Author: Florian Klenk
Published: REPORT. Magazine for Arts and Civil Society in Eastern- and Central Europe, September 2007

Dr. Christoph Badelt
, is director of the Economy University Vienna since march 2002. As an economist his main territories are : Nonprofit-Organisations, Social Policy, Family Policy, Handicapped-Politics, Socialmanagement and Social Welfare State.

Dr. Florian Klenk
is editor of the weekly newspaper “Falter” (Vienna). He got the Claus Gatterer prize 2002.

Economy University Vienna

“Without the EU the poverty would be far, far greater!”

Florian Klenk in conversation with Christoph Badelt, Rector of Vienna University of Economics

Christoph Badelt, Rector of the University of Vienna, about the dangers of the EU enlargement, the need for European social policy, the provincialism of local politicians and the trouble with the new tuition fees for Eastern European students.

Professor Badelt, after the euphoria that greeted the expansion of the EU we are now facing a sobering-up period. Critics point out that the advantages of the expansion were exaggerated. While the urban elites will soon bask in prosperity, improvements in rural regions will most likely take decades. Were the economic blessings of the EU expansion overestimated?
Perhaps its sounds somewhat paradoxical that I, as an expert in economics, should say this, but the expansion is less an economic and more a politically important phenomenon. What is truly significant is growing together on a political level and stabilising political structures. We already saw this during the expansion of the EU in a southern direction. I believe that we will advance very rapidly in the political area. Broad sectors of the population in the new member countries have placed great expectations in their countries' membership and hope not to be disappointed.

How great is the danger that this could be the case?
This is difficult to predict. But one thing is certain: the process of economic adaptation will be accompanied by many painful experiences for the new member countries, above all for those members of the population working in unproductive businesses and in agriculture. One of the main tasks of the EU will be provide social cushioning.

When we take a look eastwards we can observe two phenomena: on the one hand a dramatic competition in terms of taxation rates – catchword: 19 per cent corporation tax in Slovakia. At the same time there is a call for subventions from the West. German Chancellor Gerhard Schröder is already muttering that Germany will not finance competition against itself. Is this political sabre-rattling or a justifiable worry?
We have to differentiate here. If the issue is the competition between political systems – say the competition as to who can offer the lowest taxation rates – then Schröder is indeed broaching a thorny theme. It is paradoxical that we give subventions to countries that then compete unfairly against us through taxation dumping.

Is there any remedy for this?
It must be possible to prevent this on a political level. One must also examine the legal possibilities. But we come back to the competition between private economic systems: I am of the opinion that in the EU expansion we are seeing at a small scale what we will experience outside the borders of the 25 member states at a far larger scale. We will have to face the consequences of worldwide inequalities. We cannot allow ourselves to believe that we can maintain a high level of employment together with high social standards while still enjoying the low costs of production carried out under low wage conditions.

Does this mean more work and fewer social rights?
Indeed it does. We purchase cheap products at relatively economic prices. These prices are so low because, even allowing for the producers' profits, the costs of labour are even lower and because of the low social standards in the producing countries. To believe that we can preserve our high social standard and our high level of employment while still keeping these economic prices and our current level of prosperity is simply naïve. This is one of the basic problems of the modern world economy.

Critics would here object that the level of competitiveness is not just a question of longer working hours but above all of technology and research. Has Austria prepared itself adequately? A look at the transport routes makes one doubtful.
The transport connections are indeed appalling. But the level of presence of Austrian firms in the new member countries is excellent. Here I do not mean just the OMV but, for example, the banks, the insurance companies and the building industry also. The private economy has prepared itself well. If someone today says that he is going "east" then this is a little bland, if he wishes to be in the forefront he must today venture beyond the borders of the 25 EU member countries.
Do you have the impression that our political elite is less at home in the Eastern European countries than our business world?

Our politicians still want us to believe that the small nation state remains the centre of power. Only certain groups in this country do this. But I regard it as a dramatic failing on the part of politics to work on the one hand for the eastern expansion while on the other shifting the blame for everything negative to this same eastern expansion or even to the EU. This is an extremely dangerous and shortsighted way of thinking.

Why is it still so widespread? Does the EU mean something different to us? Are we less tied to its values?
This is the temptation of a shortsighted populism that operates with half-truths and transfers responsibility for unpopular decisions to Brussels and Strasbourg. For example: when the issue of nominating the new members of EU commission arose all our politicians viewed the nomination of an Austrian EU commissioner only from the standpoint of someone who represents Austrian interests. This is surely is a punishable distortion of the function of a EU commissioner!

