Gough Whitlam was a giant among men who changed Australia forever - and
did it in just three years. No argument. The question is whether the
benefits of his many reforms exceeded their considerable economic costs.
The
answers we've had this week have veered from one extreme to the other.
To Whitlam's legion of adoring fans - many of whom, like many members of
his ministry, have never managed to generate much understanding or
interest in economics - any economic issues at the time aren't worth
remembering.
To his bitter, unforgiving critics - led by former
Treasury secretary John Stone - his changes were of dubious benefit, in
no way making up for the economic chaos he brought down upon us.
The truth is somewhere in the middle.
To
his many social reforms must be added a few of lasting economic
benefit: diplomatic and trading relations with China, the Trade
Practices Act with its first serious attack on anti-competitive business
practices and - the one so many forget - the Industries Assistance
Commission, whose efforts over many years led eventually to the end of
protection against imports, removed by the next Labor government.
Not
all of his many social reforms have survived. The Hawke-Keating
government removed remaining vestiges of his non-means-tested age
pension and ended the failed experiment with free university education,
which did little to raise the proportion of poor kids going to
university, but cost a fortune and delivered a windfall to the middle
class at the expense of many workers.
The best modern assessment
of the Big Man's economic performance comes in the chapter by John
O'Mahony, of Deloitte Access Economics, in The Whitlam Legacy, edited by
Troy Bramston.
O'Mahony's review of the economic statistics tells
part of the story: "The years of the Whitlam government saw the
economic growth rate halve, unemployment double and inflation triple".
But
that conceals a wild ride. By mid-1975, inflation hit 17.6 per cent and
wage rises hit 32.9 per cent. The economy boomed in 1973 and the first
half of '74, but then suffered a severe recession.
From an
economic perspective, Whitlam did two main things. He hugely increased
government spending - and, hence, the size of government - by an amazing
6 percentage points of gross domestic product in just three years.
Some
have assumed this led to huge budget deficits. It didn't. Most of the
increased spending was covered by massive bracket creep as prices and
wages exploded.
Many of Whitlam's new spending programs should
have come under his predecessors and would have happened eventually.
Some can be defended as adding to the economy's human capital and
productive infrastructure, others were no more than a recognition that
our private affluence needn't be accompanied by public squalor.
From
this distance it's hard to believe that in 1972 large parts of our
capital cities were unsewered. That's the kind of backwardness Whitlam
inherited.
The Whitlam government's second key economic action was
to pile on top of high inflation huge additional costs to employers
through equal pay, a fourth week of annual leave, a 17.5 per cent annual
leave loading and much else.
Clyde Cameron, Whitlam's minister
for labour, simply refused to accept that the cost of labour could
possibly influence employers' decisions about how much labour they used.
From
today's perspective, there's nothing radical about equal pay or four
weeks' leave. But to do it all so quickly and in such an inflationary
environment was disastrous.
When the inevitable happened and
Treasury and the Reserve Bank jammed on the brakes and precipitated a
recession, Labor's rabble of a 27-person cabinet concluded the
econocrats had stabbed them in the back, panicked and began reflating
like mad.
What Labor's True Believers don't want to accept is that
the inexperience, impatience and indiscipline with which the Whitlam
government changed Australia forever, and for the better, cost a lot of
ordinary workers their jobs. Many would have spent months, even a year
or more without employment.
But what the Whitlam haters forget is
that Labor had the misfortune to inherit government just as all the
developed economies were about to cross a fault-line dividing the
postwar Golden Age of automatic growth and full employment from today's
world of always high unemployment and obsession with economic
stabilisation.
Thirty years of simple Keynesian policies and
unceasing intervention in markets were about to bring to the developed
world the previously impossible problem of "stagflation" - simultaneous
high inflation and high unemployment - that no economist knew how to
fix, not even the omniscient and infallible John Stone.
It was 30
years in the making, but it was precipitated by the Americans' use of
inflation to pay for the Vietnam war, the consequent breakdown of the
postwar Bretton Woods system of fixed exchange rates, the worldwide
rural commodities boom and the first OPEC oil shock, which worsened both
inflation and unemployment.
The developed world was plunged into
dysfunction. The economics profession took years to figure out what had
gone wrong and what policies would restore stability. Money supply
targeting was tried and abandoned.
The innocents in the Whitlam
government had no idea what had hit them; that all the rules of the
economic game had changed. The point is that any government would have
emerged from the 1970s with a bad economic record.
Malcolm Fraser had no
idea the rules had changed, either. His economic record over the
following seven years was equally unimpressive.
It took the rest
of the developed world about a decade to get back to low inflation and
lower unemployment. It took us about two decades. I blame the Whitlam
government's inexperience, impatience and indiscipline for a fair bit of
that extra decade.
My strongest feeling is that when the
electorate leaves one side of politics in the wilderness for 23 years
it's asking for trouble. It's Time to give the others a turn after no
more than a decade.
