Australia Booms with Economic Freedom
By Tom Switzer

The good times keep rolling Down Under. Australia is now in its fourteenth year of uninterrupted vigorous growth, outperforming other major developed economies. Unemployment has come down to a 28-year low of 5.1 percent today from almost 11 percent in 1992, and inflation has steadfastly remained at 2 to 3 percent since the early 1990s. The stock market is at record-breaking levels.

 

That Australia has been growing at a little less that 4 percent per year since the early 1990s is all the more remarkable when you consider that its farm sector has suffered its worst drought in a century. Australia’s major trading partners, moreover, have faced serious downturns in recent times: Japan has remained mired in recession for more than a decade; East Asia experienced a financial crisis in 1997-98; and the U.S. slowed for a few years in the wake of the dot-com crash and 9/11 attacks.

 

Why then has Australia been so exceptional? Thank a smart mix of free-market reforms and prudent monetary and fiscal policies. By restraining the deadening hand of the nanny state and giving more play to market forces as the most reliable generator of wealth, Australian governments have transformed the way the nation does business.

 

Of course, most of the credit for creating the miracle economy belongs to the innovative managers and hardworking employees. But Canberra’s political leaders have helped create a culture of competition and hard work that has driven the nation to new heights. And they have done so by taking the politically brave step of pushing a reform agenda onto a skeptical electorate. From the government- interventionist mindset that delivered economic turmoil in the 1970s, Australia has moved to an era of free markets.

 

Since independence in 1901, Australians had come to depend on the powers of the central government to solve nearly all the nation’s problems. A restrictive immigration policy kept out competition from cheap Asian labor; high import tariffs and large subsidies protected domestic profits; and a heavily regulated workplace arbitration system guaranteed a large share of the protected pie for workers.

 

In the early 1980s, Australia remained economically insular, weighed down by protectionism, over-regulation, and chronic inflation. The intellectual case against big government had been waged over the previous decade by a few maverick politicians and bureaucrats as well as some leading newspaper columnists and editorial pages. In the late 1970s, the free-market position was adopted by conservatives like future prime minister John Howard. But it was the traditionally socialist Labor government that ditched its old shibboleths in the mid 1980s and implemented a reform agenda. Prime ministers Bob Hawke (1983-91) and Paul Keating (1991-96) converted the nation’s protectionist mentality to the idea that living standards depend on Australians’ ability to compete in the global marketplace. From this idea flowed the agenda of tariff cuts, lower taxes, reduced union power, budget discipline, low inflation, financial and exchange-rate deregulation, privatization of government-owned businesses, increasing Asian engagement, and more independent monetary policy.

 

Prime Minister John Howard has sustained and extended these reforms since his election in 1996. The benefits have included a surge in productivity, lower interest rates, and a wider choice of goods and services at lower prices. Australian society now offers unparalleled opportunities. Far from producing Dickensian sweatshops, as predicted by the unions, the workplace changes have produced steady and low-inflation wage growth. Trade unions have dramatically declined while the number of small business owners and shareholders are on the rise. A recent study shows that the rewards of the economic miracle have been evenly spread across poorer, middle, and richer regions.

 

Howard has rightly warned that “The process of economic change and economic improvement is never completed.” With Australian voters having recently given his government a broad majority, the hope is that he will move further in the direction of free-markets, deregulation, and tax reduction. He could cement Australia’s new prosperity, and become the antipodal offspring of his hero Ronald Reagan.

 

Former TAE assistant editor Tom Switzer is opinion page editor of The Australian in Sydney.