Is Rudd Another
Scullin?
By James Cumes, 15 November, 2007
There are intriguing similarities between
the forthcoming Australian elections and those of 1929.
In 1929, the Scullin Labor Government won a
landslide victory and took office just 2 days before the New York
Stock-Exchange Crash of Black Thursday, 24 October ushered in the Great
Depression of the 1930s.
Prime Minister Stanley Melbourne Bruce,
after more than six years in office, lost not only government but his own seat
in the House of Representatives.
Now we have a similar situation in that
centre-right Prime Minister John Howard, after eleven years in office, looks
like being swept away in a landslide by centre-left Labor led by Kevin Rudd.
Though perhaps unlikely, it may be that he could even lose his seat in the
House of Representatives.
However, what comes after is the most
intriguing aspect. In 1929, no one, least of all James Scullin and his
ministers, had any idea that the world was about to crash into the greatest
economic depression the world had known. They had even less idea of how they
should react to any such crisis. Intriguingly, two of the key issues which
confronted them were irresponsible debt and industrial relations.
The same seems to be true of the
prospective Rudd Government. He has proclaimed himself to be a “conservative
economist.” He has spoken, during the campaign, mainly about interest rates and
housing costs in conventional terms. He will amend industrial legislation to be
more acceptable to workers. He says it all in the obvious expectation that the
next few years – the next ten years perhaps – will be much the same as the last
ten years under Howard.
There is not the slightest possibility that
they will be.
We are about to go through the most
tumultuous years – in economic, social, political and strategic terms – that we
have ever known. The financial, banking and credit “system” will need to be
reconstructed almost from scratch, globally as well as nationally. We will have
to revise fundamentally our thinking about the means to maintain economic
stability and growth, non-discriminatory international trade, stable exchange
rates and international capital flows; indeed, the whole gamut of issues with
which we were concerned in reconstructing the world economy after the Great
Depression and the Second World War.
Can a Rudd Government survive attempts to
achieve such a remodelling of so much? Does it have any idea how it will
contribute to thinking about such re-modelling – and do so with the vital
interests of Australia both short and long term in mind?
The Scullin Government was an abject
failure. Despite Mungana, it was not corrupt or dishonest. It was
well-intentioned; and it was in no sense extremist or revolutionary. On the
contrary, its economic and financial policies were conservative. Though some of
its members wanted more expansionist policies, it accepted a “Premiers’ Plan”
so devastatingly conservative that it did more to create misery for the people
of Australia than the Great Crash of the NYSE ever did.
Confused, defeated and despised by its left
constituency as well as the right, it lasted until January 1932. The Labor
Party split three ways. A Labor defector, Joe Lyons, formed the United
Australia Party, became Prime Minister and staggered on until his death in 1939
– some months before the outbreak of war.
Labor did begin to show some signs of
revival in the mid-thirties. Most conspicuously, Ben Chifley made some useful
contributions to the Royal Commission on Money and Banking in 1936. By the time
Labor regained office just weeks before Pearl Harbour in 1941, ideas that would
remedy the ills of the 1930s were being drafted into policies by Labor and
formed the basis of the domestic and international economic policies that the
Curtin and Chifley Governments would implement with such success between 1945
and 1949.
For Curtin and Chifley, the revolution was
well prepared and they succeeded. For later Labor Governments, the way was
never sufficiently prepared. The Whitlam Government had no idea how to deal
with the problems of the 1970s. The Hawke and Keating Governments thought they
did know and, in the process, led us down a highly conservative, right-wing,
Reagan/Thatcher road that now threatens to destroy global stability and
Australia’s economic, political and strategic security in a highly toxic global
environment.
Where does that leave us with a Rudd
Government? Past governments have failed utterly to make us the “Tiger” we
should have been in the world that followed the breakdown of post-war stability
between 1969 and 1971. Instead, they have left us exposed to all the hazards
that flow from “floating” exchange rates, massive global speculation, reckless
deregulation, opportunistic privatisation and, most recently, the escapades of
the financial adventurers, marauders and buccaneers who have flogged credit and
other dubious derivatives, Structured Investment Vehicles (SIVs),
Collateralised Debt Obligations (CDOs), hedge funds, private-equity deals and
the rest around the world. These various financial “enterprises” have, inter
alia, feasted on pension funds which, in turn, in our privatising mania, have
fed on millions of pensioners whose future financial security is now gravely at
risk.
There is nothing in what Rudd, his shadow
ministers and advisers have said and indeed nothing in the pronouncements of
academics, “experts” or anyone else, that suggests that the incoming government
– whether it be Labor or Coalition – has the faintest idea of the nature, scope
and magnitude of the problems that confront us or of the ways in which they may
be resolved.
