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Global Financial Crisis

The Depression in Australia

Parrallels and differences with modern Greece

During the 1930s Depression, Australia was facing the same kind of dilemma that Greece, Portugal, Spain and Italy are facing today. Should Australian governments promote austerity in order to make the savings necessary to repay loans to the Bank of England or hope that threats of default could usher in a post-capitalist utopia?

Just as is the case with Greece's membership of the European Union, the dilemma did not just concern which action would most benefit the Australian economy, it also concerned notions of identity as a member of the British Empire, morality and historical obligations.

Much of the debt was the result of World War 1 prime minister Andrew Fischer vowing to defend Britain to the "to the last man and the last shilling." Good to his word, Fischer not only agreed to send Australian soldiers to die for England, he also agreed to pay England for any costs incurred by training and managing Australian soldiers while they died for England.

As a consequence of Fischer's support for the mother land, Australia finished the war owing the Bank of England a great deal of money. When the Depression struck, the need to service interest repayments made the Depression much worse.

Worried about its loans, the Bank of England sent two representatives to Australia, Sir Otto Niemeyer and Professor T. Gregory, to give advice about what needed to be done to navigate the economic crisis. The two experts concluded that Australians had been living beyond their means for far too long and would need to tighten their belts. In more honest words, they wanted Australia to prioritise repaying its debts to the Bank of England.

While many Australian politicians agreed to do what was best for the Bank of England, NSW premier Jack Lang didn’t seem to have the same enthusiasm for the mother country. To the contrary, he proposed reducing the interest being paid on foreign loans so that the money could be redirected to helping poor Australians. For Lang, the question was not about putting Australia before Britain, but putting Australia's working class before the capitalist class. In his own words,

"If we spent three and a half million pounds overseas to meet interest payments we would have to stop issuing dole tickets. It was simply a question of whether the unemployed would be left to starve or whether the bond holders went unpaid."

At the 1931 Premier's conference, Lang used some country-based patriotism to persuade other leaders to accept his vision. Specifically, Lang argued that if England was able to re-negotiate the loans that it owed to America, Australia should be able to negotiate its loans that it owed to England. Perhaps realising the difference in political status between England and America compared to Australia and England, the other Premiers were less than enthusiastic about Lang's plan. In Lang's own words,

'it was as though I had let a death adder loose in the room.'

It was a death adder that ultimately bit and killed Lang. Under Australia's political system, British interests in Australia were protected in each state by a Governor and federally by a Governor General. These representatives were expected to act in Britain's best interests, which was quite easy for them to do considering that they were British born and bred. In May 1932, the British Governor of NSW, Phillip Game, summoned Lang and subsequently dismissed him for defaulting on English loans.

Other Australian governments implemented what was known as the Premier’s Plan. This involved:

  • Governments meeting all debt repayments to overseas institutions
  • Increasing taxation
  • A reduction in bank interest rates
  • A reduction of 20 per cent on all adjustable government spending.

In short, the Premier's Plan proposed balanced budgets, lowering business costs and restoring confidence. In 1932, Australia commenced its recovery from the Depression.

The Premiers Plan ran contrary to Keynesian Economics, which proposed that when the private sector reduced spending, the government should compensate by increasing spending - even if this meant going deeply into debt. While Keynesian economics worked well in America during the Depression, America didn’t have the same government largess as did the socialist governments of Australia. Had Keynesian economics being applied in Australia at the time, it is possible that the necessary economic policies and government pruning necessary to improve efficiency may never have occurred.

Aside from helping pull Australia out of Depression, the Premier's Plan perhaps strengthened relations with England in a way that was in Australia’s interest. In an act that may be related or unrelated, in 1933, Britain asserted sovereign rights over 42 % of Antarctica, which it then transferred to Australia under the Australian Antarctic Territory Acceptance Act 1933. Admittedly, the territory had originally been claimed by Australian Douglas Mawson; however, Britain essentially legitimised Australia’s claim in a way that was more in Australia’s interests than its own. Had Australia been rebelling against England at the time, this would not have happened and Australia would have a weaker claim to Antarctica today.

 

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