Click here to access the section of the Center for Democracy and Technology (CDT) website devoted to health privacy. CDT is, by the way, a champion of online civil liberties and human rights and is dedicated to keeping the Internet open and free. Review the insights, posts, and press releases posted in CDT's health privacy section and respond to the following: 1 ECON3600 TOPIC 4 – 1929-1974: ‘New model’ economic development The 1930s Depression While one can play around with the figures, the magnitude of the Depression is indicated in broad terms by the fact that, over the (relatively few) years during which the Depression was at its most severe aggregate GDP declined, on average, by 3 per cent per annum. The total number of people that this had to be shared around (i.e. the total population) grew at a markedly slower rate than had been the case in the previous decade, due largely to an almost complete cessation of immigration and a fall in the birth rate – the latter a reaction to economic circumstances. The population still grew, however, at around 1 per cent per annum on average, with the result that economic growth (defined in terms of GDP/head) declined at an average yearly rate, over the early years of the 1930s, of 4 per cent. In the worst year of the Depression (1931) this figure was around 10 per cent. The very obvious manifestation of this decline was the rate of unemployment. The level of unemployment rose markedly from about the middle of 1929 to reach a peak of 30 per cent in the June quarter of 1932. In other words at this time nearly 1 in 3 people looking for employment was unable to find it. Not surprisingly the economic downturn had a fundamental social effect. In personal terms, for many people, it was a traumatic experience, in both a material and emotional sense. For many the effects were prolonged, and for some stayed with them, influencing their attitudes for the rest of their lives. Causes of the Depression As previously noted, by the closing years of the 1920s Australia was already on a downhill path in terms of the major economic indicators. Old model economic development, which had received a second wind, enabling the development of rural industries that made even more intensive use of land, and which seemed to provide the basis for the much-sought economic expansion and increase in population, was running out of steam. There is little doubt, however, that events in the rest of the world are the major explanation for the Depression and certainly for its severity. As one economic historian has put it ‘the primacy of external factors is not in doubt’. The plunge into Depression by the United States in 1929, and the knock-on effects of this in just about every major industrialised country (including Great Britain) had some fundamental implications for the small Australian economy, heavily dependent as it was on rural exports. .

1. Click here to access the section of the Center for Democracy
and Technology (CDT) website devoted to health privacy. CDT
is, by the way, a champion of online civil liberties and human
rights and is dedicated to keeping the Internet open and free.
Review the insights, posts, and press releases posted in CDT's
health privacy section and respond to the following:
1
ECON3600
TOPIC 4 – 1929-1974: ‘New model’ economic development
The 1930s Depression
While one can play around with the figures, the magnitude of
the Depression is
indicated in broad terms by the fact that, over the (relatively
few) years during which
the Depression was at its most severe aggregate GDP declined,
on average, by 3 per
cent per annum.

2. The total number of people that this had to be shared around
(i.e. the total population)
grew at a markedly slower rate than had been the case in the
previous decade, due
largely to an almost complete cessation of immigration and a
fall in the birth rate – the
latter a reaction to economic circumstances. The population still
grew, however, at
around 1 per cent per annum on average, with the result that
economic growth
(defined in terms of GDP/head) declined at an average yearly
rate, over the early
years of the 1930s, of 4 per cent. In the worst year of the
Depression (1931) this
figure was around 10 per cent.
The very obvious manifestation of this decline was the rate of
unemployment. The
level of unemployment rose markedly from about the middle of
1929 to reach a peak
of 30 per cent in the June quarter of 1932. In other words at this
time nearly 1 in 3
people looking for employment was unable to find it.

3. Not surprisingly the economic downturn had a fundamental
social effect. In personal
terms, for many people, it was a traumatic experience, in both a
material and
emotional sense. For many the effects were prolonged, and for
some stayed with
them, influencing their attitudes for the rest of their lives.
Causes of the Depression
As previously noted, by the closing years of the 1920s Australia
was already on a
downhill path in terms of the major economic indicators. Old
model economic
development, which had received a second wind, enabling the
development of rural
industries that made even more intensive use of land, and which
seemed to provide
the basis for the much-sought economic expansion and increase
in population, was
running out of steam.
There is little doubt, however, that events in the rest of the
world are the major

4. explanation for the Depression and certainly for its severity. As
one economic
historian has put it ‘the primacy of external factors is not in
doubt’.
The plunge into Depression by the United States in 1929, and
the knock-on effects of
this in just about every major industrialised country (including
Great Britain) had
some fundamental implications for the small Australian
economy, heavily dependent
as it was on rural exports.
2
Both the demand for exports and their price (which had been
falling anyway in the
years prior to the Depression) fell sharply and so did the income
earned from them.
From a national point of view this income was vital in paying
the large interest bill
incurred by the high level of borrowing that had been
undertaken earlier in the 1920s.

