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Is Rudd another Scullin?

By James Cumes - posted Friday, 23 November 2007


For Curtin and Chifley, the revolution was well prepared and they succeeded. For later Labor Governments, the way was never sufficiently prepared. The Whitlam Government had no idea how to deal with the problems of the 1970s. The Hawke and Keating Governments thought they did know and, in the process, led us down a highly conservative, right-wing, Reagan/Thatcher road that now threatens to destroy global stability and Australia’s economic, political and strategic security in a highly toxic global environment.

Where does that leave us with a Rudd Government? Past governments have failed utterly to make us the "Tiger" we should have been in the world that followed the breakdown of post-war stability between 1969 and 1971. Instead, they have left us exposed to all the hazards that flow from “floating” exchange rates, massive global speculation, reckless deregulation, opportunistic privatisation and, most recently, the escapades of the financial adventurers, who have flogged credit and other dubious derivatives around the world. These various financial “enterprises” have, inter alia, feasted on pension funds which, in turn, in our privatising mania, have fed on millions of pensioners whose future financial security is now gravely at risk.

There is nothing in what Rudd, his shadow ministers or advisers have said and indeed nothing in the pronouncements of academics, "experts" or anyone else, that suggests that the incoming government - whether it be Labor or Coalition - has the faintest idea of the nature, scope and magnitude of the problems that confront us or of the ways in which they may be resolved.

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Unless the incoming government is extremely lucky, the crash will become manifest in the next few weeks or at the latest by March 2008. The United States is almost certainly in recession already, concealed only by spurious official statistics. The dollar has fallen sharply and almost certainly will fall further and faster as the weeks go by; household, corporation and public debt is unprecedented; consumer and asset inflation is high; credit is tight and getting tighter. The financial crisis is already flowing to the rest of the American economy -and spreading, like a deadly epidemic, globally.

Central banks never were of much value. In recent years, they have created far more problems than they have solved. The Federal Reserve purports to manage the crisis, but its reduction of interest rates and its flooding of the banking system with funds serve little purpose except to give desperate, short-term hope in a financial "system" which is so inherently invalid that its collapse is several degrees more assured than we usually associate with the term "inevitable".

Very little of this seems to be preoccupying anyone in Australia - at least among the campaigning parties or those advising them. Concern is expressed from time to time about the "sub-prime crisis" and the credit crunch. Very little is said about, for example, the carry trade which has been supporting the Australian dollar and conveniently neutralising a large part of Australia’s external deficit. Recently, the yen has been highly volatile and the carry trade has been unwinding and rewinding in harmony. We have not yet had the "Great Unwind" but, assuredly, it is not far down the road.

That leads us to the further point that we have, for the last two or three years in particular, been through one of the greatest commodity booms in history. This boom has affected a whole range of raw materials, as well as food which, if because of drought we have not been able to sell in abundance, we should, in some compensation, have been able to get better prices.

From this, we might have imagined that we would be enjoying as splendid a surplus in our external trade as, let us say, Russia from the boom in oil. But that is not so.
It has not happened, largely because Australians have continued to consume vast quantities of luxury goods, paid for by massive credit-card and mortgage debt based largely on false notions of expanding personal wealth.

The external deficit has shown some volatility but it is a reasonable prediction that, based on performance so far, the trend in future will show the deficit increasing rather than receding. The carry trade will then unwind, perhaps completely and there may be an easing - perhaps a grave easing - of commodity demand from China if their economy and, for example India’s, strikes a rough patch.

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None of these developments is improbable nor is it improbable that they could occur together. But Australia is not prepared for such an eventuality. Against this background, a Rudd Government is not remotely prepared to deal with the probable crises that might confront us; nor of course would a Howard Government have a clue as to what it might be best to do.

Either alternative would be faced with the outcome of nearly forty years of successive governments' failure to make Australia one of the "Tiger" economies. Rudd now declares his determination to put a laptop in the lap of every young Australian. In itself, that objective is noble; but it is pathetic that only now a Labor campaigner for office should be advocating it as a sort of cure-all. He may be putting it forward when, before one laptop can be delivered under the program, the house of financial and economic cards that Labor and Liberal governments have built over the past three to four decades will be toppling around us. Many of us will be left with no job, no house, no adequate professional or trade education, no decent health service and, at the end of it all, no pension except one that has been heavily depreciated in the financial storms that our Governments have done so much to provoke.

A Rudd Government, if we get one, might last as long as Scullin’s did. That would take us perhaps to the beginning of 2010. Labor would probably split long before that. The Treasurer or some other minister might take a few Labor dissidents to form a government with Opposition members led perhaps by Peter Costello. Somehow, we might then stumble through a long, deep and terrible depression, to end around, let us say, 2017 in World War Three.

With those prospects, Labor - and Kevin Rudd - might be well advised to disdain any offer of power to govern and so avoid going down in history as another well-meaning but feckless Scullin-type Government. Let Howard and his retinue take the blame and just opprobrium for a catastrophe to which they have contributed with such unbridled generosity.

It won't happen of course. On the night of 24 November 2007, Labor, led by Rudd, will probably be declared the victor and they will confront their unenviable destiny. For Australia, it won’t be any worse than having Howard's Coalition as the victor. Indeed, it might be rather better. But, whoever is the victor, I - as one who grew up in the last Great Depression - can only offer a prayer and express a hope. That hope is that we Australians may come through this new and even more terrible challenge, with the same spirit and fortitude that we did seventy years and more ago.

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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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