Whitlam made the case for reform: an enduring economic legacy

Reforming prime ministers don’t always have the luxury of choice. Julian Smith/AAP

“Men make history,” Karl Marx wrote in 1859 in his Critique of Political Economy, “but not always in circumstances of their own choosing”.

Whitlam himself would have chosen a different year to be his time. Had DLP preferences not returned John Gorton’s Liberal-Country coalition in the 1969 election, the ALP would have swept to power. And Don’s Party would have had a happy ending.

Three years later, it was into the turbulent milieu of the global economy of the 1970s that the Whitlam government was born. And died.

The stagflationary ’70s

More than once, Gough Whitlam claimed to be Australia’s most successful treasurer. Immediately after the December 1972 election, with many seats still too close to call, Whitlam, together with deputy ALP leader Lance Barnard, formed a duumvirate, a two-man government, dividing all of the cabinet portfolios between them (Whitlam later noted proudly that he and Barnard did not claim all their portfolios’ salaries, although they were quite entitled to).

Whitlam was treasurer for only two weeks while the economy proceeded on its majestic, low-inflation, fiscally measured path. But 1972 was the last year of stability for the Australian economy. January 1973 brought the “British betrayal”, as Edward Heath’s government abandoned its Commonwealth trade partners and the UK entered the European Community (EC). This proved disastrous for Australian farm exports, rendered uncompetitive by the heavy subsidies of the market-distorting EC Common Agricultural Policy.

In October 1973, the “long boom” of post-war prosperity came to an abrupt end. The Yom Kippur War augured the OPEC crisis, resulting in a global oil price increase of over 400% in 1973–74. It was the end of cheap energy.

1973 also ushered in a decade-long period of Australian economic decline. Australia’s share of world trade halved between 1973 and 1983. Commodities export prices tumbled. But amidst the profound transformations taking place in the global economy, Canberra had somehow remained aloof, eschewing reform for renewed protectionism. When Nixon floated the US dollar in 1971, Britain and Japan rapidly followed suit. Australia would delay the inevitable until 1983.

From 1972 until 1975, the Whitlam government undertook a vigorous reform process that laid the basis for the Hawke-Keating internationalisation of the Australian economy. However, the differences between the two Labor governments on the role of multinational capital were stark: both the right and left of the Whitlam government were economic nationalists determined to claim ownership and oversee development of Australia’s resources industries, as evidenced by the abortive and scandal-ridden loans sought by Rex Connor.

Conversely, the ALP right under Hawke-Keating regarded multinational corporations and imported technologies as economically transformative. Instead of combatting multinationals, Hawke and Keating sought to harness the power of foreign capital by exposing Australian business to the harsh glare of competition. Like Whitlam before them, ALP sought to avoid sheltered industries and oligopolistic firm behaviour. Both governments were corporatist, forced to integrate the demands of peak business and union groups. Similarly, both governments relied upon regulatory, bureaucratic, rather than market-based solutions to industry problems.

The flag at Parliament House flies at half mast in Canberra in honour of former Prime Minister Gough Whitlam. Alan Porritt/AAP

The Whitlam tariff cuts

The ALP remained suspicious of foreign multinational corporations, particularly in light of damning union reports on working conditions in GMH, Ford and Chrysler factories during the 1960s. But the automotive industry remained one of the biggest private-sector employers in the country, accounting for approximately 100,000 jobs. GMH, Ford and Chrysler were among the most powerful and influential of the car makers, operating major manufacturing facilities in most states, including, South Australia, Victoria, New South Wales and Queensland.

Almost immediately upon election, the Whitlam government sought to deal with the problems associated with sheltered local industries, which persisted until the 1984 Button Plan (which dealt with steel, cars and textiles): too many producers with extensive operations in multiple states, resulting in product proliferation, scale inefficiencies, and components industries that were forced into exceptionally short production runs, together with excessive and costly parts inventories.

Nowhere was this more apparent than in the automotive industry. The damning 1974 Industries Assistance Commission’s (IAC) report on the car industry recommended a relatively rapid decrease in protection in order to promote efficiencies.

Tariff reductions had been discussed in Menzies’ cabinet as early as 1963 during Alf Rattigan’s tenure as Chairman of the Tariff Board. Under Menzies and successive coalition governments, John McEwen had consistently and successfully opposed the Board on tariff reductions to the point where the Board was almost powerless in the policy-making process.

Whitlam, typically, provided a crash-through-or-crash solution to subject Australian industry to the discipline of international competition: he implemented in full the 25% across-the-board tariff reduction recommended by the IAC.