5. Thus the high level of borrowing in the 1920s made Australia as
a nation especially
vulnerable to such a fall.
In addition the supply of funds for investment was virtually cut
off. While, as has
been noted, borrowing had been reduced in the later 1920s, a
significant percentage of
aggregate expenditure in the economy still depended on
investment funded by foreign
borrowing. The source of these funds – the capital markets of
Britain in particular –
had now virtually dried up.
So the Depression was the consequence of both internal and
external factors. On the
one hand, the nature of Australian economic development in the
1920s and
particularly the way that faith in rural development and large
scale borrowing,
especially by governments (both state and commonwealth) to
fund the infrastructure
to support it contained its own formula for eventual

6. reevaluation and readjustment –
in much the same way as it had in the 1880s.
World economic events brought these problems to a head. They
exacerbated them and
were an important – some would argue an even more important
– factor. But they
have to be seen in terms of the domestic economic situation on
which they were
superimposed.
Policies to combat the Depression
Initially, policies of governments were directed at the
immediate liquidity and balance
of payments crises resulting from the need to maintain
repayment of loans in the face
of the drying up of funds which could be borrowed, and of the
decline in export
income associated with both the fall in demand for, and the
world prices of, export
commodities.

7. In 1930 and in 1931 the government (led now by James Scullin,
Labor having
defeated the Bruce-Page government in the election of 1929)
further raised import
duties (tariffs) as a way of reducing the demand for imports.
Another significant measure (though it must be emphasised that
it was a policy
pursued by the private banks rather than government itself) was
the devaluation in
January 1931 of the Australian currency vis-à-vis sterling of
about 20 per cent. In the
words of one of the leading analysts of the Depression, ‘the
path to devaluation was
haphazard and circumstantial’ and for our purposes we may
simply take it as having
been executed.
A further measure adopted, also in January 1931, in the face of
the Depression
(though again not directly by governments but rather by the
Arbitration Commission
in response to its belief that wage rates established during the
1920s had increased the

8. 3
cost of production of both exports and import-competing
products so as to render
them uncompetitive) was the reduction in wages of 10 per cent.
Governments (both commonwealth and state) were also required
to address their own
budget positions and the decline in income and employment
associated with the
Depression. This was done through a number of policies,
adopted in June 1931 by all
Australian governments in what became known as ‘the
Premiers’ Plan’. Among the
measures incorporated in the plan were a 20 per cent cut in
government expenditure
and increases in taxation. Despite the stimulatory effect of some
other aspects of the
plan its net effects, when viewed through the prism of
Keynesian economics, were
deflationary.
On the other hand the effect of the other measures referred to
above (even if their

9. intent had been to address immediate problems rather than boost
aggregate demand)
served to make recovery from the Depression fairly rapid.
Recovery from the Depression and the rest of the 1930s
From 1933 economic development was substantial and was
sustained virtually
throughout the remainder of the 1930s. Indeed, the period from
1932/33 to 1938/39
was one where economic expansion was nearly as great as the
first decade or so of the
century and in the first part of the 1920s. In the context of a
significantly lower rate of
population growth (the result both of a lower birth rate and
almost no net
immigration) this resulted in a rate of economic growth that
exceeded any of the sub-
periods in the longer period from 1890 to 1939.
The growth was required, however, merely to restore the
situation to that which had

10. existed prior to the Depression. By 1939 GDP and GDP/head
were barely greater than
the levels of the late 1920s; and the rate of unemployment,
while it declined steadily
after 1932, remained at the end of the decade slightly higher
than it had been in
1926/27 before the slide into Depression.
The economic development of the 1930s is most notable,
however, for the fact that it
marks a sharp break in the underlying impetus for expansion
and growth (or, in the
terms in which it was put previously, the transition from old to
new model
development). This came through the more rapid development
of manufacturing.
Policies adopted to address problems created by the Depression
– the increase in
tariffs, the devaluation of the currency, and the reduction in
wages – whilst they had
not been intended to aid the development of manufacturing and
lead the country out
of Depression, nevertheless served this purpose and were the
major (if somewhat

11. unwitting) factors in the growth of manufacturing industries.
Together the policies made domestic manufacturing more
competitive.
The first response came in the textile industry. Indeed by 1932
employment in this
sector had increased to above pre-depression levels. In a sense
it was the sector that
4
led the way out of the Depression. This was followed by more
comprehensive
increases in production and employment in several other sectors
of manufacturing.
The growth in manufacturing relied heavily on investment (i.e.
the creation of new
capital goods) within the sector, and much of this came from
overseas. The difference
between the 1930s and the decades prior to the Depression was
that this was now
almost entirely in the form of private rather than public
investment. Overseas

