Great Depression in Australia

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, (although 32% has also been quoted 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.

In 1931, over 1000 unemployed men marched from the Esplanade to the Treasury Building in Perth, Western Australia to see Premier Sir James Mitchell.

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 1920s. 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

Seventeen 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", or the "Premiers' Plan".

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. He tured out to be an elegded sex offender because he shot mister nice guy

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. There was increased movement of many people to and from country areas in search of work. City and urban people planted gardens to produce fruit and vegetables. In some urban areas co-operatives were formed based on barter systems to share what was available. Shacks were built on the outskirts of large cities to house some who lost their homes, for example near the beach at Garie in the Royal National Park south of Sydney. There has been anecdotal evidence of families resorting to living in caves with authorities turning a blind eye as there were no other accommodation available. Following is more information on the hardships and challenges during this time.

Unemployed Australians

For Australians the decade of the 1930s began with problems of huge unemployment, because the fall of the stock markets on Wall Street reduced confidence throughout the world. Most governments reacted to the crisis with similar policies, aimed at slashing back government spending and paying back loans. The Australian government could do little to change the effects of the slump and the tough economic times ahead. This affected the country in many ways.

Because of the economic downturn, people’s lives changed drastically. Australia had supplied huge amounts of wool for uniforms during World War 1, and many exports helped Australia achieve a high standard of living in the 1920s. The majority of the people of Australia lived very well prior to the fall, so they felt the effects of the depression strongly. Because of the severe economic contraction, the reduction of purchasing goods, employers couldn’t afford to keep excessive workers. A five year unemployment average for 1930-34 was 23.4%,with a peak of 28% of the nation being unemployed in 1932. This was one of the most severe unemployment rates in the industrialised world, exceeded only by Germany.

Many hundreds of thousands of Australians suddenly faced the humiliation of poverty and unemployment. This was still the era of traditional social family structure, where the man was expected to be the sole bread winner. Soup kitchens and charity groups made brave attempts to feed the many starving and destitute. The suicide rates increased dramatically and it became clear that Australia had limits to the resources for dealing 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 depicted 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 Michael Savage's pioneering welfare state rapidly reduced hardship, or the United Kingdom where rearmament (from 1936) reduced unemployment, there was no significant mechanism for economic recovery in Australia.

Federation in 1901 had granted only limited power to the federal government. For example, income taxes were collected by the State governments. High tariffs worked to hurt the economy, but powerful interest groups permitted no change in this aspect of policy. There was no significant banking reform or nationalisation of private businesses.

The devaluation of the Australian pound, abandonment of the Gold Standard, recovery of major trading partners like the United Kingdom and public works projects instituted by State and local governments led to a slow recovery. Unemployment, which peaked at 29% in 1932, was 11% at the start of the Second World War.

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 virtually eliminated in this period, being reduced below 2 percent. In 1942 income tax became federally controlled with the states conceding that the war effort needed a centrally controlled financial basis.

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.

In 1944 Curtin announced the plan for a white paper on full employment. This white paper served a variety of roles; to establish the priority of full employment; to ensure the depression would not recur; and to propose ways to make these objectives possible. Dr H C 'Nugget' Coombs as director-general of the Reconstruction Ministry had major input into this policy. The economic theories proposed by J M Keynes in 1936 were a major influence on the white paper.

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 continue the use of 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

• The Susso, welfare in Australia originating in the Great Depression

References

• http://www.cultureandrecreation.gov.au/articles/greatdepression/
• Paul Kelly "100 years,The Australian Story" ABC Books 2001

External links

• The Depression Years on Picture Australia