PRIME MINISTER
MEDIA 2 AUGUST 1979
ECONOMIC INTERVENTION
I was very taken by the theme that you provided for us
in you opening remarks yesterday that the int.. rnatir-a1
situation calls for vision, courage and initiaLf-ve. In'
a very real sense that is the challenge which faces us at
this conference.
I have no doubt whatsoever that there is an important.,
constructive role for the Commonwealth to pla-y in re]. itj. om) r
to world economic development issues.
We can do much to create and sustain an international.
climate of opinion which is conducive to bold and im~ jinative
action. We can produce stimulation, well considered
proposals. We can help generate a will and a vision commensurate
with the scale of the problems.
At our last meeting in 1977, the Commonwealth took a
successful initiative on the Cormmon Fund, at a time when
its prospects seemed far from good. That initiative
demonstrated the potential the Commonwealth has to contribute
in the economic area. Excessive modesty on our part therefore
would be entirely mis-placed.
This meeting is taking place at a -time when authoritative
ass~ essments for the medium term outlook are for a continuation
of the slow growth experienced since 1973, or even
a further deterioration of that growth. The sombre prospects
which face us could threaten not only the economic wellbeing
of the world but ultimately, its social. cohesion
and political stability. We must act to re-medy the sit-uation.
Yet the question must be asked: Has the world have we
responded with the urgency and determination which the gravity
of these problems demands?
Central to Australia's perception of these problems are
two tenets First, that-in the contemporary world there is
a very substantial degree of economic interdependence
between all countries, and second, that the major issues
facing us are not separate and descrete, but are Closely
interrelated. The concept of economic interdependence i~ s not without its
ambiguities arylit is sometimes put to questionable polemical
use. But when all reservations have been registered the
fact remains: our fates are inextricably intertwined and
in the contemporary world no society is an economic island. / 2
2.
A full recognition of the interdependence between north
and south and of the trgent need for a greater accommodation
of developing countries within the global economy is vital,
both in political and economic terms.
A key element in achieving this accommodation is overcoming
inflation. The linkages are clear. The developed countries
provide over 70 percent of the market for the goods of the
developing countries, and the volume of capital flows to
the developing countries is linked to the demand for their
exports. Those exports and capital flows can only grow as
western economies grow. And those economies will only
grow when inflation is overcome.
Beyond this, it is well established that sustained high
inflation has a corrosive effect on social and political
institutions. Unless it is brought under control it ' Till
not only result in economic havoc but in social disin-egration
and political chaos.
While no countCry can ignore the need to follow sound ntiinflationary
policies, the major industrialised countries
of Europe, North America and Japan have a clear, overriding
responsibility in this regard. To say'fthis is not
to make an onerous demand on those countries. It is merely
to recognise a fact. Their role, function and weight in
the international system makes their responsibility
inescapable. Indeed the fact that these countries come together for
periodic economic summit meetings acknowledges their
responsibility. The rest of us are only spectators as
far as -these meetings are concerned and often uninformed.
spectators though we all have to live with their
consequences. I believe therefore that this meeting has the right to call
on the major industrialised countries, in the most forthright
terms, to adopt policies to bring inflation under control.
Equally, of course, the developed countries have a vital
responsibility to reduce their consumption of oil and to
develop alternative energy resources, if growth is not to
be constrained. It is important too, that oil producing
countries should have regard to the effects of oil price
rises on inflation and the importance of the continuity of
oil supplies for the world economy.. It is not a matter
of altruism. It is in their own interest to do so, as well
as in the interests of everyone else, not least the developing
countries. The Australian view is that there is also an inescapable
link between inflation and protectionism. Each feeds the
other and each frustrates the aspirations of developing
countries. There is no doubt that the adverse effects of
higher inflation in recent years are largely responsible for
the drift towards protectionism. This proposition was fully
recognised '* and accepted by those government leaders
from developed and developing countries who came together
in the meeting convened on the initiative of Michael Manley
in Jamaica last year.
3
Defensive protectionist policies exacerbate the situation
they are meant to deal with, in that they result in an
inefficient use of labour and capital resources. They are
inimical to general economic recovery and put the future
growth of developing countries in jeopardy.
The risk of increased protectionism is all the greater now
that the M~ TN negotiations have concluded. Whatever our
assessment of the results of those negotiations and in my
view they were far from satisfactory, particularly in
relation to agricultural products the very fact of their
being conducted provided some degree of restraint against
pressure for increased protection. That restraint is now
removed. It is all the more important therefore that attention be
focused on the development of a definitive program of action
to implement positive structural adjustment policies. We
need policies which will free those resources of capi 1
labour that are at present locked into unproductive uces
and allow them to reflect the operation of market for-s,
including, most importantly, the competitive forces oi_.
international trade.
The adoption of such a program would have economic and
political costs. It would require courage to implement.
But the compensating benefits for the industrialised countries
themselves and for developing countries would much more
than offset the costs.
It should be recognised that some progress has been made in
important areas. I have already mentioned one such areathe
Coramon Fund which has been a major achievement of
effectively supported by the Commonwealth.
The agreement is important . not only because is provides
hopes for coramodity Qxporters, but because it gives evidence
of a growing willingness to approach the problems of trade
and development in a proper spirit.
But even here, much work remains to be done both on matters
of principle and detail. And if the common fund is to be
a hollow shell, there must be such progress on the negotiation
of individual commodity agreements. ' It would be
difficult to describe as anything but cynical an acceptance
of the Common Fund which was accompanied by a refusal to
enter into the commodity agreements necessary to give it
substance. I have stressed the need to combat inflation and protectionism.
