Great Depression in Australia

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In 1931, over 1000 unemployed men marched from the Esplanade to the Treasury Building in Perth, Western Australia to see Premier Sir James Mitchell.

The Great Depression of the 1930s was an economic catastrophe that severely affected most nations of the world, and Australia was not immune. In fact, Australia, with its extreme dependence on exports, particularly primary products such as wool and wheat, is thought to have been one of the hardest-hit countries in the Western world along with Canada and Germany. Unemployment reached a record high of 29% in 1932, one of the highest rates in the world. There were also incidents of civil unrest, particularly in Australia's largest city, Sydney.

1 The 1920s: The calm before the storm
2 1929: The storm erupts
3 1929-1932: Scullin and Lang
4 1932-1939: A slow recovery
5 Legacy of the Great Depression in Australia
6 See also
7 External Links

[edit] The 1920s: The calm before the storm

As part of the British Empire, Australia's economy was intricately linked with that of the United Kingdom. The UK was Australia's largest trading partner by a very large factor. Despite introducing a protectionist trade policy in the 1900s, Australia was still dependent on manufactured goods and industrial capital from the UK, which Australia would import in return for its exports of primary products to Britain. The Australian pound was pegged to the pound sterling.

The British economy was sluggish ever since the end of the First World War. The war effort had depleted Britain's savings and foreign investments, and wartime inflation had upset the United Kingdom's terms of trade. A sluggish economy in Britain naturally reduced British demand for imports from Australia throughout the 1920s and this had affected Australia's balance of payments also. Throughout the 1920s the Australian unemployment rate floated between 6% and 10%.

The 1920s were, however, a time of great population growth in Australia, fuelled by subsidised immigration from the UK known as assisted passage. British immigrants were treated with suspicion, were often perceived to be "stealing Australian jobs". This mass immigration caused Australian cities to expand considerably -- Sydney's metropolitan population grew by about one-third between the 1921 and 1933 censuses. Therefore the 1920s was a time of a massive residential construction boom.

The First World War had caused many necessary infrastructure projects to be delayed or abandoned, and many of these were begun in the 1920s, including the Sydney Harbour Bridge, Sydney's underground railway system and the paving of many long-distance highways such as the Hume Highway between Sydney and Melbourne. New dams and grain elevators were built, and the rural railway network was expanded in nearly every state. Rural electrification began and costly irrigation schemes such as the Murrumbidgee Irrigation Area started in earnest. All these publicly funded projects were paid for by loans raised by both state and federal governments. Most of these loans were raised on the bond markets in the City of London, though some were raised within Australia or on Wall Street.

[edit] 1929: The storm erupts

In 1926 the British government decided to put the pound sterling back onto the Gold Standard at pre-1914 parity. This had the immediate effect of making British exports far less competitive in international markets. Because Australia pegged the Australian pound to the pound sterling, this also affected Australian terms of trade.

Falling export demand and commodity prices placed massive downward pressures on wages, particularly in industries such as coal mining. Due to falling prices, bosses were unable to pay the wages that workers desired. The result was a series of crippling strikes in many sectors of the economy in the late 1920s. Coal miners' strikes in the winter of 1929 brought much of the economy to its knees. A riot at a picket line in the Hunter Valley mining town of Rothbury saw police shoot one teenage coal miner dead.

The conservative Prime Minister of Australia, Stanley Bruce, wished to dismantle the conciliation and arbitration system of judicially-supervised collective bargaining which had been the cornerstone of Australia's industrial relations system since the 1900s. Arbitration made it difficult for employers to adjust wages in response to market conditions.

The opposition Australian Labor Party, led by James Scullin, successfully depicted Stanley Bruce as wanting to destroy Australia's high wages and working conditions in the 1929 federal election. Scullin was elected Prime Minister in a landslide which saw Stanley Bruce voted out as the Member for Flinders, the only time in Australian history that a sitting Prime Minister lost his seat.

[edit] 1929-1932: Scullin and Lang

Two days after James Scullin was sworn in as Prime Minister, the Wall Street stockmarket collapsed, marking what is now perceived to be the beginning of the Great Depression.

Throughout Scullin's term, commodity prices continued to fall, unemployment rose, and Australia's big cities were depopulated as thousands of unemployed men took to the countryside in search of menial agricultural work.

The stagnant economy had reduced economic activity and therefore tax revenues. However, the debt commitments of both state and federal governments remained the same. Australia became severely at risk of defaulting on its foreign debt which had been accumulated during the relative prosperity and infrastructure-building frenzy of the 1920s.

Prime Minister Scullin and his Treasurer Edward Theodore found themselves unable to make ameliorating measures by the conservative majority in the Senate.

