4iJ), AUSTRALIA
P RI AAE MDINISTER
FOR MEDIA TUESDAY, 16 OCTOBER 1979
ADDRESS TO ANNUAL GENERAL MEETING
IRON AND STEEL INSTITUTE, SYDNEY
I would like to say something about some of the world trading
problems as I see them at the moment and about what Australia
seeks to do principally in looking after our own atfairs and
hopefully also i~ n trying to contribute to a more responsible
international economic community.
We all know that the vnrld's economies are interdependent and
that what happens in the United States sooner or later tends
to affect us all.. Thus what happens in Europe tends to affect
all major countries, all industrialise d countries and
developing countries.
There have been very many difficulties in world trade over
most of the last decade. Since the early 1970' s growth in
trade has been about four per cent a year. In the previous
years growth was something like eight per cent a year.
Those two figures alone illustrate imuch of the problems of
high unemployment and low growth in world marki-ets. That low
growth in world trade and low growth in world markets has
quite obviously coincided with the period of high and deeply
imbedded inflation, which is still with us and which in
present circumstances shows no signs of abating.
This poses problems for all countries both for developed
countries and for developing. I do not know that we have
addressed our national policies to these problems as
adequately as we could. We certainly haven't done as much*
about that as we ought to do.
The first question I would like to raise is how do we return
to a vigorous growth in the world trade how do we get
back to that eight per cent a year, instead of the four per cent
that we have had for far too long? Secondly, regardless of
whether we can get back to that eight per cent or not, what
are the prospects for a resource and energy-exporting country
such as Australia?
Obviously getting inflation down is a paramount, a first
priority. But a lot of people have said much about that.
There has not always been adequate action in national policies.
./ 2
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We all know that high inflation destroys confidence. It
destroys profitability. It creates uncertainty. It reduces
market growth. It reduces the flows of world trade, leads to
new and increasing and more perfidious forms of protection,
and leads to higher unemployment which can have severe social
and economic consequences in a number of countries.
The consequence of inflation endangering the social system is
a real one. William Miller, Secretary of the United States'
Treasury, said only a short while ago and this is in a
country where inflation is now at an annual rate of 14 per cent-
" Inflation is a clear and present danger. It struck at our
at-ion's vitality. If it is-not checked then it will threaten
our democratic system itself. We must attack the root causes.
and totally eradicate the basic sources. What is needed is a
comprehensive, sustained and total war against inflation"
The rhetoric is easy, and the rhetoric can be found in many
countries around the world. But in what countries do we find
that total war? There is no harm in pointing out that
two major and significant countries have been more successful
than many: Germany and Japan.
At international meetings whether the international conference
in Jamaica, UNCTAD V in Manila, the Commonwealth Heads of
Government meeting in Lusaka, or more conventionally, the
International Monetary Fund or the OECD, they will all accept
that inflation must come down. They will all give
prescriptions for getting inflation down. But inflation has gone
on through this last decade at high and often rising rates,
increasing in many countries as it has been at the moment. We
know what we need to do to get it down. But how many countries
commit themselves to the policies that will do what we know
needs to be done.
Van Lennup, of the OECD has spoken often enough about positive
adjustment policies a somewhat misleading term, because
what he really means is: " Governments keep out. Don't subsidise
wages. Don't subsidise inefficient industries. Don't have
protection that is too high. Just let the market forces work.
Allow the normal re-structuring that will take place if
governments don't get in the way. Let it all occur and then
world trade will start to grow again and industry will start to
be efficient again. There will be vigour and life, in world
economies again". He preaches and he talks and people say
and they believe him. But governments still do not act.
I do not think it is necessarily only governments' fault,
because sometimes when they try to act, the beneficiaries of
the present system of inefficiency so often say: " No, you must
not, it will hurt too much. We know that what you are trying
to do is right, but it would be much better to forget all about
it and to go along as we are at the present time". / 3
Unless we all realise that defeating inflation is a first
priority I do not believe there will be a significant liftin
the growth of world trade. That obviously has very
considerable long-term consequences for the steel industry
and for other major industries right around the world.
Also, I believe, that even though we need to get inflation
down and even though that is a paramount need a pre-requisitegetting
inflation down alone in the circumstances of 1979,
1980 or beyond, may not be enough to return to the levels
of growth that we knew in the latter years of 1940, 1950s,
the 1960s and into the very early 1970s.
If that is so, we need to address something more fundamental,
more significant and ask ourselves what has happened, what
is different between 1949 perhaps and 1979. It is worth
looking at what has happened over the years. We need to
see our present circumstance against the historical background
of the years since the last World War.
From the mid-40s to the early 170s the very early 170s
there was a dramatic growth in world trade; one of the
greatest sustained periods of expansion in markets, growth in
trade, that the world had ever seen. What were the reasons
for that! a depression before the war; the war itself;
the enormous pent-up consumer demand; the M. arshall Plan;
new technology; the re-building of Europe. All of this
led to a sustained upsurge in growth and incomes of a kind
that the world had never previously seen.
