There are intriguing similarities between the forthcoming Australian elections and those of 1929.
In 1929, the Scullin Labor Government won a landslide victory and took office just 2 days before the New York Stock-Exchange Crash of Black Thursday, 24 October ushered in the Great Depression of the 1930s.
Prime Minister Stanley Melbourne Bruce, after more than six years in office, lost not only government but his own seat in the House of Representatives.
Now we have a similar situation in that centre-right Prime Minister John Howard, after eleven years in office, looks like being swept away in a landslide by centre-left Labor led by Kevin Rudd. Though perhaps unlikely, it may be that Howard could even lose his seat in the House of Representatives.
However, what comes after is the most intriguing aspect. In 1929, no one, least of all James Scullin and his ministers, had any idea that the world was about to crash into the greatest economic depression the world had known. They had even less idea of how they should react to any such crisis. Intriguingly, two of the key issues which confronted them were irresponsible debt and industrial relations.
The same seems to be true of the prospective Rudd Government. He has proclaimed himself to be a “conservative economist.” He has spoken, during the campaign, mainly about interest rates and housing costs in conventional terms. He will amend industrial legislation to be more acceptable to workers. He says it all in the obvious expectation that the next few years – the next ten years perhaps – will be much the same as the last ten years under Howard.
There is not the slightest possibility that they will be.
We are about to go through the most tumultuous years – in economic, social, political and strategic terms – that we have ever known. The financial, banking and credit “system” will need to be reconstructed almost from scratch, globally as well as nationally. We will have to revise fundamentally our thinking about the means to maintain economic stability and growth, non-discriminatory international trade, stable exchange rates and international capital flows; indeed, the whole gamut of issues with which we were concerned in reconstructing the world economy after the Great Depression and the Second World War.
Can a Rudd Government survive attempts to achieve such a remodelling of so much? Does it have any idea how it will contribute to thinking about such re-modelling – and do so with the vital interests of Australia both short and long term in mind?
The Scullin Government was an abject failure. Despite Mungana, it was not corrupt or dishonest. It was well-intentioned; and it was in no sense extremist or revolutionary. On the contrary, its economic and financial policies were conservative. Though some of its members wanted more expansionist policies, it accepted a “Premiers’ Plan” so devastatingly conservative that it did more to create misery for the people of Australia than the Great Crash of the NYSE ever did.
Confused, defeated and despised by its left constituency as well as the right, it lasted until January 1932. The Labor Party split three ways. A Labor defector, Joe Lyons, formed the United Australia Party, became Prime Minister and staggered on until his death in 1939 – some months before the outbreak of war.
Labor did begin to show some signs of revival in the mid-thirties. Most conspicuously, Ben Chifley made some useful contributions to the Royal Commission on Money and Banking in 1936. By the time Labor regained office just weeks before Pearl Harbour in 1941, ideas that would remedy the ills of the 1930s were being drafted into policies by Labor and formed the basis of the domestic and international economic policies that the Curtin and Chifley Governments would implement with such success between 1945 and 1949.
For Curtin and Chifley, the revolution was well prepared and they succeeded. For later Labor Governments, the way was never sufficiently prepared. The Whitlam Government had no idea how to deal with the problems of the 1970s. The Hawke and Keating Governments thought they did know and, in the process, led us down a highly conservative, right-wing, Reagan/Thatcher road that now threatens to destroy global stability and Australia’s economic, political and strategic security in a highly toxic global environment.
Where does that leave us with a Rudd Government? Past governments have failed utterly to make us the “Tiger” we should have been in the world that followed the breakdown of post-war stability between 1969 and 1971. Instead, they have left us exposed to all the hazards that flow from “floating” exchange rates, massive global speculation, reckless deregulation, opportunistic privatisation and, most recently, the escapades of the financial adventurers, marauders and buccaneers who have flogged credit and other dubious derivatives, Structured Investment Vehicles (SIVs), Collateralised Debt Obligations (CDOs), hedge funds, private-equity deals and the rest around the world. These various financial “enterprises” have, inter alia, feasted on pension funds which, in turn, in our privatising mania, have fed on millions of pensioners whose future financial security is now gravely at risk.
There is nothing in what Rudd, his shadow ministers and advisers have said and indeed nothing in the pronouncements of academics, “experts” or anyone else, that suggests that the incoming government – whether it be Labor or Coalition – has the faintest idea of the nature, scope and magnitude of the problems that confront us or of the ways in which they may be resolved.
