Australia’s Miracle Economy

Commentary, Frontier Centre, Globalization, Worth A Look

Australia is today’s true miracle economy. In the past decade, our economy has gone from strength to strength. After weathering the 1997-98 Asian financial storm, we’re into the 21st century with sustained economic growth of up to 4 per cent, unemployment less than 7 per cent, inflation less than 3 per cent and record low interest rates. The long downward trend in our living standards has been reversed.

What’s more, Australia’s remarkable economy has been achieved at a time when western Europe, the US and Japan are either recording low growth or mired in deep recession. No wonder John Howard boasts that the Australian economy is ‘the envy of the industrialised world’.

So whom should we thank for Australia’s impressive economic performance in the face of a deteriorating international environment? I suggest we thank the ‘dries’, that group of economic thinkers who have fought the good fights to make the Australian economy less dependent on the nanny state and more competitive in an integrated global economy. Also known as economic rationalists, the dries sought to replace the wets’ high-taxing, big government agenda of the 1970s with a set of free-market policies such as deregulation, privatisation and tariff cuts. By the mid-’90s, their agenda—with the exception of labour market reform—was substantially achieved. The result? Australia’s miracle economy.

Following Gough Whitlam’s defeat in 1975, Australians began to appreciate the philosophy of economic liberalism. Yet little changed in the way we were actually governed. In the Fraser years, 1975 to 1983, the dry ideal found many champions in and outside of federal parliament. But despite his 55-seat majority, Fraser was a cautious, even timid prime minister who was terrified of vested interests.

Fraser’s policies were a grab bag of popular measures including some that were inconsistent with the core undertakings to restore the economy to health, return the budget to responsible balance and reduce unemployment. He failed to cut stifling regulations, tariffs and licences that favoured the few at the expense of the many. And although he reduced the government deficit by raising taxes, he squandered even that gain by trying unsuccessfully to buy office with the 1982 budget.

But from 1983 onwards, the Hawke government embarked a period of genuine radical leadership, to an unusual degree taking the public into its confidence. Chastened by the performance of the Whitlam government, the Hawke governments advanced the long-term national interest by deregulating the financial markets, floating the dollar, cutting import protection and privatising and deregulating inefficient state-run industries.

The attitude of the Coalition opposition was at least as remarkable. After all, oppositions are usually much less responsible than governments. But chastened by the performance of the Fraser government, the Howard and Andrew Peacock-led oppositions allowed the government to reform without political cost.

The Hawke administrations deregulated, reduced industry protection and privatised with a will that matched any government anywhere then, or at any time in Australian history. It cut wasteful expenditure and produced substantial budget surpluses. The opposition often led the debate. Good policies were on the whole defended with economically rigorous argument—Hawke’s response to the Garnaut report on zero tariffs, for instance. The leaders led, and the electorate returned Hawke several times at the height of his government’s reforming zeal.

OF course, the decade of reform from 1983 to 1992 did not arise from the Pauline philosophical conversion of our political leadership. It had known what it ought to be doing well before 1983. But from the time of the Hawke government, both main political forces mustered the intestinal fortitude to accept advice from conventional sources to pursue policies, such as tariff and public deficit reduction, that could not yield public benefits and votes until well beyond the immediate elections.

Asserting that they would sooner not be elected than abandon policies that they knew were in the national interest, Labor, Liberal and National Party leaders defended them—in short, they led. Today’s prosperity is largely due to those policies of the ’80s.

But since those heady times, spooked by minor parties that filled the populist space that they had vacated, our leaders have been significantly more willing to compromise policies that they know to be in the long-term national interest.

In the ’90s, the federal government’s inclination for reform abated. Federal politicians who once led the charge for economic freedom and generously supported a reforming Labor government have reverted towards, but not yet to the habits of, the Fraser years.

The defeat of John Hewson’s Fightback! package in 1993 was to a disingenuous campaign. Paul Keating’s spending spree was like Fraser’s a decade earlier, although at least he left us competition policy.

At least Victorian premier Jeff Kennett was about to give Victorians an economy that could again compete with rest of the nation.

As prime minister, Howard has not matched his promise in opposition in the ’80s. Still, he got the federal budget into good shape only to squander much of the gain and some additional GST revenue prior to the 2001 election. And although he was not blessed with a co-operative opposition, Howard tried to reform the labour market. But while he has attempted to reduce government favouritism in ethnic, employment and social welfare policy, he’s increased the privileges available to several industries.

The benefits that Australia enjoyed in the past decade were only those that the ‘dries’ predicted in the ’70s and implemented in the ’80s. Our changed fortunes did not come about by chance and it’s clear that the gains could all too easily be squandered. Because today’s policies determine tomorrow’s living standards, it would be tragic if Australians forgot how today’s miracle economy was achieved.