On January 13, 2005, "in welcoming the latest job figures as further proof of economic vitality," the Australian Prime Minister said:
We had strong growth in the late 1960s, but at that time our economy was very heavily protected. It wasn't much of an advertisement for a market economy. But if you fast-forward to the early part of the 21st century, you find that so much of that has changed. We have a floating exchange rate, we have negligible levels of tariff protection, we have reformed our taxation system, we have a far more open industrial relations system, and I hope that in a few months' time we will have an even more open industrial relations system.
This is a fascinating statement in so far as it provides evidence of the superficiality with which our political masters - not only in Australia but elsewhere - treat our economic situation and interpret our history. There is a great deal that is political spin - to demonstrate what a great job the current government is doing. However, there is, above all, a great deal of ignorance of the past and of the dynamics of the current economy.
The prime minister is correct in saying that Australia "had strong growth in the late 1960s". Indeed, that growth was so remarkable as to be unprecedented. The unemployment rate was not much more than one per cent - and sometimes less. The savings rate was comfortably able to sustain a high level of real, fixed-capital investment from domestic sources. In those years, we supplied upwards of 90 per cent of our own capital needs with about 10 per cent coming from overseas; debt was tiny to non-existent. Consumer debt was, in any quantity, yet to come. The inflation rate ranged between one and under three per cent, until the government, from 1969 onwards, began raising interest rates and applying fiscal policies to "slow the economy".
During the decade of the 1960s, if real private investment was high, so also was public investment, especially from 1965 onwards. Investment in education, health, transport and communications and virtually every other form of public spending doubled and then began to double again, all in the space of three or four years.
Prime Minister Howard says, "It wasn't much of an advertisement for a market economy". In some ways, that is indeed true, but in the sense opposite to that which Howard intended. Rather was the economy so strong that it provides solid evidence justifying a return from today's "market economy" to the "mixed economy" that we had in the 1960s.
In that mixed economy, the government acknowledged and lived up to its economic and social responsibilities. It did not abdicate its responsibilities to "the market". It participated actively in the economy through government-owned banks, transport systems and the like, and it attended to the economy's infrastructure requirements in ways that were wise and far-sighted. That it was a market economy was undoubted: but it did not allow the market wholly to dominate the society; it did not confer unmitigated authority on "the bottom line"; and it did not encourage massive speculation through bubbles in real estate, on the stock exchange or, most particularly, through free-floating currencies.
Mr Howard appears to take pride in the fact that now, "We have a floating exchange rate, we have negligible levels of tariff protection".
We must wonder whether he has the faintest idea of the dynamics of trade and the ways in which "free-floating exchange rates" and "tariff protection" are related. In the 1960s, Australia did tend to have higher tariffs than we have now. Mainstream economists tend to assume that tariffs both protect domestic industry and make domestic industry uncompetitive in world markets.
However, there is a curious contradiction of this theory in Australia's export performance in 1965 on the one hand and 2005 on the other. In 1965, we were exporting substantial numbers of Australian-made Holden cars and vans to, for example, South-East Asia and Nigeria. In 1966, the Nigerian government made changes to their tariffs on cars, based on engine capacity. The Holdens would have incurred higher import duties so, as high commissioner, I was instructed to make representations to ensure that we retained what was a useful market. My representations were successful and we continued to export Holdens to West Africa - until, by our own policies, we destroyed our market in so many things in so many places.
Holdens weren't the only Australian item of manufacture that we exported to West Africa then. The Kingsway Stores and other retail outlets offered a whole range of Australian clothes and textiles, confectionery, pharmaceutical products, patent medicines, and so on.
All of that stopped long ago, and the more we lowered our tariffs, the more rapidly our markets were lost. If we gained in competitive strength, it was not reflected in the size and diversity of our export markets. That is a part of the history of our export trade, of which our present prime minister seems completely unaware.