The Great Depression of the 1920’s and ’30’s has been the greatest defining moment of international economics in the modern era. During this period, western nations such as Australia and Great Britain suffered the worst economic downturn in modern history. The result was a re-evaluation of economic policy and a series of structural change that would shape the nations economic system into the twenty-first century. The reasons for the Depression are long, varied and disputed, however what cannot be argued is the dramatic effect that the Depression had on the vast majority of industrialized nations, such as Australia.
The purpose of this essay is to pose the question of ‘How successful was Australia’s economic recovery by 1939? “. In this essay, I will argue Australia had begun to recover from the despairs of the Great Depression by 1939, however that process was in fact far from complete. I will discuss this statement in a linear fashion. Firstly, I will investigate the state of the Australian economy before the onset of the Great Depression and discuss the economic structures in place during this period. Secondly, I will look into the effect that the Depression had in Australia.
Thirdly, I will investigate the nature of the Australian recovery, by discussing the various practices that the Australian Government employed to pull the nation out of the slump and their apparent success. And finally, I will then look into the state of the Australian economy in 1939, by investigating and relating economic indicators to the pre-Depression era. With the outbreak of war in 1914, and the coming of the industrialized era, Australia went through a state of cyclical change throughout the World War I period and after.
The outbreak of war stimulated large-scale growth of industry in Australia in order to cope with the demands of the soldiers fighting abroad. Whilst the Agricultural industry remained the backbone of the Australian export market, there was a sudden growth in manufacturing industry in Australia, producing wartime goods such as clothing, boots & blankets. When war ended in 1918, there was a feeling of expectation amongst Australians who saw the post-war period as a future of “material progress” (Spenceley 1981, pp. 1). Returning serviceman would expect to return to their jobs in hope of prosperity in the post-war period.
The women and others who stayed and looked after the ‘home-front’, and fulfilled labour shortages throughout war would expect to continue their employ in the workforce. However whilst the 1920’s were prosperous times for Australian’s, by 1928, materialism on the part of the ‘prosperous’ citizen, and the nations increasing trade deficit would prove costly as the worldwide economic slump took shape. Australia proved to be one the hardest affected nations during the Depression, to which there are a number of key reasons.
Australia’s reliance on exports of primary products, in particular wool and wheat meant that a slowing economy in Britain and the United States would eventually result in a reduction in exports to those countries, which would force economic contraction domestically. Further, Australia, which at the time was going through a large population growth thanks largely to the large-scale immigration of migrant workers from nations such as Britain and southern Europe after the First World War, also began a period of infrastructure development, in cities such as Sydney and Melbourne, and in rural communities.
This infrastructural development was essential in accommodating the booming population in Australia, and to also provide new Australians with rural job opportunities that were unavailable in the larger urban centres. However, the funds needed to finance such infrastructural development were not readily available domestically. Taxes had already been increased and the population was obviously unwilling to accept any further increase (Snooks 1974, pp. 2). Therefore to finance development, the Australian Government was required to borrow funds domestically, and also internationally from nations such as Great Britain and the United States.
This indebtedness to these nations placed an even larger reliance on overseas markets and would place Australia in a poor position come 1928. The prosperity of the late 1920’s had lead Australians to become materialistic in their nature, which caused further insecurity on the Australian economic position. Real wages had slowly increased to close to pre-war levels, migration into urban areas began to increase [both from rural Australia and abroad] and the development of infrastructure such as electricity lead to a general feeling of enthusiasm (Spenceley 1981, pp. ). This rise in affluence was materialised through the purchase of houses, motorcars, and electrical goods. The problem, however, was that in order to purchase the material goods of the time, Australians continued to finance themselves through debt. By 1928, Australia had become a nation heavily in debt, both micro economically and macro economically. Australia’s economic circumstances, on the back of her dependence on exports, and her heavy public and consumer debt, placed Australia in a insecure position when the crisis.
As recession set in by 1928, Australia had placed itself in a deepening hole that was getting worse, due to her worsening trade deficit and large amount of public debt. During the years of 1920 to 1927, Australia’s percentage of export proceeds that were absorbed by the payment of overseas debts rose from 17 per cent to 25 per cent (Spenceley 1981, pp. 15). At the same time, Australia’s staple exports of wheat and wool, of which she heavily relied, were experiencing heavy price drops due to the crisis of overproduction on the world market.
In 1921, wheat exports, for example, were priced at $0. 90 per bushel, however by 1928 this price had fallen to around $0. 50 per bushel (Thomson 1975, pp. 11). This led placed even further strain on the Australian economy and further deepened their fall into the depression Recovery from the Great Depression in Australia was a long and drawn out process, that involved a number of initiatives of varying success, both at a macroeconomic [i. e. federal government] level and at domestic microeconomic [i. e. agriculturalist] level.
