Trapped in history
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Trapped in history

Trapped in history

John Edwards

The Australian Financial Review

21 March 2015

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Executive Summary

We would remember Malcolm Fraser's economic record a little more kindly if he hadn't had the misfortune to be followed by the Hawke government, with Paul Keating as treasurer. After all, for four or five years Fraser achieved pretty much what he aimed to do and the public expected in making him prime minister.

It took a while but after two or three years of office the fiscal deficit narrowed, inflation retreated, output growth was solid, the number of industrial disputes declined and unemployment began to fall. His government was or at least appeared to be cohesive. After what was often said to be the economic disorder of the Whitlam years, Fraser's economic policy decisions were generally applauded. Good economic management was admired. Economic "reform" was mostly about the federal budget.

It was only after five years of office that the economy went badly awry, showing that many of the problems that destroyed the Whitlam government were endemic to the Australian economy, to the way the world worked, and not to the political party that happened to be in office.

For Fraser, the hard slog of budget frugality and modest output growth were wearying. Touting an upswing in mining project investment as the beginning of a boom that would transform both the country and his own political prospects, Fraser instead found himself by 1981 sliding into economic catastrophe. The Australian economy was crushed between an unexpected global downturn following the US Federal Reserve's sharp tightening of October 1979, and a sudden increase in union wage demands; inflation rose while output fell. Interest rates were tightening while spending was cut.

The economy tumbled into the deepest recession since World War Two. Even for a politician as astute as Fraser there was no way out. At the end the steady economic management style of the Fraser government had collapsed. Prime minister and the treasurer were so annoyed with each other they barely talked, a silence matched by the silence between Treasury and the treasurer.

What we mostly remember now is not that economic collapse, but the neglect of reform. In his eight years of office Fraser had opposed major tariff cuts, despite pressure from the Tariff Board and from elements within his own party (including, at least to some degree, his treasurer John Howard). From his striking win in the June 1975 Bass byelection on a platform critical of tariff cuts, Fraser had dismissed the case against industry protection. He was persuaded to commission the Campbell review of Australia's financial system but remained opposed to implementing the recommendation that meant most for the economy's operation - the floating of the Australian dollar. Even decades later, when he had changed his views on the American alliance and on the Liberal Party, he remained true to his Keynesian training and a critic of the floating of the exchange rate. His response to the acceleration of wages was a wage freeze, a bold and actually quite successful strategy, but one that offered no lasting solution to Australia's industrial problems.

Fraser's failure as a reformer was of course closely connected to his ultimate failure as an economic manager but it would not have been noticed quite as much had it not been for the amazing, unexpected performance that followed. Elected on a platform of opposition to the Campbell recommendations and of budget expansionism, the Hawke government abruptly moved in the reverse direction.

Fraser's economic repute had a brief revival in 1990 as Australia once against fell into recession. It was widely said that the Hawke and Keating policies of "economic rationalism" had failed. But then the long upswing began, extending into one decade, then another, so that we now find ourselves, after nearly 24 years of uninterrupted prosperity with only a fading memory of the Liberal leader who believed so firmly that Australians could not accept change.



John Edwards was an economic adviser to Paul Keating, 1991-1994. He is non-resident fellow at the Lowy Institute for International Policy, an adjunct professor with the John Curtin Institute of Public Policy at Curtin University and a board member of the Reserve Bank of Australia. In 1977 his book Life Wasn't Meant to be Easy: A Political Profile of Malcolm Fraser, was published by Mayhem.


Areas of expertise: Australian economic policy; monetary policy; international economics; banking