by B A Santa Maria
Source: News Weekly, June 1st 1996
There were once two countries. For purpose of comparison let us call them “Country A” and “Country B”. To compare their respective economic achievements, let us put certain indicators down, side by side which are generally accepted by economists, as representing economic performance. We are speaking of annual averages over a period of years.
“Country A” thus had greatly superior economic growth ; less than one quarter of the unemployment; less than half the rate of inflation; enjoyed a significant rise in the level of average earnings (compared to a fall in “Country B”); less than half the level of interest rates; one half the deficit on the balance of current account (basically interest and dividends sent abroad).
By these tests the economy of “Country A” is not only superior, but vastly superior to “Country B”.
At this point let me confess that this is a parable. “Country A” and “Country B” are not two different countries. They are actually the same country - Australia - but at different eras of its history. “Country A” is Australia from 1953 to 1972, the era of the various Menzies Governments and those which succeeded his, until Mr Whitlam won power in 1972. “Country B” is Australia from 1983 to 1993, in the era of the Hawke and Keating Governments.
Indicators |
Country "A" Australia 1953-72 |
Country "B" Australia 1983-93 |
| Economic Growth (% Change in real GDP) |
5% | 3.3% |
| Unemployment (% of Labour force) |
1.9% | 8.6% |
| Inflation (% change in CPI) |
2.5% | 5.7% |
| Average Real Earnings (% change) |
3.6% | -0.2% |
| Interest Rates (5 year bonds) |
5.0% | 11.5% |
| Current Account Deficit (% of GDP) |
2.3% | 4.5% |
During the Menzies era unemployment was never permitted to rise above 2%. Economic growth was real and tangible (5%). Inflation was kept under strict control (2.5%). Wages rose at an average of 3.6%pa. Interest rates were (relatively) low; there was no privatisation or sale of State and Federal enterprises. Compared with today, the foreign debt was almost non-existent. The character of the economic philosophy which prevailed under Menzies can be correctly described as ‘controlled capitalism’.
The second era 1983 to 1993 began when the fie first Hawke-Keating Government applied the recommendations of the Campbell Committee of Inquiry into the Financial System. These centered on the complete removal of Government control over the banks, interest rates, the import and export of currency. Added to this was an acceleration in the rate of reduction of tariff protection, begun by the Tariff Board in 1970. The second system is correctly described as one of ‘freemarket economics’ or ‘economic rationalism’.
The current orthodoxy is that “free market economics” yield better outcomes than “controlled capitalism”. How this can be reconciled with the actual figures over the past two eras passes comprehension. The transformation from good results to bad results is clear.
The change of policy is justified on the grounds that by the process of “micro-economic reform”, we are radically re-shaping the Australian economy, improving the efficiencies of our industries by opening them to the cold blast of world competition. Over the past twenty years productivity has risen by 35% manufactured exports by 400%. Surely, this is progress.
Well, hardly. In the same period manufacturing’s share of the Gross Domestic Product (GDP) has actually fallen from 24% to 14%. Our manufacturing exports have certainly grown by Au$14 billion since 1996. But simultaneously our manufactured imports, have risen by Au$37.5 billion. In other words, our imports of manufactured goods have grown by two and a half times the value of our exports. Under the new “:efficient” system, manufacturing is losing ground all along the line.
One encounters the same statistical peculiarities, to use a gentle phrase, in descriptions of the “free market” in international trade eg the alleged superiority of the US free market system over Japan’s “controlled capitalism”. (The US’s “free market” exists, of course, only in those industries which suit US interests).
Professor Chalmers Johnson, President of the Japan Policy Research Institute, who knows Japan intimately, has described the situation quite differently.
“The English-language business proclaims that the US economy is strong and the Japanese economy weak... even though the Japanese save just under 20% of their national income and the Americans save next to nothing. Japan’s 1993 income was Au$36,615 per head as compared with the United States Au$24,075. Japan’s 1993 current account surplus was Au$131.1 billion, while the current account deficit of the United States was Au$105.7 billion... It will not be long before Americans will have to start paying premium interest rates to attract foreign savings to finance their self-indulgence. And there seems not to be a single American leader devoting one iota of attention to the situation.”