The Economic C risis in Australia
THE sudden awakening of the Australians—both Ministers and people—to the seriousness of their economic situation has been one of the more dramatic episodes of national finance. For several years there have been whisperings about the recklessness of Australian borrowing and expenditure. Investors in London had notoriously become shy of taking part in fresh Australian loans.
Orthodox economists said that the characteristic " Labour " policy in Australia of meeting each fresh economic need with another loan, and of invariably yielding to the demand of the secondary producers in the Australian towns that their troubles should be eased by a further rise in the tariff wall, must end in disaster. Labour economists could only beg us to wait a while longer and see. The Australian Paradise, they said, might continue, after all, to be the Paradise of the wage- earner: The best way to sell goods was to increase the consuming capacity of the wage-earner and that was exactly what was being done in Australia. Whatever truth there may be in the theory of increasing con- suming capacity by means of high wages—and there is an undeniable truth in it—it is evident now that the theory was pressed much too far.
- Australia has taken fright, and with a spirit which WC can compare only with that in which she plays cricket, she has determined to balance every Budget in the country, Federal and State Budgets alike, to cease borrowing, to pay all her debts, to put up with all the self-denials which may be necessary for the purpose, and to stand forth again as an unquestionably solvent country. We cannot but be impressed by this national determination. We admire it as much as we were dis- concerted by the financial optimism which has made it necessary.
The Conference of the Federal and State Governments has been greatly helped by Sir Otto Niemeyer, of • the Bank of England, who was called in as an adviser. He seems to have made a quick and complete mastery of Australian finance, and he pointed out that under the existing conditions there was no hope of a Budget equilibrium or an exchange equilibrium. Several debts, both domestic and external, had not been funded and a long programme of public works had been drawn up without any financial provision. Luckily, as no external loans mature for two years, Australia has that unusually long period to save herself.
He described with conciseness and point a situation which has been more dimly seen by observers here. The standard of living has been raised out of all pro- portion to Australian productivity. The natural optimism of the Australians has been fed to some extent by the fact that prices for their exports temporarily remained considerably higher than the prevailing prices elsewhere. Thus the epoch of illusion was prolonged. Inevitably Australian prices must be affected by the prices of other countries. Since 1925, which Sir Otto chose as a base for comparison, prices in Australia have fallen about five points, whereas in Canada, New Zealand and South Africa they have fallen ten points, in the United States eleven, and in Great Britain seventeen. Such figures suggested long ago a further fall in the primary products of Australia—wool and wheat—as inevitable. Sir Otto said he hoped that wool, which has crashed, had already reached its lowest level, but that it was impossible to say the same of wheat.
Protectionists who believe in Protection as a good in itself will dispute Sir Otto's opinion that when the secondary producer gets increased shelter from a raised tariff wall he is enjoying this help at the expense of the primary producer, but we believe that to be a true statement of the case. The real cure for the ills of the secondary producer in Australia, as of all pro- ducers and as everywhere, is a radical lessening of costs.
The typical Australian answer to higher prices for domestic necessaries has been to raise both tariffs and wages. The one thing has tended to cancel the other. Between 1914 and 1928 Australian productivity increased by only about 1 per cent. per capita—a rate appreciably below that of all other producing countries. Now the' truth is recognized. We cannot call this anything less than a great event, with a significance by no means confined to Australia. We wish Australia well in her gallant adventure of " seeing it through."
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