When it was first published in 1972, this was the first book to analyze the experience of Australia, Canada, New Zealand and South Africa in the field of macro-economic policy. The characteristics of this group of countries gives them much in common with both industrialized and emerging economies. Their experience of economic policy-making has, therefore an unusually wide relevance.
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Yes, you can access Macro-economic Policy by J. O. N. Perkins,M. D. English,J. P. Nieuwenhuysen,J. W. Rowe in PDF and/or ePUB format, as well as other popular books in Economics & Macroeconomics. We have over one million books available in our catalogue for you to explore.
Australia, Canada, New Zealand and South Africa share with each other far more economic characteristics than does any of them with most of the other countries of the world. Their economies contrast with almost all the other countries that enjoy high living standards in being greatly dependent on the export of primary products (especially if ‘primary’ is defined to include minerals and base metals); though it is true that manufactured exports have been of growing importance for all the four countries in recent years, and for Canada manufactures are now about as important as primary products in total exports. This emphasis on primary exports is associated with the high ratio of economically useful natural resources to population in each of these countries. The four countries contrast with the less developed countries of the world in their much higher living standards, and also (with the exception of South Africa) in the relative absence of disguised unemployment, and of a subsistence sector. On the other hand, they have in common with the less developed countries of the world the major role played by primary products in their exports, although for many less developed countries primary products make up an even greater proportion of total exports. Finally, they share with underdeveloped countries the characteristic of generally running a current account deficit in their balance of payments, though for the four rich primary-exporting countries this deficit is financed largely by private capital inflow, whereas various types of official grants and loans are the means of financing the current account deficit of most of the less developed countries.
The characteristics that the four countries share, and which distinguish them in one way or another from other economies of the world, have implications for many areas of their economic policies. The importance of the balance of payments, and especially that of fluctuations in their exports and in their long-term private capital inflow, presents special problems for them. This is not, of course, to deny that comparable problems may arise for other countries also. But for other rich countries there is generally no comparable degree of dependence on a net inflow of private long-term capital; and for the other industralized countries the fluctuations of capital inflows that do occur tend to be to a larger extent of short-term capital (as well as being often offset by inter-central bank lines of credit, whereas there is little or no possibility of this form of financing for any of the four countries except Canada). Moreover, other rich countries that have a considerable gross inflow of private capital have usually at least as large a gross long-term capital outflow.
The four rich primary-exporting countries also share with one another the general characteristic of a high rate of growth of population, partly as a consequence of relatively high net immigration rates. Their work forces are thus increasing more rapidly than those of other countries with high living standards. This characteristic is also associated with their large net inflows of private capital; for the high ratio of natural resources to population makes these countries attractive for the two relatively scarce factors of production, labour and capital. The high rate of population growth itself tends also to encourage capital inflow, for the rapidly growing population generally has a high level of education and skill, and is fairly fully employed, and with high living standards. In these respects they contrast with most poorer countries with populations growing at comparable rates, for which a fast population growth is not likely to be an especially strong attraction to capital inflow.
These characteristics make the experiences of each of the four countries in the various fields of economic policy of special relevance to the remaining countries in the group. It is therefore strange that little or no attempt seems to have been made to compare the experience of these countries in the principal fields of economic policy, with a view to assessing what each of them could learn from the others. Whereas the experiences of the USA and Britain in the main fields of economic policy receive a good deal of public discussion in the four countries, relatively little public discussion of policy in them has taken explicit account of the experience of the rest of the four.
Part of the explanation for this neglect presumably lies in the geographical separation of these four economies, and the relative inadequacies of lines of communication among them. For example, publications discussing economic policy in the USA and Britain are much more readily available in the four countries than are those discussing policies in other rich primary-exporting countries. Even between two such close neighbours as Australia and New Zealand, the exchange of ideas on economic issues – at any rate, through the public press – is very much less than the press discussion in each of them of economic policies in Britain, both in their own publications and in the wide range of American and British publications available in each country. The relative geographical proximity of these two countries is, in short, scarcely more conducive to the interchange of published ideas and information in these areas of policy than the greater distances that separate these two countries from Canada and South Africa. Political considerations may well have also played a part in limiting the interest of Australians, Canadians, and New Zealanders in economic events and policies in South Africa (and perhaps also in limiting South African interest in the other three); but if this is so it is quite irrational. Whatever one’s views about the political situation in a particular country, this is no justification for failing to take full advantage of any opportunity to learn from its economic experience.
The present study attempts to contribute towards filling this gap in the literature. The aim is to assess the principal lessons that can be drawn from the experiences of each of these countries in the main areas of macro-economic policy, that is, the maintenance of full employment without inflation (‘internal balance’) and the maintenance and restoration of an adequately (but not excessively) strong balance of payments situation (‘external balance’). The period under review has been the years 1960 to 1970 or 1971, but the contributors have been free to extend their reviews into earlier years if this helps them to make the points that seem most relevant and important for the four countries concerned. The approaches of the four authors have been co-ordinated. They have nevertheless remained free to develop their approach as seemed best to each of them in the light of his own interests, and of the nature of the problems of the economy on which he was writing, but in full awareness of the general aims of the study, which had been decided by the group before the work began.
Although the four countries have been considered primarily for the relevance that the experience of each of them should have for the other countries in the group, the study of macro-economic problems in this group of countries should also have a wider interest. For it is relevant in many ways to the discussion of macro-economic problems in the developed economies generally, and also has some bearing on a number of aspects of policy in less developed countries.