Economic policy during the 1930’s can be seen as a mix of expansionary and contractionary economic measures influenced by divergent opinions from differing groups of interest, such as politicians, economists and industrialists. Policy included an increase in tariff protection, lowering of interest rates, trade diversion, a devaluation of the Australian pound, and a reduction of real wages (Siriwidana 1998, pp. 362). Some have suggested that these deliberate government policies in fact played little role in the Australian recovery, and rather it was market driven forces, which allowed for recovery (Schedvin 1970).
Rather, the economic recovery can be contributed to a combination of a number of factors, including the policies listed, which set in force the structural changes needed to enable the recovery process. The first major policy step in economic recovery was the introduction of heavy tariffs on overseas imports. Between 1929 and 1933, the general tariff imposed on non-British goods increased by over 70% (Carmody, cited in Meredith et al. 1999, pp. 104). The imposition of tariffs was expected to result in a decrease in imports, which would improve the balance of payments.
However, as history will show, most [if not all] affected nations utilised the same protectionist policy, and therefore as each nation raised tariff levels to protect themselves from imports, the flow on effect was a worsening of export levels of other nations, therefore worsening the short-term impact of the depression. An integral change in the national economic structure in Australia was the implementation of secondary industry, in this instance, the manufacturing industry. In the recovery process in Australia, the manufacturing industry played a key role in a number of ways.
Firstly, the creation of new industry in urban areas allowed for the creation of new employment for those urban families who had been hit hardest by the depression. Secondly, the decrease in unemployment as a result of the creation of secondary industry allowed for domestic demand to increase, which in turn drove up demand for domestic [as well as foreign] goods (Gregory 1988, pp. 17). This increase in domestic demand was the main force in driving the increase in manufactures (Thomas 1988, pp. 247), and a prime influence on the national recovery on a whole.
As mentioned previously in this essay, the picture of Australia’s economy before the Great Depression was quite good, with improving standards of living and growing prosperity. Gross Domestic Product per head had experienced sharp growth since the end of the war, unemployment had remained at wartime rates of around 6 per cent which was favourable considering the return of troops meant that new jobs had to be created to accommodate the larger workforce, and Australia’s terms of trade were quite steady thanks to agricultural exports and the strong alliance with Britain and the dominions.
However, the picture of Australia’s economy in 1939, they year commonly attributed with the culmination of depression recovery was quite different. Gross domestic product per head had only just gained back to 1929 levels. By 1939, unemployment, which had skyrocketed to 20 per cent at the peak of the trough, was still higher than 1929 levels, sitting at or around 10 per cent (Butlin, cited in Gregory 1984, pp. 3), 4 per cent higher than in 1929.
The only difference in this example was an improve in Australia’s terms of trade, thanks in part to the introduction of manufactures industry and devaluation of the Australian pound, which made exports cheaper and more attractive to overseas markets. We can see, however, that whilst Australia had recovered to some extent from the depths of the depression, the success of the recovery is somewhat muted by the fact that the recovery had only marginally equalled standards of 1929.
When measuring the success of the recovery against the lowest depth of the trough in 1932, we can see that Australia had indeed recovered. However, recovery relative to the prosperous 1920’s was still a way off. A wary Australian public who had learnt caution through disaster had now replaced the prosperity and optimism of the 1920’s. Even among the most fortunate, there were often large outstanding debts, setbacks in development of skills, and loss of education. This bitterness would linger over the affected public for some time and would shape their very lives into the future.
The Australian recovery from the great depression can be looked at in two ways. Firstly, how well did Australia recover back to the levels before the onset of the depression? And secondly, how well did Australia receive the economic crisis, and what measures did they put in place to formulate recovery and ensure that the crisis would never be faced again. As we can see, in simple terms, by 1939 the prosperous levels of 1929 had not yet been reached, and would not be overcome for a couple of years to come.
GDP per head was still below 1929 levels, as was the level of employment. However, what was achieved by the depression, and what can be seen as a success, were the economic structures that were put in place mid and post-depression, to ensure that Australia would not feel the despair again. The effectiveness of measures such as tariff protection to decrease imports, and devaluation to make exports cheaper, were effective to a fair degree and helped speed up the recovery process.
The implementation of manufactures as a secondary industry was also a major step in the right direction for economic recovery, and would prove vital in decreasing unemployment and subsequently increasing consumer demand. The ‘success’ of the depression recovery in Australia, is therefore up for question. In the most basic of senses, we can view the recovery process by 1939 in Australia was only ‘somewhat successful’, and until the fortune, comfort and security of the 1920’s was again at least equalled, if not surpassed, it is hard to consider the recovery process a success, rather it was incomplete.