The Austrian Miracle

What's the secret of Austria's singular success, while the rest of Europe's economies founder?

VIENNA — Walking through the beautiful and bustling streets of central Vienna, one finds it hard to imagine that elsewhere in Europe thousands of demonstrators are taking to other streets to protest crippling unemployment and the imposition of punishing austerity measures. This is particularly true in Greece and Spain, where one in four people is out of a job, and one in two of those under 25. For the European Union's 27 countries, the unemployment rate is now 10.6 percent -- and it's even higher for the eurozone countries, at 11.6 percent. Worse, the trend is negative: Both rates have "risen significantly" according to Eurostat, from 9.8 percent and 10.3 percent, respectively, the previous year. 

In Austria, however, the rate is just 4.4 percent, up slightly from a year ago but persistently the EU's lowest unemployment level. This is also a country whose tourism industry seems recession-proof and whose capital city of Vienna is repeatedly ranked No. 1 on Mercer's Quality of Living index. It's an enviable record, to be sure, and one that seems counterintuitive in the context of a slumping global economy, regionwide pressures, and a common currency on the verge of collapse.

What is Austria's secret?

The answer lies in a system of economic and employment policies built on a central commitment to social market economics, where individual and corporate prosperity depend on general prosperity in a tapestry of interdependent interests. These assumptions are played out, at least in part, through a "social partnership" system of representatives from labor, industry, government, and often academia, in which job security, wages, pensions, unemployment insurance, and other workplace standards, as well as related legal and policy questions, are discussed and negotiated, leading to recommendations to Parliament and the respective ministries.

At the same time, Austria has a productive and highly competitive manufacturing sector, which accounts for the country's favorable trade balance. In a country with generally good secondary schools and effectively free higher education, the economy enjoys a well-educated workforce and stable relations between management and labor within the social-partnership system that allow for long-term planning. Austria also has an excellent medical system, ranked among the world's best, and a varied and flexible national health-care system supported by all participants.

Austria is a wealthy country, both publicly and privately, with comfortable levels of household income (31,125 euros median) and a sustained and relatively high level of private savings, with private wealth nearly six times higher than public debt. Although the distribution of income and wealth is increasingly uneven by Austrian standards, it is still relatively narrow, and the high levels of private wealth lubricate the pipelines of both private and public investing.

Austrians are also big savers, stashing away things like commemorative gold coins from the Austrian Mint. And though individuals and households are saving somewhat less than before (7.5 percent of annual income in 2011, compared with 8.3 percent in 2010), it doesn't appear to be affecting consumption. Statistics Austria reports that household disposable income increased 2.6 percent for the same period, and household consumption, up 3.5 percent, by even more.

The single most important factor here is the role of a generous welfare state, which "steadies consumption" during recessions, said economists Markus Marterbauer and Sepp Zuckerstätter of the Austrian Chamber of Labor. "Confident that their basic needs are covered, Austrians use their savings to continue spending," said Marterbauer and Zuckerstätter in a 2011 interview with the Vienna Review. "Constant consumer demand and reduced savings in downturns, and increased savings in boom years, are characteristic of the Austrian economy. Both help keep output and employment levels up."

A commitment to job creation and to support of the working class has a long history in Austria. Originating in the First Republic after World War I, it was a pillar of the socialist-led "Red" Vienna of 1919 to 1934, when social services, housing, and jobs dominated the public agenda. Jobs were provided through extensive construction and public works projects, as well as through the staffing of kindergartens, after-school care, and youth clubs, along with public recreation, spa holidays, and free health care -- all financed by a range of taxes on luxuries. Rents in the extensive, new public housing were kept low -- at 4 percent of household income, and even that could be postponed in case of illness or unemployment. What people earned, they kept.

Ironically, full employment was also a central feature of National Socialism, and by the Anschluss in 1938, there were jobs going begging in Germany -- less surprising when you remember that Jews and women were increasingly forced out -- making the Austrian labor force an important resource to the Third Reich. During the recovery years following World War II, Austria channeled Marshall Plan money largely into the monopolistic public sector and state-owned industries, which along with government became the bedrock of public employment.