12. investment came especially in the form of overseas firms
establishing subsidiaries in
Australia to undertake manufacturing production.
Economic recovery in the 1930s, based as it was on
manufacturing, thus did not
merely represent a return to the previous pattern of development
based on the
exploitation of land as was the case with development after the
1890s Depression.
Whilst the 1890s Depression can be seen (in retrospect) as the
result of the limits to
the supply of good land for the purposes of wool-growing
having been reached, there
were a number of factors – above all advances in technology –
that permitted land to
be used in even more intensive ways in the early decades of the
twentieth century.
These, in a sense, allowed those limits to be stretched to usher
in what has been
characterised as the third phase of ‘old model’ development
based on rural
production.

13. But by the later 1920s the limits to this were again being
reached. The consequences
of this ‘internal process’ were merely exacerbated (albeit in a
fairly spectacular way)
by the world events associated with the 1930s Depression.
After the Depression the rural industries remained the largest
employers of labour and
accounted for the majority of GDP and the overwhelming
majority of exports. And
many remained centres of relative prosperity, particularly the
wool industry which
benefited from an increase in wool prices in the 1930s.
But there was no more talk of the ‘amazing potential’ and the
‘boundless
opportunities’ for development based on rural industry. The
willingness of
governments to underwrite this expected development
evaporated, and public
investment in railways and land development schemes virtually
ceased.

14. There would thus be no ‘fourth phase’ of development based on
the use of land. The
process of ‘old model’ economic development had come to an
end.
Rather, the recovery from Depression was based not on the
production of
commodities for export (i.e. of primary products) but for import
replacement (i.e. of
manufactured goods) – and thus on developments in the
manufacturing sector of the
economy.
The 1930s, following the Depression years early in the decade,
can thus be seen as the
first stage of ‘new model’ economic development based on
developments in
manufacturing. (That these developments have been relatively
little documented
remains a significant gap in Australian economic history.) They
were given a major
boost by the Second World War, which began in 1939.

15. 5
War and Reconstruction
Aside from the substantially negative social effects of the war
(the fears and
uncertainties of having family and friends serving, and dying or
being injured, in the
war itself and the prospect of having the country actually
invaded and occupied by
another country) the purely economic effects, whilst mixed,
were on balance positive.
On the one hand a large proportion of the productive resources
of the country were
either simply taken out of the equation by virtue of their
participation in the armed
forces or were redirected to the production of war-related goods
and services.
Furthermore the output of manufacturing industries serving
ordinary consumer
demands was adversely affected by comprehensive government-
imposed restrictions
and rationing and the compulsory redirection of resources to

16. serving the war effort.
The production of many manufactured consumer goods thus
decreased despite the
high degree of ‘natural protection’ that was afforded domestic
industries by the effect
of the war on the production of other countries and on
transportation, thus cutting off
supplies of hitherto imported goods.
But, on the other hand, the war served as a stimulus for demand
of both rural and,
even more so, manufacturing industries. Indeed it was in respect
of the latter that we
can identify what is perhaps the most significant economic
implication of the war.
The demand for a wide range of manufactured goods, including
armaments, tin-plate,
machine tools, textiles and motor vehicles, both within
Australia and from other
countries, notably the United States (in both cases especially as
a result of increased
expenditure by government) increased very markedly. This gave
a huge boost to

17. Australian manufacturing industries.
These industries were able to respond because of the basis that
had been laid in the
development of these industries in the pre-war decades. A major
factor in the response
was that, despite a large amount of labour supply being diverted
to the war effort (as
men joined the direct military effort) there was a remarkable
increase in the number of
women who entered the workforce, many of them to do work
that had traditionally
been regarded as the province of males only. (In this respect
there was a contrast to
the experience of the First World War).
The war also gave a very significant boost to service industries
as a result particularly
of the large number of US military personnel stationed in
Australia.
At the conclusion of the war, and in the years immediately
following – the late 1940s
and early 1950s – the principal challenge was to resume normal
economic activity.

