The Austrian government maintains a stable currency, and this protects businesses and individuals from some foreign exchange risks. It has also established nontariff barriers that protect local industry from imports. From 1945 until the recession of 1968, Austria had much growth. In recent years the economy has picked up again, and real growth rates of the Austrian GNP reached 3.9% in 1988, 4.0% in 1989, and 4.6% in 1990. While the industrialized countries of the west suffered a recession between 1990 and 1991, growth in Austria remained positive during this period, with the rebuilding of former East Germany and changes in Eastern Europe being important contributors. Central to the Austrian economy is a multitude of small businesses, none of which are high-tech or capital-intensive. In services, tourism, manufacturing, crafts, shops, and on farms, the key word is not entrepreneurship, but rather, small business.

In recent years numerous academic articles have addressed small business in Europe (Goffee and Scase 1987). However, the major focus has been on members of the European Economic Community (EEC), and relatively little research has been done on the seven nations of the European Free Trade Association (EFTA). EFTA member nations include Finland, Iceland, Liechtenstein, Norway, Sweden, Switzerland, and Austria. Austria, a country of small businesses, is the subject of this article.

Strinati (1982) demonstrated that many governments have encouraged mergers of existing firms into larger units; in contrast, Austrian business did not go through a "bigger is better" stage. A strong labor movement helped strengthen corporatism and weaken the small business sector in another EFTA nation, Sweden (Stephens 1979, Storey 1982), but the same did not occur in Austria.

SMALL BUSINESS NEED NOT BE ENTREPRENEURIAL

Schumpeter (1912) described the entrepreneur as doing things in innovative ways by finding: (1) new products/services, (2) new methods of production, (3) new markets, (4) new sources of supply, or (5) new forms of organization. The Schumpeter-type entrepreneur is also the creator of jobs and a highly innovative harnesser of technology who generates economic growth and social change (Schumpeter 1934; Barth 1963, 1967). Carland et al. (1984) and Blatt(1988) made a distinction between entrepreneurs and small business owners. As explained by Blatt (1988, 29):

Not every small business is entrepreneurial and not every entrepreneur runs a small business. Some small businesses are run by entrepreneurs and some entrepreneurs run small businesses; they are not mutually exclusive nor mutually inclusive categories.

Some of the innovative entrepreneurship has occurred in Austria. Skis, for instance, were invented in Austria. However, for the most part, one cannot describe modern Austrian society as entrepreneurial.(1) Most firms are instead traditional small businesses, and these businesses employ a substantial portion of the population (97 percent of Austrian businesses have fewer than 50 employees, and 46 percent of the working population works for such firms). Most small firms are unincorporated sole proprietorships.

METHODOLOGY

Considerable entrepreneurship research is based on mail surveys of entrepreneurs--an approach that facilitates obtaining a sample size large enough to allow for statistical tests.

However, depending on the pattern of responses and the sample selection methodology, the resulting sample may include a selection bias that can affect reliability and validity. For this research, an ethnographic methodology was utilized instead; data were collected via open-ended interviews conducted in Austria. Some interviews took place in German, others in English. Hoth private and public sector persons (owner-managers, business consultants, and government officials) were asked to participate in an effort to capture a complete picture of small business in Austria.

HISTORIC BACKGROUND

The Austro-Hungarian Empire's strong industrial base was in the area that was Czechoslovakia, the economic center of which was Vienna. However, after World War I, Vienna found itself without its vast empire. Economically, the industrial families (such as the Laudas), lost their financial power as the large factories were no longer located within the state of Austria (of which Vienna remained the capital). Between the First and Second World Wars, Germany's influence on impoverished Austria grew phenomenally; and by the 1930s, commercial law in Austria and Germany had become almost identical. This commonality remains today and facilitates business transactions between Austria and Germany. In fact, the Austrian corporation's organization is almost identical to that of its German counterpart. During World War II, the Nazis took over all industry of significant size in Austria. The German-owned industry of the Eastern parts of the country were taken over by the Austrian governme! nt in 1946 to avoid a transfer of assets to the Soviet Union. Most of these firms have remained in the ownership of the state, and privatization programs have only been started during the last decade; the state continues to own and operate major industries, including steel, chemicals, major railroads, and major banks. (Private railroads still operate in mountain areas but are not significant to the national economy.) More recent trends have included limited deregulation and privatization of a few sectors, such as the oil industry. The state also has sold a fraction of the largest air carrier, Austrian Airlines. (Other smaller airlines, e.g., Lauda and Tyrolean, have always been private.)