Unless the incoming government – let’s assume it will be a Rudd Government – is extremely lucky, the crash will become manifest in the next few weeks or latest by March 2008. The United States is almost certainly in recession already – concealed only by spurious official statistics – the dollar has fallen sharply and almost certainly will fall further and faster as the weeks go by. Household, corporation and public debt is monstrous, unprecedented and all those adjectives that we thought we would never have to use. Consumer and asset inflation is high. Credit is tight and getting tighter – largely because, in the casino world that the global economy has become, too many have already lost their shirts and far too many more fear that the shirt hangs far too loosely on their own back and on the backs of those who already do or might want to owe them money.
The financial crisis is already flowing to the rest of the American economy – and spreading, like a deadly plague, globally.
Central banks never were of much value. In recent years, they have created far more problems than they have solved. The Fed purports to manage the crisis; but its reduction of interest rates and its flooding of the banking system with funds serve little purpose except to give desperate, short-term hope in a financial “system” which is so inherently invalid that its collapse is several degrees more assured than we usually associate with the term “inevitable.”
Very little of this seems to be preoccupying anyone in Australia – at least among the campaigning parties or those advising them. Concern is expressed from time to time about the “sub-prime crisis” and the credit crunch. Very little is said about, for example, the carry trade which has been supporting the Australian dollar and conveniently neutralising a large part of Australia’s external deficit. Recently, the yen has been highly volatile and the carry trade has been unwinding and rewinding in harmony. We have not yet had the “Great Unwind” but, assuredly, it is not far down the road.
That leads us to the further point that we have, for the last two or three years in particular, been through one of the greatest commodity booms in history. This boom has affected a whole range of raw materials – as well as food for which, if, because of drought, we have not been able to sell in abundance, we should, in some compensation, have been able to get better prices.
From this, we might have imagined that we might be enjoying as splendid a surplus in our external trade as, let us say, Russia from the boom in oil. But that is not so.
It has not happened, largely because Australians have continued to consume vast quantities often of luxury goods, paid for by massive credit-card and mortgage debt based largely on false notions of expanding personal wealth.
The external deficit has shown some volatility but it is a reasonable prediction that, based on performance so far, the trend in future will show the deficit increasing rather than receding. The carry trade will then unwind, perhaps completely and there may be an easing – perhaps a grave easing – of commodity demand from China if their economy and, for example, India’s strike a rougher patch.
None of these developments is improbable nor is it improbable that they could occur together.
Australia is not prepared for any such eventuality. Past Australian policies have been based on about as many false premises as anyone can possibly poke a stick at.
Against this background, a Rudd Government is not remotely prepared to deal with the probable crises that might confront us; nor of course would a Howard Government have a clue as to what it might be best to do.
Either alternative would be faced with the outcome of nearly forty years of successive governments’ failure to make Australia one of the “Tiger” economies. Rudd now declares his determination to put a laptop in the lap of every young Australian. In itself, that objective is noble; but it is pathetic that only now a Labor campaigner for office should be advocating it as a sort of cure-all. He may be putting it forward when, before one laptop can be delivered under the program, the house of financial and economic cards that Labor and Liberal governments have built over the past three to four decades will be toppling around us. Many of us will be left with no job, no house, no adequate professional or trade education, no decent health service and, at the end of it all, no pension except one that has been heavily depreciated in the financial storms that our Governments have done so much to provoke.
A Rudd Government, if we get one, might last as long as Scullin’s did. That would take us perhaps to the beginning of 2010. Labor would probably split long before that. The Treasurer or some other minister might take a few Labor dissidents to form a government with Opposition members led perhaps by Peter Costello. Somehow, we might then stumble through a long, deep and terrible depression, to end around, let us say, 2017 in World War Three. Only the Almighty knows whether we might have any allies at all by then - and whether they might have any residual power even to secure themselves let alone prop up any allies.
With those prospects, Labor – and Kevin Rudd - might be well advised to disdain any offer of power to govern and so avoid going down in history as another well-meaning but feckless Scullin-type Government. Let Howard and his retinue take the blame and just opprobrium for a catastrophe to which they have contributed with such unbridled generosity.
It won’t happen of course. On the night of 24 November 2007, Labor, led by Rudd, will probably be declared the victor and they will confront their unenviable destiny. For Australia, it won’t be any worse than having Howard’s Coalition as the victor. Indeed, it might be rather better. However, whoever is the victor, I – as one who grew up in the last Great Depression – can only offer a prayer and express a hope. That hope is that we Australians may come through this new and even more terrible challenge, with the same spirit and fortitude that we did seventy years and more ago.
Author of “America’s Suicidal Statecraft: The Self-destruction of a Superpower”