Economic philosophy in Australia

In 1971, declining faith in Keynesian demand management economics led to the breakdown of the post-World War II Bretton Woods international monetary system. An international system of free options replaced Bretton Woods.The free options system placed greater reliance upon Milton Friedman's monetarism, and neoclassical economics. Major structural change occurred to the economies of former Bretton Woods members as they adjusted to the new international monetary regime.

Looking back from 2025, this discussion examines structural change to the Australian economy post Bretton Woods collapse in 1971.

1. Structural reform

The Whitlam Labor Government elected in 1972, lead a progressive and reformist government that believed in an expanded role for the Federal Government in the fields of education, welfare, and urban planning. In his 1975 Budget speech, Treasurer Hayden confirmed Labor's change from the Keynesian post War era: "We are no longer operating in that simple Keynesian world in which some reduction in unemployment could, apparently, be purchased at the cost of some more inflation" .The underlying economic philosophy of the 1975 Treasurers speech approximated Friedman Phelps inflationary expectations theory already entrenched in the Australian Treasury. The Whitlam Government was defeated in 1975

Early In February 1975, the Liberal Party had circulated a monetarist document recommending restraint in monetary growth. Elected in November 1975, Malcolm Fraser's Liberal Government, committed to conservative values, embraced monetarism by introducing monetary targets in 1976. Over the late 1970's, there emerged a political term "the New Right" to describe the Fraser Administration. The "New Right" argued for monetarism, reduction in the size of government, privatisation of public services and enterprises, and deregulation of wage and labour markets. Supporters of the New Right movement comprised business groups, think tanks, farmer groups, sympathetic academics, politicians, and economists.

In 1976, The RBA introduced a new macro-economic model of the Australian economy which became known as RB76. In his book, Australian Monetary Policy 1950-1975, D.C Rowan describes RB76 as a relatively small neo-monetarist model as it emphasised the role of monetary disequilibrium. Although already established in the US and Britain, monetarist thinking had arrived in the Australian central bank.

On election of the Hawke/ Keating Government in 1983, significant structural reform of the Australian economy began. A right of centre corporatist economic system replaced the left of centre Keynesian system in which government enterprises competed with private enterprise particularly in the financial and transport sectors. In a corporatist economic system, Government decision making is structured around a limited number of decision-making institutions drawn from business, trade unions, professional, and farmer groups. Corporatist groups are thought to represent the important interests of individuals in society.

Under Hawke, exchange rate management became the responsibility of the monetarist RBA. Meanwhile fiscal policy and industry protection remained with the Government. Over the 1990's privatisation of public enterprises began. In 1991, Prime Minister Hawke issued a Budget document in which industry protection was either reduced or abandoned over a given time frame. Australia finally joined the international movement of "free options". The Australian economy became an open economy trading with the world.

In 1993, under Prime Minister Keating monetary policy became unofficially the responsibility of the RBA. The RBA adopted NAIRU as the basis of setting interest rates. NAIRU or Non-Accelerating Inflation Rate of Unemployment is an accepted alternative term for monetarisms natural rate of unemployment. In 1993, Prime Minister Keating replaced the awards based industrial system with enterprise bargaining. As Government retained management of fiscal policy in the open globalised economy, a monetarist/ neoclassical synthesis emerged as the basis of Australian macro-economic policy.

Elected in 1996, the Howard Government officially confirmed the independence of the RBA to manage monetary policy. John Howard, noted for New Right beliefs, changed industrial relations with the introduction of the Workplace Relations Act which introduced enterprise bargaining between an employer and employees. In 2005, this Act was amended to establish a national wage system of enterprise bargaining. The 2005 Act became known as Work Choices.

With the inclusion of the "Australia Clause 3.7", Prime Minister Howard signed the Kyoto Protocol in 1998. Howard did not ratify Kyoto as it was thought climate policy could cost Australian jobs. In 2007, the Rudd Labor Government ratified the Kyoto Agreement. In 2011, the Gillard Labor Government introduced the Clean Energy Act and introduced a carbon tax. In 2012, Prime Minister Gillard committed Australia to the second phase of Kyoto.

Faced with Covid, in 2020, the RBA began quantitative easing buying $80B Commonwealth Securities and $ 20B State and Territory Securities. Monetary management was considered necessary to fund government assistance programs necessary to provide support to communities, business, and individuals affected by Covid policies. In March 2022, the RBA ceased quantitative easing and began quantitative tightening which involved selling securities to shrink the money supply.

From Bretton Woods to Covid, the Australian economy and its citizens have faced structural change experienced previously only in times of Depression and World Wars. This discussion attempts to bring some structure to a discussion lost in political and economic ideologies from the past.