Australia once wanted its allies to commit to full employment – what happened?
I want to tell you a quick story.
This is a federal government that had to rebuild its economy after a crisis.
The government knew that its task would be easier if it worked with other countries.
It also had the support of the voting public, who were happy to rebuild the economy on a different model as the pre-crisis economy was plagued by problems.
I like this story because it is true.
And it reminds us that the current way of interacting with the global community is never the only one. way of behaving.
So let’s travel back in time.
An international plan for “full employment”
Over the past two weeks, I have written about how the economic ideas of British economist John Maynard Keynes came to Australia in the 1930s and 1940s.
Here’s the first piece, and here’s the second.
Keynes’ ideas were put into practice by Australian policymakers during World War II (1939-1945).
They helped Australia use all available resources to fight the fascist regimes in Germany, Italy and Japan.
And when the war ended, his ideas were used to rebuild the Australian economy on a peacetime “full employment” platform.
Over the next 30 years, from 1945 to 1975, Australian governments prioritized the employment of as many people as possible.
They deliberately kept the national unemployment rate below 2 percent, on average, all the time.
This era of full employment coincided with the post-war “long boom”.
For three decades, we have enjoyed strengthening economic growth, rising living standards and rising real wages.
It was the creation of the great Australian middle class.
But this is the next part I wanted to talk about.
The forgotten ingredient? Cooperation
When economists talk about this era of “full employment”, they always draw attention to the fact that Australia was not alone.
They say many countries around the world experienced similar boom conditions, given the amount of post-war reconstruction that was needed around the world.
What is true.
However, much of the reason several countries experienced periods of expansion was because they were deliberately working together., many of them pursuing their own full employment policies.
And here’s a piece of the story that is often overlooked.
The government responsible for bringing full employment to Australia, the Labor government of John Curtin and Ben Chifley (1941-1949), worked tirelessly on the international scene to convince other countries to commit to full employment in international agreements.
And his reason for doing so was fascinating.
At the time, the government was advised by a generation of brilliant economists behind the scenes.
Many of these economists – such as LF Giblin, Leslie Melville and HC “Nugget” Coombs – believed it was in Australia’s interest that several countries have full employment at once.
According to them, Australian exporters would benefit from trading with countries of full employment because workers in those countries would have more disposable income to buy Australian products.
Conversely, if Australia were the only country to embrace full employment, imports would increase as domestic demand increases here, and higher wages would push up local costs for exporters, leading to lower exports of Australian products. .
This would create a trade balance problem.
Therefore, economists believed, it was in Australia’s interest to have full employment on several continents.
And their argument didn’t stop there.
These economists have spread around the world, as representatives of the Australian government, to try to convince other countries to commit to the goals of full employment.
They believed this would lead to an increase in international trade as it would create so much additional demand globally that it would increase the possibility for policymakers to reduce import barriers that have distorted international trade for so long.
Thus, they were effectively pushing for more trade and an increase in living standards, but using the full employment channel to achieve this.
And they delivered their arguments with such passion that they angered their American friends.
But I will stop there.
To jump to the end of the story, they weren’t technically successful.
The Americans refused to commit to full employment because they didn’t want their domestic economic policies dictated to them by international agreements (some hypocrisy there, I know).
However, the economic institutions that were ultimately created to facilitate stable growth and trade in the postwar era – the World Bank, the International Monetary Fund (IMF), and the Bretton Woods exchange rate system – did not prevent countries from pursuing full employment. anyway.
A wave of full employment policy is sweeping the democratic world.
And many Australian economists ended up taking leadership positions in these new economic institutions where they could influence things from within.
What’s new today?
I find this story fascinating.
It is strange to imagine Australian government officials arguing forcefully, on the international stage, for policies that would deliberately raise workers’ wages and increase their bargaining power.
But it is also useful to remember the spirit of cooperation that reigned in this post-war period (as well as the lessons learned from the disputes that took place).
Over the past 18 months, various “big name” economists have called on policymakers to think again about cooperation, on a global scale.
Last year we saw the IMF’s Chief Economist, a former Governor of the Bank of England and a former Secretary of the US Treasury call on all world leaders to work together to pull the world’s economies out of growth and out of pocket. low interest rates. rate, the high debt trap they had fallen into.
We have had economists from institutions like Harvard, Princeton, and the University of Chicago, among others, who questioned whether we should introduce big wealth taxes to correct the severe imbalance in global savings.
And we have a President of the United States, Joe Biden, who has surrounded himself with economists who are not afraid to suggest historically huge spending programs to create jobs, while the president presses his allies to reduce emissions in global supply chains and to tackle climate change with enthusiasm.
Does the ground move?
If so, and we are witnessing the birth pangs of a new model, it will be fascinating to see how Australia positions itself this time around.