But it was during the reform years of the great Chancellor Bruno Kreisky (1970-1983) that a great many of the laws and policies that have come to characterize modern Austria were laid down. For Kreisky, committed to reforging a sense of social solidarity in a country still in denial from the disaster of National Socialism, economic policy was subservient to economic needs, and he consistently pushed to ensure full employment: "Hundreds of thousands unemployed matter more than a few billion schillings of debt," Kreisky said on more than one occasion.

Public spending and investment in a range of industrial projects were thus made high priority during his administration. And because 50 percent of Austrian industry remained in state hands, nearly all people in Austria had the chance to complete their education and expect to find a well-paid, stable job -- with a good pension at the end. In addition, the provision of free public education, recreation and sports facilities, subsidized rents, public transit, and national health care meant that modest salaries went a long way, allowing Austrian industry to stay competitive while providing guaranteed jobs.

Since the beginning of the 2008 financial crisis, Austria has controlled unemployment through a series of initiatives -- including shortened working hours, enhanced education and job training, income tax cuts, and reduced public transit costs -- that have combined to preserve jobs, develop skills, and free up consumer spending. In addition, according to Franz Nauschnigg, head of the European Affairs and International Financial Organizations Division of the Austrian National Bank (ÖNB), Austria's low budget deficit going into the crisis made possible a series of direct countercyclical measures, including large infrastructure projects like Vienna's new Central Railway Station, cash handouts to people trading in old cars, and a 100 billion euro loan package to Austrian banks to increase their capital base and enable them to resume lending.

In the early years of the crisis, there was also a lot of hand-wringing among rating agencies and other international analysts about Austrian banks' substantial vulnerability to the teetering markets in Central and South Eastern Europe (CESEE). That these fears were never realized was due to what was dubbed the "Vienna Initiative," described by the ÖNB's Nauschnigg as in intervention by which "a group of Western and Eastern European banking supervisors, joined by the IMF and the European Bank for Reconstruction and Development, successfully lobbied the private sector to maintain its exposure in CESEE countries, preventing the panic-selling of bonds and currencies that would have driven up interest rates and made a default more likely." It was a model of international cooperation that could well serve as a paradigm solution for the larger problems that face the EU today.

At the peak of the crisis in 2009, some 66,000 workers were shifted to shortened working hours in Austria, particularly within the auto industry and its suppliers, according to Johannes Kopf, head of the Austrian Employment Service (Arbeitsmarktservice, or AMS), in a recent interview with the Austrian daily Der Standard. This number is now less than 2,000; however, he sees this as "a short-term bridge for a very deep crisis, not something we can use for years to bridge a gap," when it becomes "too expensive for the companies." After that, other solutions need to be found.

Austria has also invested heavily in job training both for the unemployed and for youth entering the job market. With a budget of some 1 billion euros (a budget Kopf readily admits is "enviable"), the AMS is able to offer individual counseling and monitoring on a weekly basis for job seekers as well as usually two extended training courses in appropriate skill areas, including technology and languages, to improve job prospects. So though the unemployment rate overall is up slightly from last year (from 4 percent to 4.4 percent), there are also 45,000 more people working, meaning more people have entered the workforce, which is generally seen as a sign of confidence in the economy.

And perhaps most dramatic is the AMS guarantee of a guaranteed paid training internship (Lehrstelle) for all youth. Thus any young person who doesn't find an internship on his or her own or through the AMS is able to do the equivalent training. "We invest massive support into these education and training issues," says Kopf. "We have managed it, that after a year, half of these young people have already switched to the private sector where they can do a second training year." Expensive, he says, but worth it. And similar support is available for the long-term unemployed.

"I prefer to have four people who have been unemployed for three months each, than one person for a year," Kopf says.

Back on the streets of Vienna, people are still sitting outside where the sun takes the edge off the autumn chill, meeting and talking together. On a late-October Friday afternoon, in fact, the Kaffeehäuser were already filling up; people had switched from coffee to wine, and conversation was lively.