Unless the incoming government – let’s
assume it will be a Rudd Government – is extremely lucky, the crash will become
manifest in the next few weeks or latest by March 2008. The United States is
almost certainly in recession already – concealed only by spurious official
statistics – the dollar has fallen sharply and almost certainly will fall
further and faster as the weeks go by. Household, corporation and public debt
is monstrous, unprecedented and all those adjectives that we thought we would
never have to use. Consumer and asset inflation is high. Credit is tight and
getting tighter – largely because, in the casino world that the global economy
has become, too many have already lost their shirts and far too many more fear
that the shirt hangs far too loosely on their own back and on the backs of
those who already do or might want to owe them money.
The financial crisis is already flowing to
the rest of the American economy – and spreading, like a deadly plague,
globally.
Central banks never were of much value. In
recent years, they have created far more problems than they have solved. The
Fed purports to manage the crisis; but its reduction of interest rates and its
flooding of the banking system with funds serve little purpose except to give
desperate, short-term hope in a financial “system” which is so inherently
invalid that its collapse is several degrees more assured than we usually
associate with the term “inevitable.”
Very little of this seems to be
preoccupying anyone in Australia – at least among the campaigning parties or
those advising them. Concern is expressed from time to time about the
“sub-prime crisis” and the credit crunch. Very little is said about, for
example, the carry trade which has been supporting the Australian dollar and
conveniently neutralising a large part of Australia’s external deficit.
Recently, the yen has been highly volatile and the carry trade has been
unwinding and rewinding in harmony. We have not yet had the “Great Unwind” but,
assuredly, it is not far down the road.
That leads us to the further point that we have, for the last two
or three years in particular, been through one of the greatest commodity booms
in history. This boom has affected a whole range of raw materials – as well as
food for which, if, because of drought, we have not been able to sell in
abundance, we should, in some compensation, have been able to get better
prices.
From this, we might have imagined that we
might be enjoying as splendid a surplus in our external trade as, let us say,
Russia from the boom in oil. But that is not so.
It has not happened, largely because
Australians have continued to consume vast quantities often of luxury goods,
paid for by massive credit-card and mortgage debt based largely on false
notions of expanding personal wealth.
The external deficit has shown some
volatility but it is a reasonable prediction that, based on performance so far,
the trend in future will show the deficit increasing rather than receding. The
carry trade will then unwind, perhaps completely and there may be an easing –
perhaps a grave easing – of commodity demand from China if their economy and,
for example, India’s strike a rougher patch.
None of these developments is improbable
nor is it improbable that they could occur together.
Australia is not prepared for any such
eventuality. Past Australian policies have been based on about as many false
premises as anyone can possibly poke a stick at.
Against this background, a Rudd Government
is not remotely prepared to deal with the probable crises that might confront
us; nor of course would a Howard Government have a clue as to what it might be
best to do.
Either alternative would be faced with the
outcome of nearly forty years of successive governments’ failure to make
Australia one of the “Tiger” economies. Rudd now declares his determination to
put a laptop in the lap of every young Australian. In itself, that objective is
noble; but it is pathetic that only now a Labor campaigner for office should be
advocating it as a sort of cure-all. He may be putting it forward when, before
one laptop can be delivered under the program, the house of financial and
economic cards that Labor and Liberal governments have built over the past
three to four decades will be toppling around us. Many of us will be left with
no job, no house, no adequate professional or trade education, no decent health
service and, at the end of it all, no pension except one that has been heavily
depreciated in the financial storms that our Governments have done so much to
provoke.
A Rudd Government, if we get one, might
last as long as Scullin’s did. That would take us perhaps to the beginning of
2010. Labor would probably split long before that. The Treasurer or some other
minister might take a few Labor dissidents to form a government with Opposition
members led perhaps by Peter Costello. Somehow, we might then stumble through a
long, deep and terrible depression, to end around, let us say, 2017 in World
War Three. Only the Almighty knows whether we might have any allies at all by
then - and whether they might have any residual power even to secure themselves
let alone prop up any allies.
With those prospects, Labor – and Kevin
Rudd - might be well advised to disdain any offer of power to govern and so
avoid going down in history as another well-meaning but feckless Scullin-type
Government. Let Howard and his retinue take the blame and just opprobrium for a
catastrophe to which they have contributed with such unbridled generosity.
It won’t happen of course. On the night of
24 November 2007, Labor, led by Rudd, will probably be declared the victor and
they will confront their unenviable destiny. For Australia, it won’t be any
worse than having Howard’s Coalition as the victor. Indeed, it might be rather
better. However, whoever is the victor, I – as one who grew up in the last
Great Depression – can only offer a prayer and express a hope. That hope is
that we Australians may come through this new and even more terrible challenge,
with the same spirit and fortitude that we did seventy years and more ago.
James Cumes
Author of “America’s Suicidal Statecraft:
The Self-destruction of a Superpower”
http://www.authorsden.com/jameswcumes
http://www.amazon.com/America-s-Suicidal-Statecraft-self-destruction-super/dp/141963819X