Whitlam's legacy was to win vital reforms

22 Oct, 2014 04:25 AM
Former Prime Minister Gough Whitlam, who died in Sydney on Tuesday aged 98.
The Whitlam government's mistakes were also a wellspring of economic reform
Former Prime Minister Gough Whitlam, who died in Sydney on Tuesday aged 98.

SUCCESSES and failures both helped create a business and economic legacy for Gough Whitlam that far outweighs his government's brief time in power.

Whitlam led Labor to its first federal election win in 23 years on December 2, 1972, and within days he had established full diplomatic relations with the People's Republic of China, now Australia's biggest trading partner.

His government also cut all tariffs on imports by 25 per cent in July 1973 and created a Trade Practices Act in 1974 that drew on US law as well as British law.

Both initiatives threatened a culture of protectionism and cronyism that had been building in the business world for generations. They could probably only have been delivered at the time by a Labor government that felt it owed no favours to the business sector.

Bob Baxt, Allan Fels and Graeme Samuel are former chairmen of the Trade Practices Commission and its current successor, the Australian Competition and Consumer Commission. They all say that the Trade Practices Act that Whitlam's attorney-general, Lionel Murphy, shepherded through Parliament ranks as one of the important pieces of economic and commercial law introduced in this country.

It replaced earlier competition law that had proved to be not only ineffective but a bureaucratic nightmare for companies. Its influence is so pervasive that even before the government's response to the current inquiry into its effectiveness and scope, it is impossible to imagine the business sector functioning fairly without it.

The decision to cut tariffs by 25 per cent and decisions in 1972 and 1973 to lift the value of the Australian dollar by the same percentage collectively were also policy seachanges, although they created problems for Whitlam.

Successive Coalition governments had resisted calls for reductions in industry protection as the Country Party and business backers of the Liberals argued that a high tariff wall was essential to foster the growth of industry and the agriculture sector.

In 1971, however, the Bretton Woods accord that pegged the value of the US dollar to the price of gold collapsed.

There was, by that time, already pressure for an increase in the Australian dollar to tame inflation that was being fed by the 1969-71 mining boom. It increased as the newly floating US dollar declined in value after the breakdown of Bretton Woods, but the same forces that opposed tariff cuts also opposed a revaluation of the Australian dollar and the McMahon government sat on its hands.

The Reserve Bank created a safety valve for the currency by printing money and buying US dollars, but that created inflationary pressure of its own. The Whitlam government's two exchange rate increases after its election helped, but they came too late, and the Whitlam government was paradoxically also creating inflation pressure of its own, with expansionary budgets in its first two years and public-sector wage rises that spread right through the economy courtesy of Australia's centralised wage-fixing system.

There was another factor in the period of "stagflation" - low growth and high inflation - that emerged while Whitlam was in power, significantly denting his government's reputation for economic management. In October 1973, the OPEC oil cartel had shocked the world by cutting supplies and announcing price increases that by March 1974 had tripled the price of oil, from about $US3 a barrel to almost $US12 a barrel.

The stagflation that the OPEC price increase triggered and the ripple effects of the breakdown of Bretton Woods were things all Western governments were struggling to respond to at the time, Bank of America Merrill Lynch economist Saul Eslake observes.

Whitlam's tariff cut is in any event most often remembered now as a definitive break from the protectionist culture that previous governments had defended. His new Trade Practices Act also "paved the way for business and the community to understand and accept the fundamental benefits of a competitive, open market economy", Samuel says.

It wasn't apparent until years later, but the Whitlam government's mistakes were also a wellspring of economic reform.

The scandals that engulfed the government and gave Malcolm Fraser a trigger to deny passage of budget supply bills in the Senate were born in Labor's left wing and Labor's drubbing in the election that followed Sir John Kerr's sacking of Whitlam on November 11, 1975, changed Labor's internal power lines.

By the time the Hawke government was elected in 1983, the right wing of the Labor Party had the upper hand, sound economic management was politically paramount and a young treasurer named Paul Keating was ready to unleash the biggest program of economic reform and deregulation since Federation.

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Bushie Bill
22/10/2014 5:58:54 AM

The cutting of tariffs by 25% in 1973 was the beginning of Australia's building of real wealth in this country. We recognised and accepted that we are part of the world and not some inferior inward-looking fearful protection-dependent outpost full of yobbo peasants.
22/10/2014 7:05:38 AM

Gough could not manage the finances of Australia. Fancy a PM negotiating billions in finance for a sovereign nation from a no name exotic money dealer. He took us within a whisker of the cliff. Had he been allowed to continue, we all would have been peasants to this day. Don't worry about any tariff issues.
yobbo peasant
22/10/2014 7:39:43 AM

So Bushie we open the door for them (via zero tariffs) to import to us things we don't really need (or could produce ourselves if cost of doing business was affordable) and in the mean time rave about a small % decrease in our essential exports to their shores such as beef or wheat, does that make any sense? in other words, let it rip for them, in doing so we remove any leverage we had in negotiations with them on essential items (limited in supply) they would probably have to buy from us anyway? I don't think politicians (with no skin in game) are the best for doing these deals on our behalf.
Yobbo bushie cousin
22/10/2014 8:08:59 AM

Yep we dropped our tariffs and our biggest Asian business partners did not.now in 2014 if we want to export our ag products we are making Asian governments money and losing aussie farmers everyday because we just are not on a level playing field.hey bushie what is the tariff on exporting beef to Japan or milk to China.enough said!
22/10/2014 8:16:34 AM

I have no issue with removing tariffs. Problem is we are the only ones that did it - and so proved, that we were an outpost of uneducated yobbo peasants.
Bushie Bill
22/10/2014 9:35:13 AM

Every Australian citizen and resident that is a consumer ( and that is 100% of us) is a clear winner from Whitlam's bold move to take away protection from politially cosseted sectors of our society, including economically illiterate agsocs. Incidentally, do tell me how an industry that exports two-thirds of its produce and imports most of its capital inputs has the stupidity to argue for tariff protection? All consumers are better off, regardless of what our trading partners do-a simple fact of observation and objective analysis.
yobbo peasant
22/10/2014 9:53:46 AM

Simple, bushie, we develop our own industries to provide our inputs, hence encouraging jobs and real growth. We have our own energy, we use to make our own equipment, use of waste/compost is providing very real alternatives to imported fertilisers. If our cost of living had not been hijacked by the privatisation of public assets and the inflationary policies of fractional reserve banking (aided by central bank policy) we would have remained an affordable place to do business. Instead, individuals have learnt to live on credit, at the cost of our local industries and dependant on o'seas funding
22/10/2014 10:46:26 AM

Bushie explains why Labor Governments ALWAYS crash the economy. It's all about consumption, production is not a part of their vocabulary.
22/10/2014 2:23:10 PM

Qlander, very succinctly put. But don't expect Bushie to applaud your absolute astuteness when that insight in any way exposes the weak flank of his beloved left wing money wasters.
22/10/2014 2:54:58 PM

What makes BB thing Whitlam was so popular? If he was so popular why didn't he win the 1975 election? The voters let him see how popular he was by giving Fraser a big majority.Interested to hear your views on the above Bushie Bill.
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