Bob Hawke will be remembered variously as Labor’s longest and Australia’s third-longest serving prime minister, as a union leader, and a larrikin.
But most of all, he will be remembered as a reformer -— presiding over a set of economic reforms that modernised the Australian economy and set the stage for the prosperity of the last three decades.
Floating the dollar
On Sunday March 6 1983, hours after the election that swept him to victory, Hawke and his treasurer-designate Paul Keating met the head of the treasury John Stone, a contemporary of Hawke’s from Perth Modern high school, in the empty saloon bar of Canberra’s Lakeside Hotel, where Hawke had spent the night.
Stone told him the dollar was far too high and recommended a huge and immediate devaluation of 10%. Hake’s new economic advisor Ross Garnaut soon formed the view that it was crazy manually adjusting the dollar to stop too much money pouring into and out of the country. When, later in the year, Stone opposed the idea of a float and the Reserve Bank recommended inching slowly towards it, Hawke said words to the effect of “why not right now?”.
From Monday December 12, 1983, buyers and sellers set the value to the dollar, allowing its price to adjust (mostly) smoothly as needed to meet supply and demand. The economy has better managed itself.
Financial deregulation and foreign investment
When Hawke took power the Australian banking system was hopelessly insular and concentrated. Four major banks held 81% of the assets and only one new banking authority had been granted since World War II.
In early 1985 the government injected some real competition into Australian banking, inviting applications for new banks.
Later that year the government relaxed restrictions on foreign investment in Australia.
Together these reforms allowed a capital-thirsty Australian economy the much-needed fuel it required to unlock a huge range of investment opportunities.
The wage-price spirals that bedeviled advanced economies in the 1970s continued in Australia until the prices and incomes accord of 1983. High inflation led to large wage claims so that living standards were not eroded, further fueling inflation.
To key was to find a way to break this vicious circle of expectations. The “first ” Accord, which involved wages increases every six months indexed to the CPI, did just that. Once people knew that wages weren’t going to gallop ahead of prices, there was less impetus to raise prices, which put less pressure on wages, and so on.
There was a raft of other changes to industrial relations through to the 1991 introduction of enterprise bargaining, all of which reformed an outmoded industrial relations system. But it was the action in February 1983 that was in many ways the most dramatic.
Although the Whitlam government began the removal of tariff barriers with a dramatic 25% cut in 1973, it was under Hawke that a further and systematic reduction in tariffs and other trade barriers occurred. It was also coupled with adjustment assistance for affected workers – although I have said consistently that this did not go far enough.
A raft of government assets began to be privatised under Hawke. From the Commonwealth Bank to Qantas, these large Australian companies were lazy, slow-moving, and insulated from competition. Qantas used to fly direct to Rome several times a week. Why? Well, which politician or diplomat doesn’t like a trip to Rome and wouldn’t want to change at Heathrow?
By removing political meddling and subjective these companies these companies to competitive pressure they served their customers better, employed more people in the long run, and provided returns to most Australians courtesy of their superannuation holdings.
A Philosophy, Not a List of Policies
The above is an incomplete list of Hawke’s reforms and achievements, but his government was much more than a list of policy accomplishments, however important.
Hawke, and the government he led was the Third Way before we knew what that term meant. He was Clinton before Clinton, and Blair before Blair.
It took a Labor government to make these market-oriented reforms. Matched with policies like the reintroduction of Medicare the reforms reflected an ideology which was pro-market, but also prosocial.
And while Paul Keating as Treasurer must surely receive a good measure of credit, so too the then opposition—especially John Howard—for not mindlessly blocking many of the reforms, it was the leadership of Hawke that made everything possible.
A charismatic leader, master tactician, and pathbreaking economic reformer. We will miss you, Bob Hawke.