context is that despite the big government model you mention, Austrians are in practice (though they wouldn’t ever think like this!) very much small government types. Many things happen despite government, even around government (note that the black economy is big, to the extent that once, back in the 90s, I was paid cash-in-hand for work done for an government agency). This is a bit of an embarrassment for me, since I don’t like small government ideas. It’s not small government in the classic US-liberal sense in any case. It’s a very strong, still quite conformist society, strong family cohesion and a lot of private initiative. I think a lot of this works because Austria has a ‘catholic work ethic’ – i.e. people work to live, not the other way round, with shorter commuting times, more holidays and good social security (that’s where the ‘big state’ does a crucial job, and it works well). This leaves people time to contribute to society, in ways that simply aren’t possible in the UK.

    … sorry for the long post… it’s just great to see somebody think about similar questions I have been mulling over for a long time (without clear answers).

    1. Many thanks for your comment Maria. Don’t apologise for its length. This adds a lot to rather superficial understanding of the country, and provides a lot of food for thought about what direction liberal reform should take.

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