"Doesn't anyone do any work in this town?" an American friend asked, eying the scene with amazement and envy. "Don't be fooled," I smiled. Along with their unabashed love of leisure, Austrians are paying very close attention to business. Because that's what it takes to make it turn out like this -- for themselves, and for everybody else. Which to an Austrian, is how it should be.

Miguel Villagran/Getty Images


'Troubling' Surveillance Before Benghazi Attack

Sensitive documents found amid the wreckage of the U.S. consulate shine new light on the Sept. 11 assault that killed Ambassador Chris Stevens and three other Americans.

BENGHAZI, Libya — More than six weeks after the shocking assault on the U.S. consulate in Benghazi -- and nearly a month after an FBI team arrived to collect evidence about the attack - the battle-scarred, fire-damaged compound where Ambassador Chris Stevens and another Foreign Service officer lost their lives on Sept. 11 still holds sensitive documents and other relics of that traumatic final day, including drafts of two letters worrying that the compound was under "troubling" surveillance and complaining that the Libyan government failed to fulfill requests for additional security.

When we visited on Oct. 26 to prepare a story for Dubai based Al Aan TV, we found not only Stevens's personal copy of the Aug. 6 New Yorker, lying on remnants of the bed in the safe room where Stevens spent his final hours, but several ash-strewn documents beneath rubble in the looted Tactical Operations Center, one of the four main buildings of the partially destroyed compound. Some of the documents -- such as an email from Stevens to his political officer in Benghazi and a flight itinerary sent to Sean Smith, a U.S. diplomat slain in the attack -- are clearly marked as State Department correspondence. Others are unsigned printouts of messages to local and national Libyan authorities. The two unsigned draft letters are both dated Sept. 11 and express strong fears about the security situation at the compound on what would turn out to be a tragic day. They also indicate that Stevens and his team had officially requested additional security at the Benghazi compound for his visit -- and that they apparently did not feel it was being provided.

One letter, written on Sept. 11 and addressed to Mohamed Obeidi, the head of the Libyan Ministry of Foreign Affairs' office in Benghazi, reads:

"Finally, early this morning at 0643, September 11, 2012, one of our diligent guards made a troubling report. Near our main gate, a member of the police force was seen in the upper level of a building across from our compound. It is reported that this person was photographing the inside of the U.S. special mission and furthermore that this person was part of the police unit sent to protect the mission. The police car stationed where this event occurred was number 322."

The account accords with a message written by Smith, the IT officer who was killed in the assault, on a gaming forum on Sept. 11. "Assuming we don't die tonight. We saw one of our ‘police' that guard the compound taking pictures," he wrote hours before the assault.

The State Department declined to comment directly on the documents, citing an ongoing investigation. "An independent board is conducting a thorough review of the assault on our post in Benghazi," deputy spokesman Mark Toner said. "Once we have the board's comprehensive account of what happened, findings and recommendations, we can fully address these matters."

Obeidi, the Libyan official named on one of the printouts, said he had not received any such letter, adding, "I did not even know that the U.S. ambassador was visiting Benghazi." However, a spokesman for the Benghazi police confirmed that the ministry had notified the police of the ambassador's visit. "We did not receive that letter from the U.S. consulate. We received a letter from Ministry of Foreign Affairs Benghazi asking for additional security measures around consulate during visit of the ambassador. And the police provided all extra security which was asked for," the spokesman said.

It is not clear whether the U.S. letters were ever sent, and if so, what action was taken before the assault on the evening of Sept. 11. But they speak to a dangerous and uncertain security environment in Benghazi that clearly had many State Department officials worried for their safety.

Since the fall of Muammar al-Qaddafi's regime, the country's powerful militias have often run roughshod over the police and national army -- and often coopted these institutions for their own purposes. U.S. officials were certainly well aware of the sway that various militias held over Benghazi, given that the consulate's external security was supposed to be provided by the Islamist-leaning February 17 brigade.

What exactly happened that night is still a mystery. Libyans have pointed fingers at Ansar al-Sharia, a hard-line Islamist group with al Qaeda sympathies, if not ties. Ansar al-Sharia has denied involvement, but some of its members were spotted at the consulate.

