Edited by John Foster and Werner Hölzl
Chapter 9: High Growth with ‘Old’ Industries? The Austrian Paradox Revisited
* Michael Peneder 1. MOTIVATION AND OUTLINE Ever since a series of broad investigations into Austria’s economic performance at the end of the 1980s (Aiginger 1987), comparisons with other developed countries have revealed severe and persistent deﬁcits in industrial structure, as measured, for example, by the shares of technologically progressive industries in total exports or production. In combination with consistent ﬁndings regarding comparatively low levels of R&D and venture capital as inputs to the innovation process, or patents as one speciﬁc form of technological output, the notion of an Austrian ‘technology gap’ (Hutschenreiter and Peneder 1997) became ﬁrmly established. However, this negative assessment has been sharply contrasted by Austria’s successful macroeconomic development, which has more or less endured throughout the past decades and has been characterized by high levels of labour productivity and income, above average (or at least average) GDP growth and below average unemployment rates. This ambiguity was subsequently coined the ‘Austrian Paradox’ of ‘old’ industrial structures but high aggregate performance (Peneder 1999, Tichy 2000). The Austrian Paradox has raised much policy debate, which, however, has remained highly inconclusive. The major obstacle to a more successful discussion was the unsettled dispute regarding the general relevance of industrial structures to macroeconomic development. If the mainstream of economic theory does not predict any relationship between industrial structure and economic growth, and, in addition, the particular Austrian experience appears to be a clear case against it, why should we bother with structural reforms as long as macroeconomic growth continues...
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