18. There were a number of concerns about the economic effects of
the resumption of
‘normal’ economic circumstances.
On the one hand it was clear that a large amount of aggregate
demand – particularly
for war-related manufactures (such as armaments and heavy
vehicles) and for
consumer goods and services related to the large number of US
service personnel who
had been stationed in or passed through Australia – would
disappear.
6
On the other hand it was recognised that there was a pent-up
demand for consumer
goods denied to Australian consumers during the war (a result
in large part of the
rationing of many goods that had been imposed during the war).
There was even some concern that the economy would not be
able to produce the

19. goods and services that would be demanded (either via
production within Australia or
production of goods which could be exported in order to gain
the revenue to import
goods).
This concern stemmed largely from the fear that in the
immediate post-war period
there would be a labour shortage, as a consequence of the sheer
loss of life during the
war (and hence to put it in stark economic terms the loss of the
productive resource,
labour) combined with the lagged effect of the significant fall in
birth rates that had
prevailed virtually since the onset of the Depression in 1929
(and hence an anticipated
fall in the additions to the workforce from the mid 1940s
onwards).
Offsetting this concern were the prospects of (i) a sudden
‘injection’ of labour as a
very large number of men and women who had been in the
armed forces returned to
civilian life, and (ii) the maintenance of the increase of the

20. percentage of the total
population in the workforce, as women (or at least a proportion
of them) who had
entered the workforce during the war would elect to stay there.
In addition, after about 1946/47 there was the unknown effect,
on both the demand
and supply sides, of a large scale immigration program
implemented after the war.
This program foreshadowed both a massive injection labour as
well as a large
increase in aggregate demand, not only for consumer goods and
services but also for
infrastructure including housing. (The economic effects of
immigration will be
analysed in more detail in a later topic).
So there were a number of factors in the aftermath of the war
affecting the overall
balance of supply and demand. But the prevailing concern was a
surplus of supply of
productive resources over demand and a return to economic
stagnation.

21. As it happened this didn’t occur, for a number of reasons.
Firstly, there was a sustained increase in the demand for rural
products from countries
whose economies had been disrupted by war but which, in the
case of European
countries thanks largely to the US-initiated Marshall Plan,
recovered quickly from the
war. This growth was for a wide range of rural products, but in
particular wool. The
Korean War, coming in the early 1950s only a few years after
the end of World War
II, took this demand to even greater heights.
The post-war decades were thus ones of prosperity for the
majority of rural producers
and, particularly at the time of the Korean War, wool-growers.
(Stories abound of
wool-growers around this time lighting their pipes with five
pound notes and carrying
sheep around in the back seats of their Rolls-Royces.)
But the most significant element in the immediate post-war
economy was a sustained

22. boom in the manufacturing sector.
7
Whilst manufacturing industries had to adjust from war-related
production, their
capabilities had been hugely expanded during the war years.
There was the predicted demand for a wide range of consumer
goods, and the
intermediate and capital goods required to produce them, which
came both from the
high incomes that were generated in the rural sector and the
demand that originated
from the large number of immigrants who started to enter
Australia in the post-war
decades. (Whilst the supply effects of the massive increase in
labour that resulted
from the large-scale immigration that occurred in the late 1940s
were the focus of
concerns about its economic impact, it was the increase in
demand that resulted that
had the more significant consequence.)

23. But perhaps the most important element in the increase in
aggregate demand came
from an increase in investment expenditure (I). Most of this was
private (i.e. non-
government). And much of it originated overseas. So foreign
investment was a critical
element in the post-war boom. (This aspect will also be taken
up in more detail in a
subsequent topic.)
And in the whole equation, government policy played a major
role in terms both of
government expenditure itself and the relaxed policy of the
government towards
foreign private investment and the foreign ownership and
control of resources that this
implied.
The Depression, along with the rapid acceptance of Keynesian
economics (the central
proposition of which is that government expenditure (G) is an
element of aggregate
expenditure that can and should be adjusted so as to ensure
aggregate production is at

24. a level that ensure the full employment of resources,
particularly labour) had led to a
resolve to maintain full employment.
But the government of the day found itself faced with the
greater need to assist also
on the supply side i.e. to encourage the production of goods and
services to meet
demand.
Symbolic of what occurred in this period (and in itself of
considerable economic
significance) was the establishment of a domestic motor vehicle
industry based on the
investment by the US-owned General Motors Corporation to
produce the Holden
motor car. The (Labor) government of the time overcame its
philosophical opposition
to foreign ownership and control to permit General Motors to
establish itself in the
country in order to produce a motor vehicle that had virtually
100% local content (and
became proudly referred to in the late 1940s and 1950s as
‘Australia’s Own Car’).

