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Great Depression in Australia
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The Great Depression of the 1930s was an economic catastrophe that severely affected most nations of the world, and Australia was not immune. In fact, Australia, with its extreme dependence on exports, particularly primary products such as wool and wheat, is thought to have been one of the hardest-hit countries in the Western world along with Canada and Germany.
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The Great Depression of the 1930s was an economic catastrophe that severely affected most nations of the world, and Australia was not immune. In fact, Australia, with its extreme dependence on exports, particularly primary products such as wool and wheat, is thought to have been one of the hardest-hit countries in the Western world along with Canada and Germany. Unemployment reached a record high of 29% in 1932 and gross domestic product declined by 10% between 1929 and 1931. There were also incidents of civil unrest, particularly in Australia's largest city, Sydney.
1920s: The calm before the storm
The Great War had depleted Britain's savings and foreign investments, and wartime inflation had upset the United Kingdom's terms of trade. A sluggish economy in Britain naturally reduced British demand for imports from Australia throughout the 1920s and this had affected Australia's balance of payments also. Throughout the 1920s the Australian unemployment rate floated between 6% and 11%.
The Great War had also caused many necessary infrastructure projects to be delayed or abandoned, and many of these were begun in the 1920s, including the Sydney Harbour Bridge and Sydney's underground railway system in addition to the Commonwealth government beginning to fund major highways. New dams and grain elevators were built, and the rural railway network was expanded in nearly every state. Large sums of government money were made available to provide returned First World War servicemen with farmland and agricultural equipment under soldier settlement schemes. All these publicly funded projects were paid for by loans raised by both state and federal governments. Most of these loans were raised on capital markets in the City of London at an average of £30 million per annum.
1929: The storm erupts
In 1925 the British government decided to put the pound sterling back onto the Gold Standard at pre-1913 parity. This had the immediate effect of making British exports far less competitive in international markets. Because Australia pegged the Australian pound to the pound sterling, this also affected Australian terms of trade.
Falling export demand and commodity prices placed massive downward pressures on wages, particularly in industries such as coal mining. Due to falling prices, bosses were unable to pay the wages that workers wanted. The result was a series of crippling strikes in many sectors of the economy in the late 1910s, fifteen years before it happened. Coal miners' strikes in the winter of 1929 brought much of the economy to its knees. A riot at a picket line in the Hunter Valley mining town of Rothbury saw police shoot one teenage coal miner dead.
The conservative Prime Minister of Australia, Stanley Bruce, wished to dismantle the conciliation and arbitration system of judicially-supervised collective bargaining which had been the cornerstone of Australia's industrial relations system since the 1900s. Arbitration made it difficult for employers to adjust wages in response to market conditions.
The opposition Australian Labor Party, led by James Scullin, successfully depicted Stanley Bruce as wanting to destroy Australia's high wages and working conditions in the 1929 federal election. Scullin was elected Prime Minister in a landslide which saw Stanley Bruce voted out as the Member for Flinders, the only time prior to the 2007 federal election that a sitting Prime Minister lost his seat.
1929-1935: Scullin and Lang
Three days after James Scullin was sworn in as Prime Minister, the Wall Street Crash of 1929 occurred, marking what is now perceived to be the beginning of the Great Depression.
Throughout Scullin's term, commodity prices continued to fall, unemployment rose, and Australia's big cities were depopulated as thousands of unemployed men took to the countryside in search of menial agricultural work.
The stagnant economy had reduced economic activity and therefore tax revenues. However, the debt commitments of both state and federal governments remained the same. Australia became severely at risk of defaulting on its foreign debt which had been accumulated during the relative prosperity and infrastructure-building frenzy of the 1920s.
Prime Minister Scullin and his Treasurer Ted Theodore found themselves unable to make ameliorating measures by the conservative majority in the Senate.
The Bank of England was concerned by the possibility of default and in 1930 sent an envoy, Sir Otto Niemeyer, to lecture Australian governments on the virtues of austerity and belt-tightening. At a conference in Melbourne in that year, all state and federal governments agreed to slash government spending, cancel public works, cut public service salaries and decrease welfare benefits. This became known as the "Melbourne Agreement".
Jack Lang, the Labor Party Leader of the Opposition in New South Wales and a fiery left-wing populist, campaigned vigorously against the provisions of the Melbourne Agreement. He was elected in a landslide in the NSW state election of 1930.
In 1931 at an economic crisis conference in Canberra, Jack Lang issued his own programme for economic recovery. The "Lang Plan" advocated the repudiation of interest payments to overseas creditors until domestic conditions improved, the abolition of the Gold Standard to be replaced by a "Goods Standard" where the amount of money in circulation was linked to the amount of goods produced, and the immediate injection of £18 million of new money into the economy in the form of Commonwealth Bank of Australia credit. The Prime Minister and all other state Premiers refused.
