Australia’s ‘Historical Trajectory’

Having been shipped out of Britain as criminals, we were shipped back as cannon fodder, so that when peace came, the survivors could return to their real mission as Australiansgrowing cheap wool and wheat for England.
Robert Hughes, The Fatal Shore, 1987

In our March edition, Peter Jonson heaped much deserved praise on the new economic history of Australia by Ian McLean, Why Australia Prospered (Princeton, 2013). In this edition, we are following up with a recent paper by Thomas Barlow, author of the widely acclaimed history of Australian innovation, The Australian Miracle (Picador, 2006), which complements McLean’s book nicely by filling in some of the historical cultural traits of colonial Australians—an openness to new ideas and innovations, compelling personal ambition and a firm belief in the value of knowledge—that helped Australia in the nineteenth century become the most prosperous nation, per capita, in the world.

Even though it comes from the specialist field of economic history, McLean’s book deserves to be read by everyone seeking to understand this country. Behind his sober, carefully crafted prose and its scrupulous use of scholarly sources, McLean has written what amounts to an exciting new history of Australia that overturns a number of currently prevailing interpretations and dispatches the long-outdated black-armband history from sight.

One of the most persistent myths McLean demolishes is that early Australian history was a story of oppression and violence dealt out by the British to its recalcitrant colonial offspring. Even though Robert Hughes’s book The Fatal Shore was published twenty-five years ago, it remains the most widely read representation of the old anti-British historical paradigm created from the 1940s to the 1970s by Marxists and other leftists in university history departments. Hughes’s gift for the dramatic phrase led him to go further than his sources and argue that nineteenth-century New South Wales was actually a precursor to Stalin’s Gulag Archipelago. “The final aim of the transportation system then, was less to punish individual crimes than to uproot a class enemy from the British social fabric. Here lay its peculiar modernity; its prediction of the vaster, more efficient techniques of class destruction that would be perfected, a century later, in Russia.”

However, McLean observes that those convicts chosen for transportation were mostly young men with skill levels well suited to the labour force of a new colony in an isolated but nonetheless imperially strategic location. Their degree of literacy matched that of comparable populations at home. Hence, British colonial planners plainly did not establish New South Wales either as a dumping ground for their worst criminals or as a site for the physical destruction of an unruly social class resisting modernisation. Overall, McLean finds the convict population constituted a labour force comparable to the fly-in/fly-out workers employed on remote mining and construction sites today where the ratios of age and sex are not much different from those of 1788.

McLean has an unorthodox take on early relations with the Aborigines too. Although he acknowledges that the evidence is anecdotal and qualitative, he finds plenty of eyewitness observations that in the early decades of British settlement the Aborigines willingly joined the new economy, initially acting as guides for explorers and trackers for the police, but soon after entering a range of occupations: shepherds and stockmen in the wool and cattle industries, whalers and sealers, labourers in land clearing for farming and construction, and as domestic servants in both rural and urban locations.

And rather than Britain being the great exploiter of its colonial population, McLean produces a range of economic data to show that Britain gave “sizeable subsidies” to its new colony, so that its settlers attained a relatively high standard of living as early as 1820. Then, in the following three decades, the incomes of settlers were underpinned by the establishment of an export staple in wool, whose output could be expanded rapidly with very low levels of capital investment and which, thanks to the availability of large expanses of natural grassland and a seemingly insatiable demand from the new steam mills of the English midlands, could compete successfully on the world market. Even before the gold rushes of the 1850s gave New South Wales a soaring growth rate of GDP, wool had made the average Australian colonist more prosperous than his British counterparts. From the 1850s to the 1890s, with wool and gold the two chief staples, Australians surged past Americans to become, per capita, the richest people in the world.