25. The process of economic reconstruction was interrupted at the
beginning of the 1950s
by a short period of economic fluctuation, characterised firstly
by high inflation (a
result in large part of a very considerable increase in the price
of wool associated with
the Korean War) followed by a short period of reduced
economic growth. But the
ensuing years – right through the ‘50s, ‘60s and early ‘70s –
saw a sustained period of
economic expansion accompanied by economic growth.
8
The Long Boom
The ‘Long Boom’ is sometimes dated from the beginning of the
Second World War
(1939/40) and sometimes from the conclusion of the War (the
mid 1940s). And the
war and immediate post-war years were indeed ones of higher

26. expansion and growth
than had characterised the previous half century
While there was some instability in the years immediately
following the end of the
war (and particularly at the beginning of the 1950s), from the
early 1950s the next two
and half decades (up until the mid 1970s) witnessed a
historically high, and (with only
a slight ‘dip’ at the beginning of the 1960s) sustained, rate of
both expansion and
growth. In all this time the rate of unemployment hardly rose
above 3 per cent (and
was considerably below this for most of it) while inflation (until
towards the end of
the period) only occasionally rose above 2-3 per cent.
(In political terms the period is identified with the dominance of
a conservative
coalition government [a coalition between the Liberal Party and
Country Party] over
the years 1949 to 1972, led for most of it by Robert Menzies
(1949-65) then until
1972 by Prime Ministers Holt, Gorton and McMahon. The

27. coalition had come to
power in 1949, defeating the Labor Party which had been in
government for most of
the 1940s under the prime ministerships of John Curtin and Ben
Chifley, and was
defeated by Labor in 1972 which, under the prime ministership
of Gough Whitlam,
presided over the end of the Long Boom in the mid 1970s. The
coalition’s only brush
with political defeat came in the early 1960s when the
government was judged
harshly for having been in charge of an economy where
unemployment – briefly and
slightly – exceeded 3 per cent.)
Economically, the period as a whole is characterised by an
average rate of economic
expansion almost double that of the half century up until the
Second World War, the
increase being stimulated largely by a markedly higher rate of
population increase.
The latter stemmed partly from a large scale immigration
program, pursued from the
late 1940s, and an increase in the birth rate in the post-war

28. decades (the ‘baby boom’).
The total population of the country increased by about 80 per
cent during this time.
What is significant is that this economic expansion, spurred as
it was by the
population increase, was accompanied by an increase in
productivity such that
economic growth (the average annual rate of increase in GDP
per person) was at a
historically (for Australia) high level. This was a period in
which GDP/capita in
absolute terms (a measure generally used as a proxy for the
standard of living) just
about doubled.
As is the case with much of Australian economic development
the Long Boom is
explained partly in terms of external factors. The international
economic environment
in the post-war decades was conducive to growth in Australia.
An economic boom,
led by the US, was shared by most Western developed
economies.

29. The causes of the worldwide boom – as is the case with the
causes of the worldwide
depression of only a few decades earlier – are complex. They
are to be found in a
confluence of circumstances which are inter-related: technical
innovation; greater
mobility of both labour and capital; the growth of world trade;
the absence of major
9
conflicts (both the Korean and Vietnam wars, not to mention the
Cold War, had some
particular impacts though many of these were, in economic
terms, actually positive);
the relative stability of currencies and domestic economic
conditions (the latter the
result largely of the understanding of economic management
that came with
Keynesian economics); and (at least in the early part of the
period) a cyclical element
and ‘catch-up’ factor, particularly in respect of investment,
following more than a
decade of depression and war.

30. All this meant that Australia as a nation would have to have
been doing something
pretty silly not to have been one of the ships rising with the
tide, at least to some
extent.
But the Australian experience of the post-war boom was
distinctive in some key
respects.
Perhaps the most obvious characteristic of the Australian
economy during this period
(certainly during the first part of it) was that there were large
and sustained increases
in both the supply of economic resources (notably labour and
capital) and in the
demand for the products of those resources.
In respect of labour, supply was increased dramatically as a
result of the large scale
immigration program initiated by the government almost
immediately after the war.

31. In respect of capital there was a high level of investment (i.e.
the creation of capital
goods). One piece of analysis (undertaken by Rodney Maddock)
concludes that over
the years from 1946/7 to 1969/70 capital inputs grew at an
average rate of 5.2% per
annum. This compared to a growth rate in the first four decades
of the century of only
about 2%. This was fuelled particularly by investment funded
from overseas. And
much of the foreign investment was in the form of direct
investment; that is of foreign
companies establishing Australian subsidiaries (along the lines
of General Motors
previously mentioned).
This increase in the aggregate supply of resources was matched
by a high level of
aggregate demand.
Consumption demand (C) in particular was fuelled by the high
level of immigrants as
well as the high level of natural increase (the beginning of what
came to be known as

32. the ‘baby boom’) and the government of the day embarked on
major investment
projects such as the Snowy Mountains Hydro-Electric Scheme.
So (as already noted) there was a high level of economic
expansion. The total ‘size’ of
the economy grew at a rate well in excess of that in the pre-war
decades.
The sector of the economy which this revolved around was
manufacturing, building
on the developments in the 1930s, during the war, and in the
immediate post-war
years.
Rural industry still remained a major focus of economic activity
and rural exports still
accounted for the majority of total exports. But the focus
shifted to manufacturing and
this sector became the basis of economic expansion.
10
Critical to this development was the underpinning of the policy

