Is Institutional Continuity Masking a Creeping Paradigm Shift in the Austrian Social Model?

The ‘varieties of capitalism literature focuses on large (Western European and North American) countries’. Depending on the authors, the literature differentiates between two (Albert, 1993; Hall and Soskice, 2001), three (Coates, 2000) and five models (Amable, 2005). Small and economically less powerful countries such as Austria are hardly mentioned in the debate. On the other hand there is a body of literature that discusses the periodically stunning economic and labour market successes of small countries, sometimes presented even as role models for the rest of Europe (Katzenstein, 1985; Auer, 2000). A common weakness of the varieties of capitalism literature is that it does not take into account the interdependence between different models, in particular between large and small countries. The relationship between Austria and its ten times larger northern neighbour Germany is a case in point. Many German companies have subsidiaries in Austria. The relative dependence on German capital has an important impact on the Austrian model and limits the choices of domestic actors (the same is true for the new European member states with even larger proportions of foreign direct investments [FDI]). On the other hand small states tend to adjust faster to new challenges and have opportunities that are blocked for large countries. Wage restraint and export-orientation may work for Austria but not for a reunified Germany in an enlarged Europe (see Chapter 4, this volume). At the same time the example of Austria, which as a result of EU enlargement into Central and Eastern Europe (CEE) has itself become a net capital exporter, also shows the advantages of economic power over other countries.