Published ABC Unleashed http://www.abc.net.au/unleashed/stories/s2499622.htm
There is probably not much that the Rudd government can do to restore the health of the Australian economy in the face of the global economic collapse. The financial future is a guessing game, much like predicting the course and outcome of war. The pace and extent of the collapse has all the indicators of developing into a global depression. With this a distinct possibility it behoves the government, the opposition, public servants, advisers, academics and the media to study all aspects of the Great Depression.
The study and analysis of history is not a strong Australian characteristic. History has been used to promote outcomes, prejudice, nationalism and jingoism at the expense of critical examination and understanding.
Last year I quoted Australian economist, C.B.Schedvin in a number of articles. At the time of publication of his book in 1970, Australia and the Great Depression, he was Senior Lecturer in Economic History at the University of Sydney.
Schedvin argued that with respect to the Great Depression, “The central point…is that deliberate policy measures were comparatively unimportant in influencing the nature of the contraction or the speed of the recovery.” This is something that the government, the Treasury and the Reserve Bank might examine.
Schedvin continues, “Contrary to the widely-held belief about the high degree of control exercised by policy-forming instrumentalities during the depression, it appears that policy merely followed the market in most instances…”
And here is the rub, “…the massive withdrawal from the international economy that was forced during the early 1930’s predicated the nature of the recovery process…it was on the basis of import replacement of manufactures that recovery was forged…between mid 1931 and 1935 most aspects of policy retarded the process of recovery…The modicum of unemployment relief expenditure that was sanctioned was not only totally inadequate but was also distorted by an unrealistic insistence that expenditure be confined to ‘reproductive’ works.”
An observation that should resonate with the media, Schedvin notes that, “More surprising than the ineffectiveness of recovery policy is the absence in Australia of any significant intellectual or official dissatisfaction with established policy doctrine.”
In terms of where Mr. Rudd might place our money or more accurately our borrowings, he and his advisers might note the conclusion of Schedvin, “The depression thus provided a powerful stimulus to Australian industrialisation, and by removing the excessive dependence on overseas capital…helped to lay the foundation for comparatively stable long term growth in the post war period. The depression also assisted, fortuitously, the transition to a war time economy…”
If by the economy we mean the creation and distribution of wealth amongst and for the benefit of people living within a political entity, then Mr. Rudd has a responsibility in times of a shrinking economy to provide a minimum wage, housing, health care, transport and education for adults and children least able to financially cope in the forthcoming straightened circumstances. This is survival spending, it is not designed to create jobs; it is to keep people alive and healthy and to provide the means for their children to participate in and help engineer a revitalised economy when the global economic sickness has passed. This is basic humanitarian assistance; it will not in the short to medium term, of itself, rebuild the economy.
To help manage this depression Mr. Rudd will need to take some drastic and decisive action, taking into account the lessons learnt from the last Great Depression. He will need to cancel some overseas defence orders and rethink defence requirements and strategies, utilising local capacity, particularly in ship building. He will need to take over the local car manufacturing industry, which can also be used for defence production. These decisions will protect and provide new jobs as well as build a local defence production capacity in what will be uncertain times.
Mr. Rudd can assist the long term development of the economy by designing and building energy efficient homes using cheap and readily available materials. Many developer built homes are unsuitable or inappropriate for Australian conditions and sustainable use of energy. The first home buyer grant should have some conditionality to reflect the forgoing.
He needs to assist the renewable energy industry, attracting it back from overseas.
The government needs to regulate the banking industry and get back into the business of banking. It needs to take over Telstra, railway infrastructure and rolling stock and providing an air service in remote Australia. The tyranny of distance demands it. User pays has failed, particularly in rural Australia.
The federal government needs to take over the management of water and abolish water licences, as a short and long term stimulator of the economy, particularly the rural economy.
The private schools must fend for themselves, that’s what private used to mean and the funding of public education significantly increased, particularly in the area of skill creation. Pulling out of depression will require it.
Import replacement needs to be encouraged and funded, directly, and from loans through the government bank.
This depression is a direct result of Globalisation. Australia should seek future protection from the buffeting of overseas financial institutions by exercising more control, discipline, stimulus and protection of its own economy.