33. of trade protection.
This came primarily in the form of the tariff where policies
dated back to earlier in the
century.
But critical also (at least in the 1950s) were direct import
controls (i.e. physical
restrictions on the import of manufactured goods).
These controls were implemented at the beginning of the 1950s
primarily in response
to concerns about the outflow of Australian currency i.e. for
balance of payments
reasons. But by placing a physical limit on imports they had the
effect of giving
domestic manufacturers an additional boost.
Together, these policies virtually guaranteed the profitability of
manufacturing
industry and high returns to investment in manufacturing during
the 1950s and 1960s.
Manufacturing is discussed in more detail in later topics, but
suffice to say here that

34. the rapid growth of a wide range of manufacturing industries,
behind the protective
barrier provided by import controls and the tariff, was the
principal engine of the
economic expansion that occurred in these decades.
What is significant for Australian economic development is that
this economic
expansion provided the context for economic growth (i.e. for
there to be increases in
GDP per head – and thus for there to be an increase in the
material standard of
living). In other words the economic development that occurred
during this period
brought with it increases in productivity.
This is attributable very largely to the fact that the vehicle for
economic expansion,
manufacturing, was based to a very large extent on overseas
investment (principally
direct investment e.g. in the form of overseas enterprises
establishing Australian
subsidiaries – the ‘General Motors model’ if you like). This
brought with it new

35. technology and methods of production (often described in the
language of the time as
‘know-how’) which resulted in productivity increases.
The progressive reallocation of resources away from rural based
industries (which as
we can now see were suffering in the 1920s from decreasing
returns as output was
expanded) towards manufacturing was thus providing for a
higher level of output per
unit of input.
In other words Australians were actually better at
manufacturing things than
continuing to expand industries based on the fixed resource of
land. It looked as
though the vision of Stanley Melbourne Bruce (the prime
minister in the 1920s who
looked for Australians to be more than ‘mere hewers of wood
and drawers of water’)
was right.
And the higher level of GDP per head served to further boost
the investment, both

36. domestic and foreign, that sustained the high rate of economic
expansion and the long
boom.
11
But the final decade or so of this period becomes somewhat
more complex.
The Last Hurrah
The long boom – at least in the sense of the economic outcome
measured in terms of
economic expansion and economic growth – was sustained
through to the mid-1970s.
Indeed the closing years of the 1960s and to a slightly lesser
extent the early years of
the following decade were ones of even higher expansion and
growth.
But this was not because of what was happening in the
manufacturing sector (and

37. indeed in some ways it was despite it). In fact the returns to
manufacturing industries
began to diminish after about the mid-1960s and with these
decreasing financial
returns to investors Thus the productivity increases which had
typified manufacturing
developments and explain the rate of increase in GDP per capita
also began to fall.
As a consequence of this decline in profitability, investment in
the manufacturing
sector also fell from this time.
We will look at this phenomenon more closely when we
consider manufacturing in
more detail in a later topic.
However, as it happened, the trend was masked – and indeed
more than compensated
for – by a very marked increase in investment in the mining
sector after the mid-
1960s.
Whereas in the mid-nineteenth century, and in the 1890s,
mining (particularly of gold)

38. had been a very significant element in economic growth, mining
was a very minor
activity for the next five or six decades. However, this changed
dramatically in the
1960s as a result particularly of demand from Japan for
minerals – notably iron ore,
coal (both coking coal which along with iron ore was used in
the iron and steel
industry, and steaming coal, for use in power generation) and
bauxite (used to
produce aluminium). The signing of a trade agreement with
Japan in the late 1950s,
the lifting of the embargo of sales of iron ore to Japan which
had been imposed just
before the second world war, and the booming Japanese
economy at this time were all
significant in these developments.
The result was that from the mid-1960s there was a sharp
increase in investment in
establishing mines, and associated infrastructure (including in
Queensland whole
‘new’ mining towns e.g. Moranbah, Dysart and Middlemount)
based on the extraction

39. of iron ore (notably in the north-west of Western Australia),
coal (especially in central
Queensland) and bauxite (at places including Weipa in
Queensland and Gove in the
Northern Territory).
So the last few years of the long boom (the later 1960s and
early 1970s – what turned
out to be the last hurrah of the Long Boom) were essentially the
result of high levels
of profitability of the mining industry. Even though mining
wasn’t directly a high
employer of labour developments in the industry had a
significant influence on the
rest of the economy, in large part because of continuing high
levels of investment
associated with bringing new mining projects into production.
The level of exports
12
also grew markedly during these years as the bulk of the
minerals produced were
exported.