That is an absolute imperative. But I do not want to end
my remarks there. For we have to face the likelihood that
the world wide fight against these twin evils will be a
protracted one. We also have to fact the possibility that
even when it is won, the rate of growth might still be
inadequate. And thirdly, we have also to recognise that
there are other powerful forces ecomonic, political and
cultural ones-which work to impede growth and inhibit
enterprise. / 4
.4-
Let me briefly set the problem in an historical context. In
the quarter century after the second world war roughly from
the mid 1940s up to about 1970 the world experienced a
period of unprecedented economic growth. This reflected
some very special circumstances in the industrial countries
of the west. The great depression, followed by the war,
had created a huge pent-up demand for consumer goods, for
the material " good life" which had been denied p; sople for the
previous two decades. That, together with the Marshall
Plan, the widespread adoption of Keynesian policies and the
rapid introduction of new technology, led to a sustained
upsurge in economic growth and real income in the developing
countries as well as in the industrialised world.
In those two decades, the material conditions of the mass
of people in western societies was transformed. But the
very success of that process meant that by the mid 1:-160s
conditions were changing and by the early 1970s the :-onsumer
boom was clearly running down. It would be an exagge ti)
to say that people were satiated, but the tempo was
perceptible slackening.
At the same time, a combination of factors some oi-L them
directly related to the affluence resulted in incr,--asing
impediments to enterprise and investment. Governemnu: s
conditioned to believing that Keynesian policies were the
answer to all problems stubbornly continued to pursue those
policies. They pursued them despite the onset of inflation
and they were encouraged to do so by electorates increasingly
accustomed to believing that governments could
provide for all needs.
A cast of mind developed which took for granted and regarded
as endless the extraordinary growth of the period and let
to increasingly unrealistic demands being made on the
economy. This was particularly true of the trade unions
which now assumed unprecendented power within the pluralistic
balance of western societies. At the same time significant
and vocal sections of western societies indulged in the
luxury and hyprocrisy of decrying material possessions and
focusing on the so called " quality of life" issues. In
doing so they ignored the fact that the majority of the
worlds peoples were still living in comparative poverty and
want. A legitimate concern for the need to protect the
enviroment as exaggerated into an ideological cause which
became essentially anti-growth.
An increasingly formidable system of statutory road blocksvery
demanding environmental laws, harsh trade practices
legislation,, prices justification regulations were placed
in the way of development and investment*' The result was
that many investment opportunities which had been highly
attractive twenty years ago now became ' uneconomic.
At the same time, and for a variety of ' reasons, the authority
and confidence of some western governments were weakaned,
and the quality of leadership they were able to provide
suffered.
This combination of factors has given rise to a state of
affairs which is not conducive to growth which is in
some respects positively hostile to it. The result has been
that in recent years the growth of world trade has fallen to
half what it was in the previous decades from 8 to 4 percent.
Paternalistic, defensive attitudes have largely replaced
a spirit of enterprise as witnessed by the 25 billion
dollars spent by western industrial countries on wage and
export subsidies to prop up inafficient industries. If
only resources of this magnitude could be devoted to more
productive purposes, the consequent expansion in investment
and demand would be a very real contribution to growth
in the world economy as a whole.
The new industrialising countries, those countries which
have dramatically shown that high growth is still pos-ible
in the later 1970s, have increasingly met with " selec--ive
safeguards~ and been seen in terms of a threat. They .; houi~ d
have been congratulated and welcomed for the opportui, i'_. F
they provide for the growth of the newly industriali. rig
countries creates significant new markets for the dev ~ opec-_-
, States. Given the effort these countries have made, nothing
is more likely to embitter relations between develope'!
and developing States, or to descredit the case for a
liberal economitc order than such an ungenerous and shortsighted
response.
In sum, the conditions which generated and fuelled the
great surge of growth in the last quarter century have
now largely disappeared. It is against this background that
I ask whether the lowering of inflation will, in itself,
be enough to generate the growth in world trade necessary to
reduce world unemployment and to promote a resurgence of
sustained high growth.
Do we not have to face the possibility that a whole range
of constraints may need to be tackled in order to achieve
these goals?.;
Do we not have to ask what in the next two decades could
restore the vitality and dynamism which the system showed
in the late 1950s and 1960s?
Is there a way in which the resources of the world can
be better deployed and allocated to provide this dynamism?
What would happen, for example, if the vast amount of
money expended by developed countries on wage and export
subsidies were to find a more productive use?
Is it not possible to protect the environment and the, interests
of consumers without-systematically frustrating investment
and enterprise?
Are there not ways in which resources in developing countries
could be more effectively utilised,, so as to increase growthon-
a sustainable basis and reduce the intolerable burden of
poxerty in' the world? / 6
' 6
Should we not do more to accommodate the newly industrialised
countries, the one group of countries which is still achieving
the growth rates of the earlier decades?
I will say frankly that I do not know the answer to these
questions. But I believe they are essential questions,
questions we must address at this time.
Le me recall again that the American Marshall Plan, the
first great transfer of resources in our time played an
important, perhaps a crucial pa*, in initiating the great
post-war expansion. In doing so, I want to make it clear
that I do not believe that what is called for at the present
time, is a replica of that plan. The mechanical repetition
of past solutions in changed circumstances rarely works.
But what I do believe, and believe very strongly, is that
something corresponding to the political will and vi ion
which inspired the Marshall Plan is needed now. We i
respond in a manner which is commensurate with the chi llenge
we face with imagination. andboldness, and with a willingness
to look beyond the convetional wisdom.
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