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The Whitlam Papers show how poorly past mistakes have been understood

By James Cumes - posted Wednesday, 21 January 2004

The Whitlam Papers, just released, are important not so much because they demonstrate a certain degree of incompetence on the part of the Whitlam Government as because they show us that our incapacity to handle economic and social policy wisely and positively is as great today as, and much less excusable than, it was between 1972 and 1975.

I was then a First Assistant Secretary in the Department of Foreign Affairs. Sir Keith Waller was Secretary and "Mick" - later Sir Keith - Shann Deputy Secretary.

The Whitlam government was initially a two-man team of Whitlam and Barnard. Charlie Jones told me that he had been setting off, with his family, for a Christmas holiday break late in December 1972, when a telephone call came to his home. It was from Whitlam's office telling him that the government was about to announce a lift in the value of the Australian dollar.


At the time, Shann asked me what, in the light of that appreciation, I thought of the government's prospects. My response was: "It's a Scullin government."

By that, I meant that, just as Scullin assumed office as Prime Minister in 1929, at a time when public policies and academic advice were comprehensively unable to handle a deep economic and social crisis that had worldwide implications, so the Whitlam Government was confronted with the same intractable situation - and one of course with which other governments around the world had been and, long afterwards, continue to be unable to deal.

In its simplest terms, the essence of the problem was the belief - a belief that persists today - that inflation can be cured by a hike in interest rates or, more generally, by "damping down the economy". In fact, those policies increase inflation, inter alia, by reducing supply while demand is held up by unavoidable government expenditures. The appreciation of the Australian dollar was only one factor inhibiting real investment, productivity and production in Australia while the Whitlam government was, of course, intent on expanding government expenditures especially to improve social welfare and the living standards of the working man and woman.

At the end of 1970, I had already written a book called The Indigent Rich, which explained the sort of policies that were needed, especially in the light of the experience of the policies of the Nixon government since July 1969 and their impact on production, employment and inflation. The term "stagflation" had not then been coined but it was a phenomenon that would preoccupy governments throughout the 1970s. (Since then, American and Australian domestic consumer-price inflation has not been "solved" but shifted into large, chronic balance-of-trade/payments deficits.)

The then Minister for Foreign Affairs, Nigel Bowen, saw merit in the policies advocated in The Indigent Rich and recommended them to Treasurer Billy Snedden. However, the Treasury could neither tolerate such a turnaround in policies nor entertain proposals for economic and financial policies coming from a senior officer of the Department of Foreign Affairs. One senior Treasury officer described the author of The Indigent Rich as a "dilettante." Mainstream academic attitudes at the time - and indeed since - supported the Treasury position.

This was the atmosphere of economic policymaking when the Whitlam government assumed office in December 1972. They had little or no option but to follow mainstream economic policies - which had been, of course, explicitly adopted by the United States, Britain and most other Western governments - and to intensify a range of economic and financial problems by embarking on labour and social policies to which they had become dedicated during the 23 years they had spent in the political wilderness.


The decision to appreciate the Australian dollar was taken by Whitlam in consultation probably with Treasury and with the team of officials, including such gifted people as Peter Wilenski, in the Prime Ministerial office. The full Cabinet had not then been appointed and Barnard is unlikely to have played an active role. Whether Frank Crean was consulted, I do not know.

I might interpolate here that, in the few exchanges I had with Crean, before and after he became Treasurer, I found him more flexible and imaginative in his approaches than Treasury, but no doubt the weight of Treasury dogma pressed down on him as time passed.

The decision to cut tariffs by 25 per cent was taken without any prior consultation with the Department of Foreign Affairs nor, so far as I am aware, with Minister of State Willesee. (Whitlam was originally his own Foreign Affairs Minister - until 1974 - with Don Willesee doing the day-to-day work as Minister of State.)

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About the Author

James Cumes is a former Australian ambassador and author of America's Suicidal Statecraft: The Self-Destruction of a Superpower (2006).

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