It was not only the developed world that took advantage of
this. This was also the period in which more developing
countries experienced some lift in their standard some
improvement from the abject poverty that they had known
for so long and which so many still know as the only way
of life; not necessarily entirely from their fault or
from their circumstance.
By the mid-1970s, for a variety of reasons perhaps-, thSe
consumer boom itself which did much to fuel this growth
in-incomes, tended to be running down. other things also
were happening. This was a time when inflation began to
be deeply imbedded in Europe and in North America. It was
also at a time when the expectations that governments could
go on providing and meeting all requests put to governments:
that governments had ani inexhaustible supply of funds, that
Keynesian policies had made deficit financing responsible.
All of these things led to governments following policies
that they ought not to have followed from about 1972-73
onwards, and led to governments believing themselves
that they could still meet the wishes of their people
when they asked for things, or industries when they asked
for things. o./ 4
-4
Instead of saying governments themselves acquiesced, printed
more money, and inflation becamie more deeply embedded.
Trade and market growth began to shrink.
I do not believe governments then understood the economic
realities that began to unfold. Perhaps they understand now,
but policies did not flow as a result, as I believe they should.
High inflation was thus built into too many economies.
We have also had two oil crises: in 1973-74 oil prices quadrupled.
There was a significant increase in the already worsening
,. inflation position. European inflation, OECD inflation, went.
from 8 per cent to 13 per cent. As a result of that oil
crisis, adequate energy policies were required, but much, if not
most of the world ignored the warning. It has happened once: it
has not happened before: it will not happen again -that was
the attitude of too many people.
By 1978 inflation had been painfully ground back to 8 per cent
still very high, still much too high but with people perhaps
beginning to think " 8 per cent is endurable". But 8 per cent
was probably too high to achieve the kind of market growth that
most of our industries need.
Then came a second oil crisis not as severe as the first
but enough with other factors to put OECD inflation once again up
to 13 per cent, leading to reduced expectations of market growth,
reduced expectations for employment and the solution of economic
problems of a kind that concern many countries at this present time.
In these circumstances, there are increased pressures on
governments for intervention, for more protection of one kind or
another. Despite the trade negotiations that have just concluded,
the pressures for renewed protection, for new kinds of protectionlevies
and wage subsidies and export subsidies, special protective
devices, subsidised loans and all the rest, voluntary restraint
agreements which even have been visited upon BHP all of these
things helped to add to the rigidity in economies and industries
and made it harder to get rid of the inef ficiencies in f rom
our systems.
* Thus, we have a new kind of restraint to ' investment
and development, because what we are talking about provides a
restraint, a roadblock, to efficient investment, to efficient
development, to efficient profit-making. But then, over the
same period, especially during a period of high growth, we
had many concerns environmental concerns, restrictive trade
practice legislation, foreign investment policies, national
investment policies all of which tended to put impediments of
one kind or another to profitable enterprise; impediments that just
were not there in 1949, which have grown over the years when people
came to take growth and progress for granted because the world
went through the best and most sustained period of growth and
development that it had over about 30 years after the war.
With all these impediments now within our systems, sometimes
requiring three, four or five years for an environmental
approval, where before a board could make a decision in the course
of a day or a week but now you have to get through government
arrangements which might take three years or more.
Against that kind of background, even if inflation does come
down, is there then going to be an adequate growth rate to
enable a return to the level of profitability, the growth in
national economies, that is necessary and desirable if world
economic problems are to be put aside.
There is a growing international awareness of the danger that
getting inflation down alone may not be adequate. The
Commonwealth Heads of Government meeting in Lusaka has decided
to establish a worldwide group of experts to study this problem
and offer some suggestions for national policy-making
which might be an aid to a greater rate of investment and
market growth in countries around the world.
What then are the prospects for a country like Australia
14 million people, a middle-ranking power if we are going to be
in a period of high inflation and low market growth. Obviously,
more rapid market growth helps a country like our About
per cent of our GDP is traded, but I do nt thin we
can look forward to this rapid growth not as a certainty.
It may be remote. What then do we do in a difficult world trading
scene? There is a great deal that a country like Australia
can do, is doing, intends to do. We are one of the few
countries that can get through the 1980' s without difficulty
no matter what the world scene may be.
Over the last two to three years, Australia has, through world
trading negotiations, with Europe, with the United States
and with Japan, established a network of bilateral trade
agreements on a basis that I believe gives our exporters greater
securitL. y than they have ever had. Obviously, the trade agreements
are beneficial in both directions. A good deal of energy
and effort has gone into securing access to markets. That
is important indeed.
