Australia and the World Economy 1960 - 1973 Flashcards
(23 cards)
What happened to Australian manufacturing in the reconstructed economy and what effect did this have on the economy on the whole?
- Manufacturing grew, in part leading to:
- Full employment
- Immigration
- Investment and Trade
- But difficulties in responding to economic crises
What were shortcomings of the Australian economy in the 60s?
- Dominant strategy was tariff policy & ensure manufacturing success for jobs
- Ever present concern with the balance of payments (subject to fixed exchange rate)
What was the first major Australian BoP crisis of the 1960s?
- Government response to 1960 BoP crisis was extreme and contributed to recession
- Gov policy characterised by “damage control” rather than long term planning and understanding of business cycles
- In 1960 quota’s were removed and taxes were cut, leading to a surge in imports, and a current account deficit
- Very negative response, thought that government could have foreseen the consequences of quota removal.
What was the situation/response of the 1960 BoP crisis?
- Current account deficit = supplying more Aus$ than people are willing to buy, causing downward pressure on the currency. By 1960 currency was convertible.
- Need to stabilise the price of currency and reduce the demand for imports
- Options: tariffs, reduce people’s wealth
- Currency can be stabilised and economy can be slowed by reducing the money supply: contractionary policy (credit squeeze)
- CB (under order form Gov) buy Australian dollars to stimulate demand for currency to push it back up to the fixed exchange rate
- Supply has gone down, demand has remained the same and price (I/R) goes up, discourages borrowing, I falls.
What did the 1960 BoP crisis result in?
- Committee of Economic Inquiry, Vernon, 1963
- Committee advocated that gvt should adopt a medium term view of the economy
- Suggested that manufacturing was complacent under tariff protection - not competitive, high prices
What was the opposition to the Vernon Committee?
- Gov. did not support tariff reduction
- Strong lobby for tariffs (manufacturing)
- McEwen in favour of tariffs
- Was prominent cabinet member, favoured immediate tarrif increases following industry requests
- Unions, employment
What was the state of Australian manufacturing following WW2?
- Manufacturing grew rapidly after WWII
- Employed a high proportion of the workforce, a big factor in the quest for full employment
- Geographically fragmented
- State competition for industry location
What were the manufacturing industry policy aims following WW2?
- Full employment
- Security and protection after WWII
- Import replacement to protect BoP
- Diversification of State economies
- So that nationwide, standards of living increased
How did manufacturing intend to achieve it’s policy aims?
- Import protection
- Direct foreign investment
- Mass immigration
- Strong macroeconomic leadership
What were the outcomes of the growth of manufacturing?
- Growth of certain industries
- Capital widening
- More diverse set of industries than 20 years before
- Labour productivity grew but not very fast
What were the drawbacks to the rise of Australian manufacturing?
- Foreign dominance
- Capital
- Companies repatriating profits
- Workers
- Technology
- No R&D domestic
- Management
- Australians not learning management skills
- Capital
What are the positive/negatives of the rise of Australian manufacturing post WW2?
- Grew for 20 years after WWII
- Employed 28% of the labour force
- Led to the creation of a large service industry
- Accounted for 26-28% of GDP
- In those 20 years the state was closely tied to industry through protectionism
- It is claimed that industry only grew as a result of protection and that it was not Australia’s comparative advantage
- Australian manufacurting was relatively labour intensive in a country with a labour shortage
- Only possible because of protection?
- Protected most labour-intensive industries, those lowest comparative advatnage
What was the overall state of the Australian economy in the 1960s?
- High grwoth
- Strong balance of payments
- Full employment
What was the Long Boom and why hadn’t the same thing happened in the inter-war period?
- Good economic growth from 1950-1974
- Unemployment was low despite a growing labour force and participation rate
- Inflation was low until the late 1960s
- Management of the inflation rate was to cause economic crisis soon after
- Strong consumer demand contributed to growth
- Prior to WW1, economy had been completely dependent on other economies consumer demand, i.e. exports
What was the state of foreign investment in Australia during the long boom?
- Capital inflow peaked in 1960s and early 70s
- Large proportion was private direct investment by multinational firms, less public borrowing, unlike 1880s and 1920s
- US dominated investment over this time
- Foreign firms investing in Australia were protected from foreign imports and faced well-established propter rights
- Direct investment had less negative consequences on the BoP than earlier public borrowing
- By 1970s public opinion was turning against foreign investment - foreign multinationals put their own interests ahead of the Australian economy
- The 1970s saw a host of legislation enacted to reduce the levels of foreign ownership of business and property in Australia
What was the state of BoP over the long boom?
- Always concerned with BoP, worried about financing a deficit
- Could control the deficit by limiting imports (with tariffs)
- But this was costly in the long term
- Over the Long Boom pressure on the BoP increased as transport costs grew, remittances were sent abroad, travel from Australia increased, foreign investment exceeded Australian investment abroad
- Needed to expand exports
What new markets were entered by Australia during the Long Boom?
- Britain joined the EEC, reducing food exports from Australia to Britain
- Trade treaty between Australia and Japan 1957
- Increased export of iron ore and became Australia’s biggest export market
- Minerals became more important in Australia’s exports from 1968
- Foreign investment supported the minerals boom
- By the early 1970s, 52% of the value added in mining came from foreign owned firms
What happened to manufacturing exports during the long boom?
- Increased from 12% at the beginning of the 50s to 20% in the mid 60s and 26% by early 70s
- Largest export earner, ahead of minerals and wool
What happened to traditional exports during the long boom?
- Minerale, fuels and manufactures performed well
- The value of wool exports declined due to lower prices
- Japan took over from Britain and Europe as the largest buyer of Australian wool
- Wheat prices declined, agricultural protectionism (overseas) affected Australian wheat exports negatively
What changes were there to protectionism during the long boom?
- World wide agricultural protection remained high despite declining tariffs for manufactures and the growth of world trade
- Australia was reluctant to reduce tariffs on manufactures without a reciprocal reduction of protection on American and European agiricultre
What changes in bilateral trade agreements occurred during the long boom?
- GATT was ineffective for Australia because of agricualtal protection
- Britain declined in importance as a trading partner especially when it joined the EEC in 1973
- Agreements with the USA and Asian countries other than Japan did not occur
In what ways was the Australian economy not fully committed to the international economy during the long boom?
- It did not reduce tariffs in line with GATT
- It did not join the OECD
- It maintained the ‘White Australia’ policy till 1973
- In the 1970s it began to question the wisdom of unresrticted capital flows
What can be said of Australia during the long boom?
It was not fully committed to the international economy