Besides this revision of colonial history, the other major target of McLean’s book is the “Federation Settlement” case advanced by Paul Kelly in his 1992 book on the Hawke–Keating government, The End of Certainty. Kelly celebrated the achievements of Paul Keating by claiming he had the vision to reverse the previous ninety years of Australian economic policy. The Federation Settlement occurred when the Victorian protectionist MP Alfred Deakin became Prime Minister in 1905 with Labor support on a platform of industry protectionism, centralised wage fixing and White Australia. Deakin thereby consigned the New South Wales Free Trade party to the dustbin of history but also saddled the new nation with decades of relative economic decline and lower economic growth than it deserved. From an internationally-oriented economy focused on exports of raw materials, Australia turned inward to develop a highly protected manufacturing sector—until along came Keating in 1983 to globalise the economy and rescue us from our looming fate as a banana republic.

McLean’s four chapters on the economic history of twentieth-century Australia constitute a devastating critique of this thesis. First, he rejects the notion that Federation in 1901 was itself the genesis of the suite of the three culpable policies. Arbitration systems between employers and trade unions predated Federation. Wages boards were functioning in New South Wales, Victoria and Western Australia and, despite the Commonwealth instituting the basic wage in the Harvester judgment of 1907, the state authorities continued for decades after 1901 to be more economically important than their federal counterpart. Moreover, at some critical periods, arbitration judges oversaw economically beneficial declines in wage rates: during the Great Depression, the Korean War boom and the Accord between the Hawke government and the ACTU in the early 1980s.

Restrictions on non-British immigrants also long predated Federation, going back to the 1850s gold rushes. After Federation, they had most effect in the Queensland sugar industry by disallowing the importation of coolie labour from the Pacific Islands. But this system was almost at an end in the 1890s anyway since the great plantations of the Colonial Sugar Refining Company had become uneconomical compared to small owner-operated farms. Moreover, the White Australia policy was largely abandoned in the 1960s. By the time Hawke came into office, the policy was long gone, so neither he nor Keating deserve any applause for its end.

After Federation, protection for manufacturing industry declined for two decades and only increased substantially during the interwar period when much of the rest of the world was adopting the same policy and Australia would have lost out had it not followed suit. Moreover, the steelworks and heavy manufacturing industries that grew behind the tariff walls at this time were, by the 1940s, a critical factor in Australia being able to defend itself against the Japanese in the Second World War. “Given the less favorable international economic conditions Australia faced for much of the first half of the twentieth century,” McLean argues, “the pursuit of a policy of economic diversification emphasizing an expansion in manufacturing was a defensible choice.” In any case, he demonstrates, the high protectionism of the 1940s, 1950s and 1960s coincided with an economic boom, full employment and levels of prosperity that were actually higher than in the second half of the nineteenth century when Australia was the working man’s paradise. It was only in the 1970s, and the emergence of a new international trade environment, that protectionism became a positive drag on the overall economy and deserved to be ditched.

While McLean is reluctant to reduce the twentieth-century rises and falls of Australian prosperity to any single cause, the profound influence of international economic factors is a recurring theme of his case. “The broad outlines of Australia’s prosperity,” he writes, “correspond as a first approximation to the periods of the first and second globalizations and the period of retreat from globalization during the decades 1914 to 1945.” He says the gradual reorientation of the economy under Hawke and Keating in the 1980s was not due to a belated realisation that a “wrong turn” in the deployment of the economy was taken earlier in the century. The policy shifts of the 1980s, and surrounding decades, represent “a point of inflection in a longer historical trajectory rather than a major discontinuity”.

Overall, McLean argues, rational economic policy making needs to be placed in the context of the whole of our economic history, since most of the key elements in later phases of Australian growth are present almost from the outset. These include:

• unusually favourable demographic and workforce participation characteristics;

• the exploitation of a comparative advantage in the export of products from our abundant natural resources;

• an institutional framework that does not impede the emergence and flourishing of risk-taking and profit-seeking enterprise—and that is capable of peaceful adaptation when it threatens to choke off prosperity;

• a cultural context, or set of social norms, necessary to the maintenance of good governance.

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