Extract from ABC News
Analysis
I want to tell you a quick story.
It's about a federal government that had to rebuild its economy after a crisis.
The government knew its job would be easier if it worked with other countries.
It also had support from the voting public, which was happy to rebuild the economy on a different model because the pre-crisis economy was plagued with problems.
I like this story because it's true.
And it reminds us the current way of interacting with the global community is never the only way to behave.
So let's travel back in time.
An international plan for 'full employment'
For the past two weeks, I've been writing about the way economic ideas from British economist John Maynard Keynes arrived in Australia in the 1930s and 1940s.
Here's the first piece, and here's the second.
Keynes's ideas were put into practice by Australian policymakers during World War II (1939-1945).
They helped Australia use every available resource to fight the fascist regimes of Germany, Italy and Japan.
And when the war ended, his ideas were used to rebuild Australia's economy on a platform of "full employment" for peacetime.
For the next 30 years, from 1945 to 1975, Australian governments prioritised employing as many people as possible.
They deliberately kept the national unemployment rate below 2 per cent, on average, the entire time.
That full employment era coincided with the "long boom" of the post-war era.
For three decades, we enjoyed strengthening economic growth, rising living standards and rising real wages.
It was the creation of Australia's large middle class.
But this next bit is what I wanted to talk about.
The forgotten ingredient? Cooperation
When economists talk about that "full employment" era, they always draw attention to the fact Australia wasn't alone.
They say many countries around the world enjoyed similar boom-time conditions, given the amount of post-war reconstruction that was necessary globally.
Which is true.
However, a large part of the reason why multiple countries enjoyed boom times was because they were working together deliberately, with many pursuing their own full-employment policies.
And here's an element of the story that's often neglected.
The government responsible for introducing full employment to Australia, the Labor government of John Curtin and Ben Chifley (1941-1949), worked tirelessly on the international stage to convince other countries to pledge to full employment in international agreements.
And its reason for doing so was fascinating.
At the time, the government was being advised by a generation of brilliant economists behind the scenes.
Many of those economists — such as LF Giblin, Leslie Melville, and HC "Nugget" Coombs — believed it was in Australia's interests for multiple countries to have full employment at once.
As they saw it, Australia's exporters would benefit from trading with countries with full employment because the workers in those countries would have more disposable income to purchase Australian goods.
Conversely, if Australia was the only country to adopt full employment, imports would rise as domestic demand increased here, and higher wages would drive up local costs for exporters, leading to declining exports of Australian goods.
That would create a balance-of-trade problem.
Therefore, the economists believed, it was in Australia's interests to have full employment in multiple continents.
And their argument didn't stop there.
Those economists fanned out across the world, as representatives of the Australian government, to try to convince other countries to pledge to full-employment targets.
They believed it would lead to more international trade because it would create so much extra demand globally that it would increase the scope for policymakers to reduce the import barriers that had distorted international trade for so long.
So they were effectively pushing for more trade and rising living standards, but using the channel of full employment to achieve it.
And they delivered their arguments with such passion that they irked their American friends.
But I'll stop there.
To jump to the end of the story, they weren't technically successful.
The Americans refused to pledge to full employment because they didn't want their domestic economic policies dictated to them by international agreements (some hypocrisy there, I know).
However, the economic institutions that were eventually created to facilitate stable growth and trade in the post-war era — the World Bank, the International Monetary Fund (IMF) and the Bretton Woods system of exchange rates — didn't stop countries pursuing full employment anyway.
A wave of full employment policy washed across the democratic world.
And many of Australia's economists ended up occupying senior positions in those new economic institutions where they could influence things from the inside.
What about today?
I find that history fascinating.
It's strange to imagine representatives of the Australian government arguing forcefully, in the international arena, for policies that would deliberately lift workers' wages and increase their bargaining power.
But it's also useful to remember the spirit of cooperation that pervaded that post-war era (as well as the lessons from the arguments that occurred).
In the past 18 months, various "big name" economists have been calling on policymakers to think cooperatively again, on a global scale.
Last year, we saw the chief economist of the IMF, a former governor of the Bank of England, and a former US Treasury secretary all calling on global leaders to work together to pull the world's economies out of the low-growth, low-interest rate, high-debt trap they'd fallen into.
We've had economists from institutions like Harvard, Princeton, and the University of Chicago, of all places, wondering if we'll need to introduce large wealth taxes to fix the severe imbalance of global savings.
And we've got a President of the United States, Joe Biden, who has surrounded himself with economists who aren't afraid to suggest historically enormous spending programs to create jobs, while the President pressures allies to reduce emissions in global supply chains and to combat climate change with enthusiasm.
Is the ground shifting?
If it is, and we're witnessing the birth pangs of a new model, it will be fascinating to see how Australia positions itself this time around.
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