The Austrian Delusion
Friday, March 19th, 2010NOTE: To Stowe Reporter readers who had been told today’s post would be about some interesting new health studies: that can wait until Monday. The following should not.
Let’s stipulate at the outset that the folks at the Burton Snowboard company know their business, and if they say they can make snowboards cheaper in Austria than in Vermont, then by gum, they probably can.
Aside from that, the entire discussion about Burton’s decision to move its manufacturing operations from Chittenden County to Uttendorf, Salzburg State, Austria, has been drivel.
Political drivel and economic drivel, all driven (or perhaps drivelled?) by the same pre- or mis-conceptions.
All described by news media who acted the part of clueless doofuses who believed everything they were told, and even a few things they were not.
To begin, with, the story was grossly overblown. The move will cost 43 jobs. That’s 43 of more than 335,000 employed Vermonters, or slightly more than one hundredth of one percent of all workers. Neither the pontificating politicians nor the credulous correspondents even know whether they’re particularly good jobs because Burton isn’t saying how much the production workers earn.
Yes, Burton is an “iconic” (could we possibly retire that word?) Vermont company; if snowboarding wasn’t exactly born in the state, it at least came of age here.
But…the company isn’t moving. Its headquarters and almost all its non-production operations are staying right in Burlington, and even, it seems, expanding. Yet WCAX-TV (Channel 3) opened its Wednesday evening broadcast asking whether Burton’s move raised the question: “Is Vermont business-friendly?”
Well, it’s the default position question, isn’t it? So everybody, starting with Gov. Jim Douglas and his minions, jumped on it with the conventional assumptions.
Which were only about 180 degrees off.
The conventional assumptions are that when a business moves anything out of Vermont, it must be because Vermont is “anti-business.” It taxes the rich. It imposes mandates on companies. It coddles the workers.
Compared with Austria?
Hello, everybody. Austria is in Central Europe. It has many attractions: a highly skilled and industrious work force, Alps, Vienna, schnitzel. But it is decidedly not a place to go to save money. Like the rest of Central (and Western) Europe, Austria is prosperous and expensive.
Not as expensive as Germany, Sweden, or France. But it’s not as if Burton was moving some work to Nicaragua, or South Carolina, where the social safety net is weaker. In Austria, it’s stronger.
You’d-a-thunk someone would have noticed that and raised some questions.
Does anybody still raise questions?
The Governor, to his credit, was somewhat restrained, recognizing that manufacturing is in trouble all over America. Still, he had to throw in that Vermont has “some costs that are particularly troubling to manufacturers,” including taxes and health care.
Others jumped on the bandwagon, apparently (and, as it turned out, accurately) confident that no one would question their premises. David Mace, the spokesman for the Agency of Commerce, told the Rutland Herald that Burton’s move showed that the state has to reduce taxes and “burdensome regulations.” Tayt Brooks, Commissioner of the Department of Housing, Economic and Community Development, said he hoped the Burton move “serves as a wake-up call to the Legislature…I mean we have bills…mandating paid sick leave…that really send a wrong message to businesses out there in the state.”
In other words, if Vermont adopts mandated paid sick leave (which it will not, at least not now), more businesses might move some of their operations to…well, obviously to Austria.
Where they have mandated sick leave, paid for by the employer at first, then by the Social Security system, said Wolfgang Renezeder of the Austrian Embassy in Washington.
(Note to Vermont reporters: Almost every country has an embassy in Washington. They are all in the phone book. Almost every one has a press attaché, most of them probably as helpful and courteous as Wolfgang Renezeder. Also, for information about economic conditions in other countries, there’s this thing called the Internet…)
Usually, when a business (or even a person) moves (or, as in this case, kind of moves) elsewhere, the immediate response is to argue that Vermont has to become more like the elsewhere.
Let’s examine that. To become more like Austria, Vermont needs:
(1) Higher taxes;
(2) stronger labor unions, probably meaning higher wages;
(3) Five weeks of paid vacation for almost everyone, said Renezeder, because “unions play a very important role in our economy and we do have very strong social rights;”
(4) An energy system that gets almost two thirds of its electricity from hydropower, wind, solar, and biomass, and none at all from nuclear reactors, which are against the law for generating electricity.
(Austria had a nuclear power plant once but shut it down after a nationwide referendum back in the 1970s.)
Does anybody else get the feeling that the above does not describe Utopia as defined by Jim Douglas and associates?
None of which means it won’t be good business for Burton to consolidate its production in Austria. It isn’t unheard of for European countries (like American states) to offer subsidies, incentives, or bribes as they are sometimes known, to convince businesspeople to expand.
Burton officials did not respond to a request for explanation, and a call to the home of CEO Laruent Potdevin was not returned.
So we’re into conjecture here. The population density of Salzburg State, where Burton’s plant is located in the city of Uttendorf, is smaller than Chittenden County’s, meaning land prices might be lower. But probably not much lower; it’s a ski resort area. Property taxes could be lower, too, because in general European countries have minimal local taxes.
But that elaborate Social Security system, the one that finances health care, pensions, and sick pay, costs employers up to 21.9 percent of each worker’s salary (and up to 18.2 percent from the worker), far higher than U.S. payroll taxes. Renezeder said the tax is progressive, “the more you earn, the more you pay,” unlike the flat rate in the U.S.
It’s always possible that Burton has worked out some kind of tax preference deal. But considering that, in the aggregate. Austrians pay one third more of their Gross Domestic Product in taxes than do Americans (this according to the Organization of Economic Cooperation and Development) it’s hard to see how any person or business could move from here to there and not have a higher tax bill.
Or, probably, a higher wage bill. Even if Burton’s Austrian employees are not unionized, most other production workers in the area probably are, which would keep wages on the high side.
From the company’s perspective, though, the workers might be worth it. Some of those Austrian taxes support an elaborate and apparently effective network of vocational schools. It’s a four-year course, Renezeder said, and the graduates emerge “very qualified, very productive.”
If that’s true, there may be a lesson for Vermont here: Improve vocational education. But unless Vermont wants to transform itself into America’s leading social democracy/welfare state, that’s the only lesson.
Except maybe that reporters should ask questions.