40. Thus both the I and X components of aggregate expenditure
were boosted.
As it turned out investment in mining was highly profitable, and
it brought with it a
rapid increase in productivity which underpinned the
historically high rates of
economic growth in the later 1960s and early 1970s.
Political developments
It was during these years that Australians changed their politics,
in 1972 voting in a
Labor government (led by Gough Whitlam) for the first time
since 1949 when the
long boom was in its infancy. The Whitlam government was
elected on the promise of
greater attention to social welfare issues – implicitly offering to
deliver the fruits of
the economic growth which Australians had experienced for
well over two decades in
a form that emphasised aspects of well-being such as health and
education. The

41. slogan for the election was ‘It’s Time’ and the election of the
government has to be
seen indeed as a reflection of the time: the platform of the
Labor Party at the time can
only be understood in the context of a preceding period of
economic prosperity and
the feeling that ‘we should be getting more out of it’ in terms of
all-round welfare.
The confidence – even the complacency – of the time is well
reflected in the
statement of Treasurer Frank Crean made in 1973: ‘Anyone who
can read the present
economic signs should be an optimist not a pessimist. 1974
would be a more
prosperous year than ever before for Australia.’
The end of the long boom
But the long boom came to a quite abrupt end in 1974 – indeed
it can be dated fairly
precisely to the June quarter of 1974. In the words of one
economist (Wolfgang
Kasper): ‘The celebration crumbled … ’.

42. Unemployment jumped suddenly and markedly – from a level of
less than 2 per cent
to around 8 per cent in the period of just a few years. This was
also accompanied by
higher levels of inflation which had also been at low levels of
around 2 to 3 per cent
for much of the preceding decades and which, in terms of the
conventional economic
wisdom of the time, was thought to vary inversely with
unemployment. The
phenomenon of simultaneous increases in the levels of both
unemployment and
inflation – and the advent of what was termed ‘stagflation’ –
was wholly new.
The answer to the question ‘why did the long boom end?’ lies
(again) in a complex of
both domestic and international (or ‘internal’ and ‘external’)
factors which are quite
difficult to disentangle.
One of the most significant ‘external’ factors was a sharp
increase in oil prices. The

43. year 1973 saw the first so-called oil price shock as the result of
the collective decision
of the major oil-producing countries to limit production. This
led to a sharp increase
13
in world oil prices Not only did this adversely affect the
profitability of Australian
industry generally it had a major impact on most developed
overseas countries –
including those who were major buyers of our exports. The
consequence was a fall in
world prices of many of our exports and a decrease in export
demand, while the cost
of production of goods and services which used oil as an input
rose.
Along with other factors this was the trigger for the sudden
turnaround.
But – as is the case of earlier downturns that occurred at the end
of the 1920s and
before that the end of the 1880s – we need to look also at the
more fundamental

44. internal processes of economic development within Australia.
Probably the most important explanation stems from the very
fact that the last phase
of the long boom was driven primarily by growth in the mineral
sector of the
economy. (Manufacturing had left the scene a decade earlier.)
Not only was there a boom – a highly productive boom – in the
mining of iron ore,
coal and bauxite, the period also saw the rapid development of
domestic oil
production (based particularly on the Bass Strait oilfields) and
the reduction in the
need to import oil. Together these factors implied an increase in
X and a decrease in
M. Thus one of the major consequences of this period was a
dramatic improvement in
the balance of trade and the balance of payments generally.
In a regime of an exchange rate that was determined by market
forces this would have
led to an appreciation of the currency. But at this time the
currency was fixed and for

45. a variety of reasons, including political considerations, it was
not revalued.
Consequently during the late 1960s and early 1970s there was a
large increase in
Australian reserves. And the increase was actually augmented
by an inflow of
speculative capital which was based on the belief that an
appreciation of the currency
was going to become necessary in the near future.
It was widely felt, however, that there little benefit in merely
accumulating reserves.
(It’s a bit like accumulating money in a bank account… what’s
the merit in it if you
can’t spend it?). So – quite extraordinarily when we look back
on it – policy-makers
were searching for ways in which we could increase our
spending on imports as a
way of deriving some benefit from our export bonanza.
This coincided – to a large extent independently – with a
growing concern about the
desirability of the Australian policy of tariff protection. Import
controls (an important