GOVERNMENT INVOLVEMENT

Austria's governmental system is similar to Germany's, but control of the federation is more centralized. The Austrian federation includes nine states, Vienna being one. When the Allies discontinued occupation in 1955, a condition for independence was neutrality and nonalignment. Therefore, Austria could not be a member of the North Atlantic Treaty Organization (NATO), which was a prerequisite for joining the European Economic Community (EEC). Since Austria could not enter the Common Market, it became a member of the European Free Trade Association (EFTA). In theory, this association promotes trade between Austria and other members, but considering the geographic distance between Austria and Iceland, it is no wonder that 70 percent of Austria's trade is with the EEC, rather than the EFTA. To facilitate trade with the EEC, Austria set its tariffs equal to those of the EEC in 1988. Then, on July 17, 1989, Austria submitted a formal application to become a member of the EEC. T! his potential for eventual admission of Austria to the EEC became possible because the unification of Germany and fall of communism in former Warsaw Pact nations made neutrality and nonalignment minor concerns.

Because of Austria's economic link to Germany, the Austrian government has ensured that Austrian currency has a stable exchange rate with the German deutsch mark. This eliminates foreign exchange risk in trading with Germany, facilitates trade, and benefits the small business sector. The unification of Germany in 1990 resulted in a 4 to 4.5 percent growth rate for that country in 1991; and this spilled over into Austria, which began helping to meet the demand for consumer goods in former East Germany.

In Germany, the small business sector is overshadowed by large-and middle-sized industry. Germany is the world's leading exporter of goods(even prior to unification); The Economist (1989) reported that Germany exported $23 billion or 11.4 percent of the world's total trade in 1988, compared to $322 billion in exports by the United States. Although the dollar value of Austrian merchandise exports is considerably less, it represented 36 percent of the nation's CNP in 1988, compared with 9 percent for the U.S. and 32 percent for Germany.

Germany's leading export to Austria is the automobile. This is ironic because there were about 80 Austrian car manufacturers before 1914, and now there are none. Their demise is due in part to economics of scale in auto production, which favored the larger German manufacturers. Also, high taxes inhibited both capital retention and growth and contributed to a lack of organized venture capital to finance the local automotive industry. However, despite this decline, the government appears not to be concerned about the structure of this critical industry. In part, this is because small and medium-sized firms in Austria export auto parts to Germany and other countries, the value of which totals almost 100 percent of the value of all car imports to Austria.

Interestingly, political neutrality gave Austria a head start in terms of negotiating trade with countries behind the Iron Curtain. Geographic proximity also was an important factor--Vienna is a short drive from Bratislava, a major city in Czechoslovakia. Austria exports machinery manufactured by small and medium-sized firms to the Eastern Bloc; and since 1972, trade with the states of the former USSR (especially in natural gas) also has become important. Therefore, it is expected that the democratization of Eastern Europe will add to potential opportunities for entrepreneurial endeavors in Austria.

PROTECTING SMALL BUSINESS

The Austrian government maintains a stable currency (relative to the DM); this protects businesses and individuals from some foreign exchange risks. It has also established nontariff barriers that protect local industry from imports. For example, stringent requirements make it unfeasible for foreign manufacturers to produce telephones for a market as small as Austria; thus telephone factories in Austria are protected from international competition. In addition, the government offers several days of reduced-cost consulting each year for new and existing businesses and offers low interest loans. Grants also are available to Austrians and foreigners creating jobs in the less-affluent eastern regions. (Whereas the Weberian work ethic is more prevalent in the west, the east has more Slavic influence and a less prosperous economic environment.) However, these new venture creation programs appear to be yielding minimal results; those with entrepreneurial spirits tend to move to ot! her regions of the country, where they often become successful even in the absence of new venture creation programs.

In 1988, tax reform in Austria lowered the tax rate of higher income brackets, which was welcomed by the owner-managers of Austrian firms who often fall in this bracket. There remains a 10 percent Value Added Tax (VAT) on what government considers essentials (milk, literature, etc.), a 20 percent VAT on most goods, and a 32 percent VAT on luxury goods.

AGRICULTURE

In 1945, one in three Austrians worked on a farm. This sector now employs 6 to 8 percent of the workforce. Despite its high productivity, agriculture is not very important to the national economy. This is because the Alpine terrain is hard to cultivate, and the typical farm in Austria is 20 to 30 hectares, which is much smaller than the average German farm and tiny by North American standards. Nevertheless, the farm lobby is very strong in Austria, and the agricultural sector receives sizable direct subsidies from the government. This is in contrast to EEC countries, which subsidize exports, and the result is an overproduction of food. However, this food is so costly to produce that prices are prohibitive to the neighboring former Iron Curtain countries, so they do not import Austrian produce. Instead, much surplus food (wheat, grapes, various berries, and dairy products) is sold to Germany.