Then again, we have paid particular attention to trade with
developing countries of Asia and the Pacific because in our
experience it is trade with these countries that has served
us in very good stead, as we found it more difficult to trade
with the more affluent and large markets in Europe because of
European Economic Community policies. If it had not been for
the diversion of our trade to countries such as Korea, Taiwan,
Japan, the ASEAN countries, to China itself, Australia would have
been in very real difficulty.
There is another message that comes out of this changed trading
relationship that Australia has experienced, because it is not
just our exports to these countries that have grown. Our trade
both ways has grown with the newly industrialising countries,
the countries of the Pacific and South East Asia, very dramatically
indeed. / 6
6
ASEAN exports to us have increased by about 30 per cent a
year over the last 10 years. Our exports to their countries
have also been growing at a rapid rat.-, although not quite
as rapidly as that. The prospect for rapid market growth in the
newly industrialising countries'is a very real one, and one which
I think the older industrialised countries ought to grasp
eagerly. They should not see this tv-ade as something to be
shunned or feared, because wages the--, e are lower and they
would therefore be more competitive. If opportunities are
grasped, trade both ways will grow very greatly. Markets in
newly industrialising countries will ! e there for the products
and the goods, of the older industrial countries, for the countries
of Europe and North America if we all. have but the wit to grasp
and take the opportunities instead of fearfully saying; " No,
we must not do it, we want selective safeguards. We want
to be able to say goods from these ccuntries can be excluded
from us because we are frightened of their competitive power".
I think if we seize the opportunities there is nothing to be
fearful of, and much to be gained by a greater rate of economic
take-off in a greater number of developing countries. We ought
to look to see what could be done to . promote that.
Australia, in this part of the world with our trading experience,
has some reason to look forward with confidence. But there are
other reasons why we can look forwar with a great degree of
confidence. We are a net energy expxrter. We have very
significant reserves of coal, of nat'; ral gas and of uranium,
as you know. Coupled with Australia' s mineral resources,
there are opportunties open for us t'at may be not open to all
other countries.
The $ 4 billion worth of investment i: aluminium and aluminium
processing taking place in Australia right at this time, could
not have occured if it were not for the adequate reserves
of bauxite, perhaps even more important, adequate reserves of
relatively cheap coal-based electricity which has been
important and necessary for that processing and development.
I think over the next decade and bevyond more of that kind
will be put together in Australia, mcking use of our resources
and of Australian energy, and achieving a greater degree of
processing within this country. Tha-will not come by some
Government decree, Government direct. ve. We do not work that way.
But if through the normal commercial processes, it seems that
is the best path to take, then there are some things that a
Government can do to stimulate it, t encourage it. I believe
that is one of the directions in which Australia will move and
one of the reasons why we will be abLe to attract to ourselves
perhaps a greater share of world investment in resources and
in energy projects, than otherwise might take place.
The other reason why we might well alttract a greater share
of world investment than would otherw. ise occur is because
I believe our economic policies will and are, attracting that
kind of investment. We are determined to maintain a downward
thrust on inflation. Our deficit as. a percentage of gross
domestic product will be under 2 per cent this year. That is
less than most OECD countries on a C-rmparable basis. It is
certainly much less than has been the case in Australia for
a long while.
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It is still too high, but we can work at it and we will get
it down further.
Government expenditure in real terms-, has been held static
over the last four years, despite much increased sums-goi ng
into defence and despite an ageing population in spite
of it being a young country our social security payments
have also increased. Quite plainly, such technical matters
as money supply growth have got to be rigidly controlled as
they are, and as they will continue to be.
When we took office, when my Government took office, our i nflation
was about 5 points above the OECD average. It is now-about
3 or 4 points below the OECD average and we intend to keep it
that way. The more the OECD gets-its inflation rate down, so
it makes it tougher for us to stay below the average of the
OECD countries. But, the better I like it, because we intend
to keep it below that average to enhanceAustralia's competitive
position.
Against that background, putting together the economic policies
that we pursue, Australian resources and Australian energy I
have said nothing about Australian initiative and enterprise
but putting those things together, I believe the future for a
country such as Australia is a good one. If any of you have a few
dollars you would like to invest in this country, it would be our
intention that you would make better profits on those dollars
than dollars you invest in your own. That is not meant to be
offensive. I would hope it would become a fact of life.
So, there are many unresolved problems. Trade growth is slow,
inflation is too high. There is, in some cases, exchange rate
instability. There are uncertainties in energy. But I believe
despite all that, I look to this country to the 1980' s with
enormous enthusiasm and with enormous confidence, because the
policies we have pursued for nearly four years are starting
to pay of f. I think there are a few investors in Europe and in
Britain and in the United States who have made that very same
judgement, because they have been voting with their dollars,
their Pounds and Deutschmarks and Yen and all the rest, in
investment in this country. Again, we intend to maintain
the policies that will make sure those investments are soundly
based so that the dollars that have come will be followed
by more.
The advantages we have are real. Maybe it is because
we are.. a lucky country, but it is up to us to use the
resources that are available to us and to do it wisely.
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