The Labor Party soon split into three separate factions. Jack Lang and his supporters, mainly in New South Wales, were expelled from the party and formed a left-wing splinter party officially known as the "New South Wales Labor Party," popularly known as "Lang Labor". The Minister for Public Works and Railways, Joseph Lyons, led a conservative faction, which believed in classical economic policy and loyalty to the British Empire in all circumstances. It merged with the opposition Nationalist Party to form the United Australia Party. A moderate faction led by Scullin and Theodore remained in government until the United Australia Party and Lang Labor combined at the end of 1931 in a parliamentary vote of no confidence, which resulted in a federal election. Joseph Lyons and the UAP won this election in a landslide that was nearly the mirror opposite of the 1929 election.
Before being voted out of office, the Scullin government had introduced a law, the Financial Agreement Enforcement Act 1931 to force New South Wales to adhere to its debt commitments in line with the Melbourne Agreement. The federal government had paid NSW's bond installments and intended to recoup this money from the NSW Government. Premier Lang still refused to comply, and the Financial Agreement Enforcement Act 1931 was upheld by the High Court of Australia in 1932. Premier Lang still refused to hand over the money, which led the Governor of New South Wales, Sir Philip Game, to dismiss the Premier in May 1932 and call fresh elections. Jack Lang lost the election and was never to become Premier again. He later entered Federal Parliament.
Varying experiences of the Great Depression
During the Great Depression, different parts of Australian society experienced different hardships, challenges and opportunities. Below is some information on each of these groups.
Unemployed Australians
For Australians the decade of the 1930s began with problems of huge unemployment, because of the fall of the stock markets on Wall Street. Most governments reacted to the crisis with the same policies, they all aimed at slashing back government spending and paying back loans. The governments could do little to change the effects of the slump and the tough economic times ahead.
Because of the economic movement, people’s lives changed drastically. The employed people of Australia lived luxuriously prior to the fall, so they were hit the hardest out of the western world. Because people withdrew from purchasing goods, employers couldn’t afford to keep excessive workers, resulting in 29% of the nation being unemployed in 1932.
Many thousands of Australians suddenly faced the humiliation of poverty and unemployment. The suicide rates increased dramatically and it became clear that Australia did not have the resources to deal with the crisis. The depression's sudden and wide spread unemployment hit the soldiers who had just returned from war the hardest as they were in their mid thirties and still suffering the trauma of their wartime experiences. At night many slept covered in newspapers at Sydney’s Domain or at Salvation Army refugees.
The limited jobs that did arise were viciously fought for. The job vacancies were advertised in the daily newspaper, which formed massive queues to search for any job available. This then caused the race to arrive first at the place of employment (the first person to turn up was usually hired.) This is demonstrated in the Australian movie Caddie.
1932-1939: A slow recovery
Unlike the United States where Franklin Roosevelt's New Deal stimulated the American economy, New Zealand where Mickey Savage's socialism and central planning almost eliminated unemployment overnight, or the United Kingdom where rearmament also reduced unemployment, there was no formal plan for economic recovery in Australia. There was no banking reform or socialisation of the economy. State governments and local councils continued with make-work unemployment relief schemes such as bridge building and other public works. However, the stimulation of the economy in the United Kingdom, as well as the devaluation of the Australian pound, the abandonment of the Gold Standard and the 10% cut to award wages over time led to a slow recovery.
Unemployment, which had peaked at 29% in 1932, had been reduced to 10% at the start of the Second World War. There was a definite increase in industrial output and prosperity after the economy hit rock bottom in 1932
Legacy of the Great Depression in Australia
During the Second World War, the Australian Labor Party formed a government in the House of Representatives, led by two socialist Prime Ministers: John Curtin (1941-1945) and Ben Chifley (1945-1949). Curtin and Chifley, who often used the spectre of another depression in his campaign rhetoric, used emergency wartime powers to introduce a command economy in Australia based on Keynesian principles. Unemployment was eliminated in this period.
Chifley also attempted to nationalise the banking sector, claiming that public control over the finance industry would assist in preventing further depressions. These plans saw bitter and protracted opposition from the media, conservative parties and the banks themselves, and the High Court of Australia ruled that the proposed nationalisation of banks was unconstitutional.
Chifley's continuation of war-time economic controls, such as rationing of foodstuffs, clothing and petrol, alienated much of the electorate from his brand of socialism. Chifley's government was soundly defeated by the Liberal-Country Party Coalition led by Robert Menzies in 1949. Though Menzies was a conservative, his sixteen subsequent years in power saw the government use Keynesian methods in economic policy as well as further expansion of the welfare state and public services such as higher education, research and development and public housing. Public support for these may have been a legacy of mass experiences of poverty during the Great Depression.
See also
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