In October 1991, the EETA countries were allowed to join the EEC's single market program as of 1993. Should Austria become a member of the EEC, there will likely be significant changes in the Austrian agribusiness sector. Small, non-specialized farms may disappear or merge in the search for economies of scale. Furthermore, Austria would be required to adapt to EEC standardization, such as the coding and regulation of all food additives.

Labels would also have to be multilingual, an added expense for small business.

THE WINE AND BEER INDUSTRY

The fine grapes of Austria, combined with Roman technology, have resulted in a 1,000-year history of wine making. Along the Danube, wineries produce white wine; rose wine is made in the south of Austria, and red wine south of Vienna. Virtually all wineries in Austria are small businesses. In addition, the beer industry is significant in Austria, and breweries have historically been small family firms. In recent years, however, due to the low price of beer and high production costs, it has been necessary for breweries to enlarge and adopt mass production techniques and practices. Competition from German beer also has aggravated the situation. Consequently, only about 30 beer producers remain in Austria, and most are medium-sized enterprises.

TOURISM

This essay would be incomplete without mention of this primary source of Austria's foreign exchange revenues. In contrast to countries where hotels tend to be large and parts of chains (Holiday Inn, Hilton, etc.), a majority of Austria's thousands of hotels are family-operated. Many of these hotels have been owned by the same family for decades or even centuries. For instance, the Josef Ortner family has owned the Weisses Kreuz Hotel in Innsbruck since 1465. Mozart stayed at the hotel as a teenager.

CONCLUSION

The Austro-Hungarian Empire was home to 50 million people. Its capital city, Vienna, had 2.5 million citizens; the great industrialized zone of Europe was nearby. Following WWI, Austrians were forced to think smaller. Today, Austria has a population of 7 million, with 1.5 million in Vienna. During the industrial revolution, people migrated to the steel producing areas near Vienna. During the Cold War, the trend was to move away from the rural areas and small towns in the eastern parts of Austria bordering the Iron Curtain. People were moving to Vienna or to metropolitan centers in the west of Austria, particularly the Tyrol. Simultaneously, the economy of Eastern Austria became depressed relative to its west, where tourism became important. Although the government offers direct subsidies for job creation in the east, its economy continues to lag. Unemployment (5 percent nationally) is concentrated in the east, mostly among young people and women. Nevertheless, Austria enjoy! s a healthy economy overall. From 1945 until the recession of 1968, there was much growth. In recent years the economy has picked up again, and real growth rates of the Austrian GNP reached 3.9 percent in 1988, 4.0 percent in 1989, and 4.6 percent in 1990. While the industrialized countries of the west suffered a recession in 1990-1991, growth in Austria remained positive during this period, with the rebuilding of former East Germany and changes in Eastern Europe being important contributors.

Central to the Austrian economy is a multitude of small businesses, none of which are high-tech or capital-intensive. In services, tourism, manufacturing, crafts, shops, and on farms, the key word is not entrepreneurship, but rather, small business.

REFERENCES

Barth, F., ed. (1963), The Role of the Entrepreneur in Social Change in Northern Norway, Norwegian Universities' Press, Bergen.

--(1967), "On the Study of Social Change," American Anthropologist LXIX, 661-669.

Blatt, Rena (1988), "It's Time to Define Entrepreneurship," in Readings in Entrepreneurship and Small Business Development, ed. Raymond W. Y. Kao, Toronto: The Ryerson Centre of Entrepreneurship, 95-101.

Carland, J. W., F. Hoy, W. R. Boulton, and J. C. Carland (1984), "Differentiating Entrepreneurs from Small Business Owners: A Conceptualization, Academy of Management Review IX (2), 354-359.

The Economist (1989), "Economical and Financial Indicators," March 11, 106.

Goffee, Robert, and Richard Scase, eds. (1987), Entrepreneurship in Europe. London: Croom Helm.

Schumpeter, Joseph A. (1912), Theorie der Wirtschaftlichen. Entwichlung, Munchen and Leipzig: Dunker und Humblat.

--(1934), Change and Entrepreneurship. Harvard University Press, Cambridge.

Stephens, J. (1979), The Transition from Capitalism to Socialism. London, MacMillan.

Storey, S. S. (1982), Entrepreneurism and the New Firm. Beckenham: Croom Helm.

Strinati, D. (1982), Capitalism: The State and Industrial Relations. London: Croom Helm.

1 For every rule there is an exception: and the son of one of the few remaining traditional industrial families in Austria, car racer Nikki Lauda, might be considered such an exception. Although the family's wealth was lost with the crumbling of the Habsburg Empire, the banks were willing to finance a member of the Lauda family. The result was formation of a medium-size entrepreneurial firm in post war Austria: Lauda Airlines.