Decades on, Reid's ideas are triumphant

Also published in the Adelaide Review, August 1999

The anti-globalisation policies pioneered by Alfred Deakin dominated Australian policy during most of the 20th century.

In the Free Trade versus Protectionism debates with which federal politics started, Deakin, second prime minister of Australia, the towering political figure of Melbourne, then capital of the new nation, led the Protectionist cause.

It was during Deakin's 1905-08 Ministry that the basic policy principles of the Australian Commonwealth were established.  Paul Kelly labelled them as:

• Imperial Benevolence -- that a latently hostile international environment made a Great and Powerful Friend necessary.
• White Australia -- stopping labour competition, particularly from Chinese.
• State Paternalism -- state provision to protect people from the vagaries of the market.
• Wage Arbitration -- state tribunals setting wages and conditions.
• Trade Protection -- insulating Australian manufacturers from international competition.

White Australia and protection were explicitly anti-globalisation policies, arbitration was implicitly so.  It was the realisation that arbitration was only achievable in conjunction with protection which moved the ALP from being officially agnostic on the free trade issue to supporting protection.

The Deakinite Settlement was a reaction against the first great period of globalisation.  The long period of relative peace from 1815 to 1914 also saw advances in transport and communication technology -- steam power, railways, internal combustion engines, telegraph, telephones, wireless.  International markets in capital, goods and labour developed to an extent which we have not yet equalled in comparative terms nor, in the case of labour, in absolute terms.  The scale of movements of labour within the British Empire or to the United States alone show that the modern world is not as economically integrated in some very important senses as it was before 1914.  Passports were rarely needed -- people could move freely from country to country -- and there were no capital controls.

By 1890, Australians were the richest people on Earth, with an average income over 25 per cent higher than Americans, in part because the rents from the efficient extraction of resources from an entire continent were being distributed over a small population.

Why did we enact anti-globalisation policies? Australia, and particularly Victoria, had suffered greatly from the 1890s Depression.  Being a small resource-exporter sharing a currency with the United Kingdom made Australia vulnerable to economic shocks.  The Victorian "land boom" based on railroad-driven land speculation relying on implicit government guarantees had created a "bubble economy" whose collapse had been devastating -- particularly when a bank run was mishandled by the local authorities.  The 1890s, as a time of great economic distress, had also seen bitter industrial disputes.  Alfred Deakin, and his mentor David Syme, founder of the Age, believed government action was needed to protect people from the vagaries of the market.  The Deakinite system also represented urban elites using state power to redistribute incomes from rural-based exporters.

Throughout the twentieth century, Australian policy sought to make the Deakinite system work.  Farmers revolted against paying the costs of protection, creating the Country Party.  They were brought into the system via marketing boards and rural subsidies.  This helped lead to a highly indebted Australia (public foreign debt was over 60 per cent of GDP by 1929) being very vulnerable to the Great Depression.  But it was the Whitlam Government which fatally undermined the system, by massively increasing the welfare state and driving future governments to economic reforms in an attempt to pay for rising welfare state expenditures (from about 11 per cent of GDP in 1973 to 21 per cent).  This process of reform dismantled the Deakinite system, though arbitration still survives.

Despite nostalgic memories of the 1950s and 1960s, the Deakinite system did not serve Australia all that well.  By 1990, average American incomes were 35 per cent above Australians'.  The current international economic crisis -- after the dismantling of almost all the Deakinite sytem -- is the first such crisis in a century when Australia has done better than comparable countries:  normally, it has done significantly worse.

Globalisation is driven by people seeking mutually beneficial economic exchanges across international borders -- hence the importance of international peace in globalisation, as peace reduces the risks involved in such exchanges.  Restricting Australian's ability to engage in such exchanges, encouraging companies to base commercial strategies around lobbying Canberra for privileges and so on simply did not deliver in the long term compared to possible alternatives -- as Australia's productivity surge in the 1990s has demonstrated.  The last Deakinite survival of arbitration continues to hobble our labour market performance.

Deakin's great rival was George Reid, first leader of the Opposition, former Premier of New South Wales, fourth Prime Minister, first Australian High Commissioner to London and leader of the Free Trade cause.  The creation of the Deakinite system was a defeat for Reid's cause:  a defeat long seen as crushing and final.  But Reid has had his revenge.  The economic reform of the last 15 years has, in many ways, been a triumph of Reid's more self-confident ideas over Deakin's pessimism.  John Hewson, John Howard and Tim Fisher have all been heirs to George Reid.  Sydney's cosmopolitan optimism has won out over Melbourne's parochial pessimism.  (Which is not to deny that Melbourne is a better place to live:  a good definition of mental illness is someone who could live in Melbourne, but doesn't).

The sure-fire way to stop globalisation, of course, is war between the great powers:  and it was the experience of two World Wars which helped give the Deakinite system a much-increased lease of life.  Australia has tried opposing globalisation, with very mediocre results.  We should instead concentrate on reaping its advantages.  George Reid was right.