The Agriculture Commissioner Franz Fischler was also described here as a traitor. We sense a certain provincialism that clearly does not exist in the business world. This seems to be the case. This is something one hears time and time again. The Austrians do not have such a good reputation in Brussels because they tend to think in a shortsighted way of their own immediate interests.

Let's go back to European social policy: Eastern European political experts compare the present situation with that in the 1930s. We are also experiencing in Vienna a growth in poverty from the East: Our prisons are filled with people from poorer regions of Eastern Europe. How can we deal with this problem?
I agree with the prognoses of these experts. But without the EU this poverty would be far, far greater. It is a poverty that comes from the underdevelopment of these countries. Their economies were run inefficiently for decades. I believe that the expansion is the best possible thing. By means of the sharing burdens we can at least do something for these countries. We can provide them with incentives through social programmes and economic subsidies.

The FPÖ and the trade unions are already issuing warnings about what will happen when the restrictions on the free movement of labour are lifted. They maintain that this will lead to a flood of cheap labour. At the same time businesses are moving into the East. Is there reason to be worried?
I regard these fears as exaggerrated. Of course, one should not deny the dangers. But migration of labour, as well as the transfer of workplaces to regions where labour is cheaper, are both trends that already exist. Naturally, this results in a move towards wage dumping and deteriorations in social conditions. This is undeniable. The EU will also strengthen this trend. But during the southern expansion of the EU prognoses of the same kind were made and in fact the labour forces turned out to be far less mobile than many had wanted us to believe. The barriers of language and culture remain. The great mass of people will not emigrate.

Is there now a considerable temptation to reintroduce the major debate on labour legislation that the trade unions believed was settled long ago? In Germany employees are working longer hours again in the Daimler works. Is industry exploiting the situation in order to increase its profits at the cost of employees?

Now we have arrived at the theme of Austrian economic policy. Naturally, the situation is being exploited. But labour costs also play a role here. Let me state one thing: the major social differences today are those between workers with regular employment conditions and those who are atypically employed or the unemployed. In socio-political terms it would be a far better thing to reduce the status of the classic employee somewhat in order to help those who are really underprivileged.

Back to the East: when talking to Eastern Europeans one hears that many of them fear that Austrian companies are buying up their economy, taking away the profits and cutting back jobs. Is this fear justified?

This is the regular process of the market economy system. When the OMV buys a Rumanian oil refinery it will naturally have to reduce the number of staff in order to increase productivity. On the other hand Rumania can never become prosperous without increasing productivity levels. The standard textbooks call this "the adaptation crises of a capitalist system".

Catchword adaptation crisis: in Germany the population is groaning about the reform of the labour market. The reunification of Germany is anything but completely processed. The former Chancellor Helmut Schmidt, a Social Democrat, has warned that it has not been possible to build up a middle class in former East Germany. Most of the money goes to pensioners and the unemployed. Is this the fate facing the rest of Europe?

Here I am afraid I cannot attempt a prognosis. The fact is that the Germans wanted to carry this out this transformation at a breathtaking pace.
But this is also what the EU wants. We have to pause here for a moment. How long did these countries have unproductive planned economies? Around forty years. It is impossible to catch up so quickly. This is a long-term process.

Keynes says that in the long term we will all be dead. Will we experience real prosperity in the East? When will the level of wealth in Kosice (eastern Slovakia) match that in St. Pölten?

Instinctively I would say: in anything under twenty years the differences will still be clearly noticeable.

Let's move to the area of education and research. How have Austria's universities prepared themselves for the expansion?
We have hundreds of students from Bulgaria. We have partner universities, special programmes, summer universities, our own areas of competence for the training of Eastern European managers, we offer courses where we teach Eastern European languages, we have an Eastern Europe research focus. At the WU 20 per cent of our students are foreigners.

What is your impression of these students from Eastern Europe?
All the people I have met have been fully committed. The strength and willpower that I have encountered are most impressive. Naturally, these are the people that have managed to cross the border. We have one major worry: the students from the new member countries now have to pay fees. This is a major theme. If the foreigners do not pay anything we are faced with a gap in our budget that we cannot bridge. We cannot do without these fees. I hope however that this will not reduce the number of foreign students.

Do Austrian students go East?
Those who go to Eastern Europe have excellent chances. But students continue to orient themselves principally towards America. They can never get a professorship if they have not spent a certain amount of time in America.

Thank you for taking the time to give us this interview.