The document also suggests that the U.S. consulate had asked Libyan authorities on Sept. 9 for extra security measures in preparation for Stevens' visit, but that the Libyans had failed to provide promised support.

"On Sunday, September 9, 2012, the U.S. mission requested additional police support at our compound for the duration of U.S. ambassador Chris Stevens' visit. We requested daily, twenty-four hour police protection at the front and rear of the U.S. mission as well as a roving patrol. In addition we requested the services of a police explosive detection dog," the letter reads.

"We were given assurances from the highest authorities in the Ministry of Foreign Affairs that all due support would be provided for Ambassador Stevens' visit to Benghazi. However, we are saddened to report that we have only received an occasional police presence at our main gate. Many hours pass when we have no police support at all."

The letter concludes with a request to the Libyan Ministry of Foreign Affairs to look into the incident of the policeman conducting surveillance, and the absence of requested security measures. "We submit this report to you with the hopes that an official inquiry can be made into this incident and that the U.S. Mission may receive the requested police support," the letter reads.

A number of other documents were found on the floor inside the TOC building. They are partly covered with ash, but legible.

A second letter is addressed to Benghazi's police chief and also concerns the police surveillance of the U.S. consulate on the morning of Sept. 11. The letter also requests an investigation of the incident, and states that the consulate "takes this opportunity to renew to the Benghazi Police the assurances of its highest consideration and hopes for increased cooperation." Benghazi's head of police, Brigadier Hussain Abu Hmeidah, was fired by the government in Tripoli one week after the consulate attack. However, Abu Hmeidah refused to step down and is still serving as the head of police. He is currently on sick leave, according to his office manager, Captain Seraj Eddine al-Sheikhi, and was unavailable for comment.

The man who officially was appointed to succeed Abu Hmeidah as Benghazi's police chief, Salah Doghman, said in a Sept 19 interview with Reuters: "This is a mess ...When you go to the police headquarters, you will find there no police. The people in charge are not at their desks. They have refused to let me take up my job."

The concerns about police surveillance exhibited in the letters to the Ministry of Foreign Affairs and the Benghazi police chief cast further doubt on early reports that a spontaneous protest was to blame for the attack on the U.S. consulate -- reports that the State Department has disavowed. They also appear to contradict an Oct. 9 State Department briefing on the consulate attack, during which a senior State Department official claimed that there had been no security incidents at the consulate that day. "Everything is calm at 8:30 p.m," the official said. "There's nothing unusual. There has been nothing unusual during the day at all outside."

These letters were found a month and a half after the attack, despite a visit to the compound by FBI investigators. Other documents found at the TOC building include a printout of an unclassified Sept. 9 email between Stevens and David McFarland, the head of the U.S. Embassy's political and economic section, inquiring about meetings for the ambassador's upcoming visit; telephone numbers and names of embassy staff; and a hotel bill from Stevens' 2011 stay at the Tibesti Hotel in Benghazi.

The continued threat to U.S. personnel in Benghazi may be the reason these documents escaped the FBI's attention. With suspected militants still roaming the streets, FBI investigators only had limited time to check the consulate compound. According to a Benghazi resident who resides near the consulate, the FBI team spent only three hours examining the compound.

The FBI declined to comment, citing the ongoing investigation.

 During their short visit, FBI agents apparently mapped the compound by gluing small pieces of yellow paper with different letters on it next to each room in the TOC building. Next to the room where the letters and most documents were found, a yellow paper marks it room "D." Above the paper, somebody has carved a swastika in the blackened wall.

Villa C, which was used as Stevens' residence during his stay in Benghazi, is located 50 meters from the TOC building. Here, an open window leads to the safe haven -- a sealed-off part of Villa C where Stevens and Smith suffocated to death. On the destroyed bed lay the Aug. 6, 2012, copy of the New Yorker. The magazine's cover carries a label with Stevens's name and his diplomatic mailing address.

A few meters to the right is the safe haven's bathroom. Everything here is blackened by smoke. One of the two white toilets is covered with bloodstains. On the mirror in the bathroom, an unknown person has written a macabre text in a thin layer of ash. "I am Chris from the dead," it reads.

Harald Doornbos and Jenan Moussa