Post-1945 Austria was an economic success. In particular, the Austrian response to the oil and inflation shocks of the 1970s is often held up as a model of how small welfare states can adjust. Peter Katzenstein wrote a fundamental book, Small States in World Markets: Industrial Policy in Europe (Ithaca, 1984), which is oddly not cited in this comprehensive and well-documented study of postwar Austrian policy making by Christian Dirninger. Katzenstein's book was about the political framework needed to establish the basis of social and economic consensus. Dirninger instead orients his approach to Austrian policy through the neo-Schumpeterian lens provided by Mariana Mazzucato in The Entrepreneurial State: Debunking Public versus Private Sector Myths (London, 2014), although he gives rather few concrete examples of effective state entrepreneurial actions or initiatives. (There are plenty of examples of failed or excessively expensive interventions.) He begins and ends the book by suggesting ways in which the Austrian experience could provide a helpful guide for contemporary Europe as a whole.

The term “Austro-Keynesianism” was developed in the late 1970s by Hans Seidel, the director of Österreichishes Instit für Wirtschaftsforschung, Austria's leading institute for applied empirical economic research that had been founded in 1927 by Friedrich August von Hayek and Ludwig von Mises. Chancellor Bruno Kreisky thought the term analogous to the use of Austro-Marxism as a political concept, in that that social democratic approach did not really owe much to Marx. Kreisky's assessment is fundamentally accurate: the classically Keynesian instrument of contracyclical fiscal policy was not really at the core of the Austrian approach. In some ways, then, the “Keynesian” label was a smokescreen for something rather different. One definition of the peculiarity of Austro-Keynesianism, provided by Gunther Tichy, argued that it lay in the “multifunctionality of instruments”: in other words, there was not a strict limitation of one instrument for one goal, as laid out in the Tinbergen rule, but instruments were intended to achieve several goals simultaneously.

The new Austrian vision involved a close coordination between monetary and fiscal policy, which also entailed a guided approach to incomes policy between the “social partners,” employers’ interest organizations and trade unions. The central relationships were in the triangle between the Austrian National Bank, the central bank, the finance ministry, and the union leadership. They could be nicely coordinated within the political bracket if the ruling party of the 1970s, the Social Democrats (SPÖ).

Another idiosyncratic and defining feature of Austro-Keynesianism that does not look at all Keynesian was that the heart of the policy lay in a hard currency framework. The primary anti-inflation instrument was the tying of the Austrian schilling to the German Deutsche Mark, long before Austria joined the European Community/European Union. In consequence, the main architect of the economic and financial policy, the social democrat Hannes Androsch, Finance Minister from 1970 to 1981, thinks that the policy might as well have been called “Austro-monetarism.” It was a characteristically social democratic policy, while the opposition Christian Democrats (ÖVP) and industrial interest associations would have preferred a devaluation to take the pressure off the trade balance and the current account. The line was strongly supported by the trade unions, which feared that a depreciated exchange rate would mean lower real wages.

A basis of the policy was laid by memories of the interwar period. Kreisky often went back to arguments about the lessons of hyperinflation in the early 1920s, which had destabilized the First Republic. Androsch also pointed out that “soft currency” countries such as Italy and the United Kingdom had to submit to humiliating adjustment programs under the supervision of the International Monetary Fund, while Austria still lived with the painful memory of the dysfunctional imposition of League of Nations programs in the 1920s, so that the UK approach would be “unacceptable” for Austrians (188).

The monetary peg had direct consequences for the budget. From 1978 to 1981 a fiscal consolidation was explained in terms of the creation of a larger budgetary room for maneuver. So it was necessary to turn to other ways of keeping up employment. Credit policy appeared as compensation for fiscal consolidation. In particular, from 1979 the liberalization of financial services was seen as a way of meeting economic needs. In 1981, limits on credit growth were lifted. Androsch also started to turn to infrastructure policy as a key to realizing productivity gains.

A political shift, to an SPÖ-ÖVP coalition government after 1986, produced some modifications, as the ÖVP had campaigned on the desirability of pushing back “socialism.” By the mid-1980s, the state industries required enormous subsidies, and policy moved in the direction of privatization. From the early 1990s, the major banks were also privatized, and a new boom began as a consequence of the new centrality of Austria as a financial center for postcommunist central Europe.

Dirninger makes a convincing case that the basis for successful development was laid in the 1970s, and that elements of the confused but cooperative policy mix remained. The question of exporting that model to other and larger political units is never quite answered: it may be that the Austrian model depended on a deep web of contacts and influence that cannot easily be replicated on a larger scale.