In order to gain industry and union support, tariff reductions would need to be incremental and consultative, a point the Whitlam government failed to grasp. Reductions also required commensurate gains in productivity and efficiency from the manufacturers’ point of view. The ACTU, fearful of workforce downsizing, was hostile in its opposition to reform.

Bob Hawke, then-ALP and ACTU president, defended the tariff cuts publicly, although, privately, Whitlam and Hawke battled incessantly for control of the Federal ALP: Hawke, via his dual control of both the Federal ALP presidency and the ACTU; Whitlam by simply ignoring caucus. But Whitlam found support for the tariff cuts from some of the ALP left, including Jim Cairns and Clyde Holding. For the left, the reduction of the iron grip of multinationals on the Australian economy was more important than maintaining protectionism, which had long been the preserve of the McEwenist Country Party.

The 25% tariff cuts proved electorally volatile and confrontational to both business and unions. GMH resorted to heavy-handed tactics, immediately standing down 5,000 workers and refusing to reinstate them until the tariff was restored to previous levels. Despite Whitlam’s accusation of political blackmail, a compromise was reached, resulting in an 85% tariff and an agreement that GMH would re-hire the retrenched workers. Whitlam heard the message; he would not make such far-reaching assaults on Fortress Australia for the remainder of his tenure.

Competition reform

Australian competition policy has evolved relatively slowly since the 1960s. The Restrictive Trade Practices Act, introduced in 1965, was insufficient to deal with the number of restrictive agreements rife throughout Australian industry. The 1974 version of the Trade Practices Act (TPA) sought to attack anti-competitive and market-distorting measures more actively; the Trade Practices Commission was established to administer the legislation. For example, the TPA attacked exclusionary dealing, misuse of dominant market positions and price-fixing practices. In addition, it introduced consumer protection provisions.

Whitlam’s 1974 Trade Practices Act provided the impetus for the competition policy reforms of the Hawke-Keating governments.

The Whitlam government’s implementation of the Trade Practices Act; the Hawke and Keating governments’ introduction of financial sector deregulation; and the introduction of the PSA, the NCP and the ACCC were all products of various coalitions in the 1970s and 1980s that argued – with convincing empirical evidence – that Australia’s standard of living was falling, while unemployment and inflation were increasing significantly. But Australia’s political and economic elites during the Whitlam ascendancy were fearful and resistant of change.

However, Australia’s collapsing terms of trade in the 1970s, combined with the pace and reach of economic globalisation in the 1980s and 1990s, altered the perceptions of elite decision makers, who belatedly recognised that Australia’s economic decline necessitated an increase in the rapidity of Australia’s structural adjustment.

Alan Porritt/AAP

The reform legacy of the Whitlam government

Whitlam’s tariff cuts, the subject of almost-universal opprobrium in 1973, were adopted with only minor modifications by successive governments. The Fraser government – Whitlamism without Whitlam – did not restore the pre-1973 status quo. Hawke, Keating and Button implemented tariff cuts as the centrepiece of their assault on protectionism throughout the 1980s and 1990s. Equally, the fact that industry-wide tariff elimination now has bipartisan support illustrates how far ahead of its time the Whitlam government was.

National competition reform, emanating from the 1974 TPA, has proven to be less politically volatile, but equally just as far-reaching in its impact upon the Australian economy.

Arguably, the Whitlam government proved more reformist and courageous than any of its predecessors and successors. In 1972–75, major economic reform was viewed as revolutionary. By 1983, following a second oil crisis and a deep global recession, Hawke and Keating no longer had to convince industry and unions that reform was essential and inevitable.

Perhaps even more importantly, Whitlam demonstrated that national solutions to national challenges required national responses. Whitlam, a committed centrist, deployed the powers of the Commonwealth to deliver tariff and trade practices reform, at the expense of the fragmented states’ interests. Whitlam’s successors have seized upon the Commonwealth’s powers to remove the last vestiges of state authority, leading not only to wide-ranging national macro and microeconomic reforms, but also the CPRA and the establishment of the ACCC and the Australian Securities and Investments Commission (ASIC).

In 1973, advanced western economies sought refuge in increased protectionism, subsidies and quotas, in the wake of the collapse of the Bretton Woods system. The result was atrophy, stagflation and a loss of competitiveness. In the same year, the Whitlam government boldly undertook unilateral liberalisation and a year later quietly set in train a process of competition reform that would ultimately see Australia top global trade and competition rankings.

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