The Bank of England was concerned by the possibility of default and in 1930 sent an envoy, Sir Otto Niemeyer, to lecture Australian governments on the virtues of austerity and belt-tightening. At a conference in Melbourne in that year, all state and federal governments agreed to slash government spending, cancel public works, cut public service salaries and decrease welfare benefits. This became known as the "Melbourne Agreement".

Jack Lang, the Labor Party Leader of the Opposition in New South Wales and a fiery left-wing populist, campaigned vigorously against the provisions of the Melbourne Agreement. He was elected in a landslide in the NSW state election of 1930.

In 1931 at an economic crisis conference in Canberra, Jack Lang issued his own programme for economic recovery. The "Lang Plan" advocated the repudiation of interest payments to overseas creditors until domestic conditions improved, the abolition of the Gold Standard to be replaced by a "Goods Standard" where the amount of money in circulation was linked to the amount of goods produced, and the immediate injection of £18 million of new money into the economy in the form of Commonwealth Bank of Australia credit. The Prime Minister and all other state Premiers refused.

The Labor Party soon split into three separate factions. Jack Lang and his supporters, mainly in New South Wales, were expelled from the party and formed a left-wing splinter party officially known as the "New South Wales Labor Party," popularly known as "Lang Labor". Public Works & Railways Minister Joseph Lyons led a conservative faction, which believed in classical economic policy and loyalty to the British Empire in all circumstances. It merged with the opposition Nationalist Party to form the United Australia Party. A moderate faction led by Scullin and Theodore remained in government until the United Australia Party and Lang Labor combined at the end of 1931 in a parliamentary vote of no confidence, which resulted in a federal election. Joseph Lyons and the UAP won this election in a landslide that was nearly the mirror opposite of the 1929 election.

Before being voted out of office, the Scullin government had passed a law, the Financial Agreement Enforcement Act 1931 to force New South Wales to adhere to its debt commitments in line with the Melbourne Agreement. The federal government had paid NSW's bond instalments and intended to recoup this money from the NSW Government. Premier Lang still refused to comply, and the Financial Agreement Enforcement Act 1931 was upheld by the High Court of Australia in 1932. Premier Lang still refused to hand over the money, which led the Governor of New South Wales, Sir Philip Game, to dismiss the Premier in May 1932 and call fresh elections. Jack Lang lost the election and was never to become Premier again.

[edit] 1932-1939: A slow recovery

Unlike the United States where Franklin Roosevelt's New Deal stimulated the American economy, New Zealand where Mickey Savage's socialism and central planning almost eliminated unemployment overnight, or the United Kingdom where rearmament also reduced unemployment, there was no formal plan for economic recovery in Australia. There was no banking reform or socialisation of the economy. State governments and local councils continued with make-work unemployment relief schemes such as bridge building and other public works. However, the stimulation of the economy in the United Kingdom, as well as the devaluation of the Australian pound, the abandonment of the Gold Standard and the 10% cut to award wages over time led to a slow recovery.

Prime Minister Lyons, despite his Labor Party background, turned out to be an extremely conservative and cautious leader. Supporters of Lyons pointed to his moderation and steady-as-she-goes policies as a stabilising influence in a decade marked by widespread political violence and the rise of totalitarianism elsewhere in the world. Critics of Lyons point to his same qualities as a reason why Australia's economic recovery was so slow compared to other advanced economies.

Unemployment, which had peaked at 29% in 1932, had been reduced to 10% at the start of the Second World War. There was a definite increase in industrial output and prosperity after the economy hit bottom in 1932.

[edit] Legacy of the Great Depression in Australia

During the Second World War, the Australian Labor Party formed a government in the House of Representatives, led by two socialist Prime Ministers: John Curtin (1941-1945) and Ben Chifley (1945-1949). Curtin and Chifley, who often used the spectre of another depression in his campaign rhetoric, used emergency wartime powers to introduce a command economy in Australia based on Keynesian principles. Unemployment was eliminated in this period.

An extensive welfare state was also introduced in this era after a constitutional referendum on September 28, 1946, saw the Australian people give the Commonwealth government power over social services.

Chifley also attempted to nationalise the banking sector, claiming that public control over the finance industry would assist in preventing further depressions. These plans saw bitter and protracted opposition from the media, conservative parties and the banks themselves, and the High Court of Australia ruled that the proposed nationalisation of banks was unconstitutional.

Chifley's continuation of war-time economic controls, such as rationing of foodstuffs, clothing and petrol, alienated much of the electorate from his brand of socialism. Chifley's government was soundly defeated by the Liberal-Country Party Coalition led by Robert Menzies in 1949. Though Menzies was a conservative, his sixteen subsequent years in power saw the government use Keynesian methods in economic policy as well as further expansion of the welfare state and public services such as higher education, research and development and public housing. Public support for these may have been a legacy of mass experiences of poverty during the Great Depression.