46. element in trade protection which had assisted the development
of manufacturing
industry) were abolished at the end of the 1950s (a decision
based essentially on
‘balance of payments considerations’). As a consequence, the
tariff returned to centre
stage as the vehicle for trade protection. And in response to a
clamour among
domestic manufacturing industries a series of increases were
granted. As a result, by
the end of the 1960s the effective rate of protection of
Australian manufacturing as a
whole rose to around 36%, one of the highest in the world.
Growing concern about
the implications of such a high rate of protection led to an
increasingly critical
approach among policy makers in the late 1960s and early 1970s
towards tariff policy.
14
These two factors – whatever their relative importance – came
together in a quite

47. dramatic policy, implemented in 1973, of cutting tariffs by 25%
across-the-board.
This was a major – though fairly blunt – step in tariff reform
which served to make
imports cheaper and acted as an encouragement to Australian
consumers to purchase
overseas rather than domestically produced goods.
It thus had a severe adverse effect on Australian manufacturing
industry and it came
on top of several years – though it was not so obvious at the
time – of declining
profitability, and declining investment in manufacturing
generally.
So the tariff cut of 1973 both reflected and hastened the decline
in manufacturing.
A final factor to add into this mix is the fact that by around
1974 the investment boom
in the mining sector – which had had significant linkage effects
and created demand
in many other sectors of the economy – was drawing to a close
simply because many

48. of the projects in the major sectors had come to fruition.
The consequence of all these factors is that there was a massive
fall in aggregate
demand and the ensuing years (i.e. the second half of the 1970s)
were ones of
significantly lower growth and increasing in unemployment of a
sort unimaginable at
the beginning of the decade.
A Final Question: Can We Look Back at a ‘Golden Age’?
The term ‘golden age’ is one that was coined in the years
immediately following the
long boom when the 1950s and 1960s were looked back upon
fondly.
The period received this label essentially because of its
economic achievements – as
noted before, a doubling of the standard of living in the context
of a population
increase that was nearly as great. It was a period characterised
by the introduction into
most people’s lives of a wide range of new types of

49. consumption goods – where the
refrigerator replaced the ice chest, the automatic washing
machine replaced the
copper, the motor mower replaced the old one you used to have
to push around, and
where the family motor car became the norm rather than the
exception.
Indeed it could be argued that these manifestations of economic
growth made a
greater difference to people’s everyday lives than the
manifestations of economic
growth in the later decades of the century - such as the
widespread use of the mobile
phone or the home theatre.
The period of the long boom was also looked back on fondly for
reasons that went
beyond the purely economic. As the uncertainties of the
Depression and war years
faded (and despite the uncertainties created by the Cold War,
and later in the period,
the Vietnam War) economic prosperity increased in the context
of a much greater

50. degree of certainty and security. This was due in large part to an
economic policy of
protection – not only trade protection that had brought the
benefits of industrialisation
but other policies which were part of the policy of protection in
the wider sense (of
‘sheltering people from the harsh realities of the free market’)
and which were
15
embodied in a network of policies which has been described by
the term ‘The
Australian Settlement’.
In the latter decades of the twentieth century, however, the
period of the long boom
and the label ‘golden age’ that came to be attached to it came to
be regarded with a
certain amount of scepticism.
For all the benefits that the period delivered to Australians the
period can, in
retrospect, be seen as one, firstly, where Australian economic
performance compares

51. poorly to other comparable high-income nations; and secondly,
where the whole basis
for economic development during the period was limited and
artificial.
The first point is illustrated simply but starkly by the data in
Tables C(i) and (ii).
The second rests on the fact that there was a fundamental
weakness in ‘new model’
economic development in that it was based on the development
of manufacturing
industry almost exclusively to meet only domestic demand. In
other words it was
based essentially on the policy of import replacement.
So this whole ‘development strategy’ was limited by the
relatively small size of the
Australian population. And it could only be profitable on the
essentially artificial
foundation of protection.
Basically it could not be sustained in the face of the increasing
competitiveness of

52. manufacturing industries in other parts of the world to which
Australian industry was
for a time able to shield itself but to which it was increasingly
being exposed.
As a result the development of the Australian manufacturing
sector was running out
of steam by the mid-1960s. The ‘long boom’ that it produced
was extended into the
late 1960s and 1970s only by developments in the mining sector
of the economy.
Whilst in the closing decade of the twentieth century and the
first decade of this
century mining has continued to be a key underpinning of
economic development in
Australia the first mining boom in the late 1960s and 1970s
came to a halt in the mid
1970s and exposed the fragility of the development process
based on manufacturing
which it had served to temporarily prolong.
There were, in other words, built-in limitations to the period of
economic expansion
and growth characterised as the ‘long boom’, which means that

53. we should use the
term ‘golden age’ to describe the period with a degree of
caution.
Well return to this theme in subsequent topics.