Shifts in the production structure

In economic terms, a war economy can be regarded as a process of excess strain on the gross national product in the form of consumption by the state, accompanied by a serious decline in real wages (and thus mass purchase power). This development is accompanied by strong growth of the armaments sector. In the Austro-Hungarian Empire, this part of the economy was, until 1914, concentrated on a small number of major enterprises – in the Austrian half of the Empire the Skoda works in Pilsen, Hirtenberger Munitionsfabrik, Waffenfabriks-Gesellschaft in Steyr and Stabilimento Tecnico Triestino. In the war, practically the entire heavy, mechanical engineering and metal industries worked for military requirements.

In the course of the rearmament process, there soon occurred regional shifts in production capacities. The economic problems of the start of the war affected all industrial regions of the Empire equally. In the course of the war, arms production was shifted for political reasons – Czech workers in Bohemia being regarded as unreliable – to the safer Vienna basin, in particular the region around Wiener Neustadt. This shift had far-reaching consequences for the post-war period. The difficulties in converting to peace production, further increased by the collapse of the Empire in autumn 1918, led to a rise in unemployment. But even where the adjustment to civilian production was approached rationally (as at the Steyr works in Upper Austria, where even during the war major investments had been made for post-war automobile production), the problems were large because the Empire’s huge market was no longer available.

Four years of the war had fundamentally changed the structure of the Austrian economy. While the pre-war period had been dominated by the production of consumer goods, after 1918 the larger part of industrial workers were in the heavy and capital goods industries. The war years had led to a collapse of investment in civilian production. Many enterprises, such as the Krupp works in Berndorf, had lost their traditional prewar sales markets, one of the major causes of the economic difficulties and persistent unemployment in the First Republic. In the mid-1920s, unemployment in the metal industry was 30%, the consequence of the unsolvable problems of the conversion to peace-time production and significantly higher than in paper production and the chemical industry, where it was around 3 to 4%. The collapse of the Empire amplified these problems, because it broke up the links between what were now ‘transnational’ production facilities and at a stroke challenged the traditional regional division of labour in the Danube area.

Translation: David Wright