In the first place the four countries are comparable to the economies of Western Europe, North America and Japan in being concerned with the types of short-term macro-economic policies that are essentially similar to the policies operated in all the developed countries. In particular, where appreciable unemployment arises in any of them, it is likely to be generally ‘Keynesian’ – in the sense that it can be overcome by raising the level of effective demand: though it is, of course, true that almost all these countries have also pockets of regional unemployment to which policies of this sort are not necessarily applicable.
Within the group of developed countries (including the four discussed in detail in this book) a common body of experience in macro-economic policy is being gradually accumulated which is of clear relevance to all of them. For they are all concerned with using broadly similar budgetary and monetary policy for maintaining full employment without serious inflation and a healthy balance of payments, and they are all concerned with the problems of whether or not some form of prices and incomes policy is feasible or desirable. Moreover, they are all closely integrated parts of the market economy of the Western world, with their industries linked closely together by the operation of multi-national firms, and by the operations of financial institutions with interests that spread across their national frontiers and cover the four countries (as well as those of Europe, North America, and to an increasing extent Japan).
The experience of the rich industrialized countries of Europe, North America, and Japan is not closely relevant to policy in the less developed countries. But the group discussed in this book have enough characteristics in common with less developed countries for their experience to be clearly relevant also for many less developed countries.
It is true that the relevance of the experience of these four countries for the policies of the less developed countries is not, at least at first sight, so great as one would expect it to be for the richer, industrialized, developed countries. But in some respects the group of four countries occupies an intermediate position between the two main types of economy, and shares a number of relevant characteristics with the less developed group.
In particular, the stage of development of the capital markets and of financial institutions in the four countries has been (at least until very recently) rather less advanced than in many European and North American industrialized countries, and the rate of development of these capital markets in recent decades suggests ways in which similar markets in the less developed countries are likely to develop in the decades ahead. Certainly, the problems and opportunities for the operation of monetary and financial policy in many developing countries that are likely to be experienced in coming years have similarities to those of the four countries, with their capital markets at various stages of development, and strongly influenced by the capital markets of major financial centres in other countries (notably New York and London). In particular, the role of net long-term private capital inflow in the four countries and also in a number of less developed countries raises common problems relating to the efficacy of monetary policy for internal balance and also for balance of payments policy. These common interests have been the background to the advice that has been given by the Australian central bank (for example) in the setting up of a central bank in Malaysia and to a smaller extent in certain African countries. (This common interest with less developed countries in financial matters naturally extends far beyond the field of macro-economic policy covered in this book: it may be at least as important in matters relating to the efficient operation of the capital market for achieving an allocation of funds such as will facilitate a high rate of economic growth.)
The plan of the book is to discuss first the experience of each of the four countries separately, and then to compare their experiences in a final chapter. There is no particular reason for the order in which the countries are discussed here. They have been placed alphabetically, and the chapters on each country may be read separately or in any order. The writers would strongly urge, however, that readers in any one of these countries should not confine their attention to the discussion of the experience of their own country: for the experience of each and all of the countries is likely to afford some guidance for policy decisions in each of the others. It is to be hoped that when future policy decisions (in these and other countries) are made, and when there is discussion of the policies by official observers, this will take place against the background of the accumulated body of experience of all of these countries (as well, of course, as that of others). The major decisions about the development and use of the tools of macro-economic policy – such as the types of budgetary weapons, the form of monetary and other financial measures, the use of the exchange rate – can best be taken after giving due attention to the experience of countries whose measures have differed somewhat from those of one’s own country; and whose successful use of exchange rate flexibility, direct controls over financial institutions or open-market operations (for example) may therefore suggest new ways of applying or developing such measures – or, alternatively, pitfalls to avoid in applying them. The government of a country, and observers discussing its measures and policy instruments, are naturally generally familiar with the lessons that can be derived from the experience of their own country. But other countries also have often accumulated experience that could usefully be taken into account when important policy decisions are made in one’s own country. If politicians, bankers, civil servants, journalists, academics and students in these four countries become more aware of what can be learned from the economic experience of the others, this should greatly increase the likelihood of the adoption of sound future policies in all of them.
Chapter 2
AUSTRALIA*
J. O. N. PERKINS and J. P. NIEUWENHUYSEN
The Australian economy shares with Canada, South Africa and New Zealand a high degree of dependence upon capital inflow and primary exports, a high degree of industrialization and a generally high standard of living. Like the others the Australian economy is greatly influenced by changes in the rate of growth of world trade and in the readiness of investors in other countries to send capital to Australia; and it naturally shares this set of problems with the less developed countries of the world. On the other hand, the high degree of industrialization and absence of disguised unemployment mean that ‘Keynesian’-type full employment policies, and other types of measures to affect the level of demand and the degree of inflation are generally as applicable in Australia as in any of the ‘developed’ countries of the world; so that Australia’s experiences in the fields of monetary and budgetary policy are in most respects of interest and relevance to, say, Britain and the USA – as is the experience of these countries to Australia.
It is true that in earlier decades the relative immaturity of the capital market in Australia made comparisons of her experience and policies with those of, say, Britain or the USA much less useful, so that the types of central banking control used in Australia had at that time had much more in common with those applied in many less developed countries. Moreover, it remains true that the degree of reliance on direct controls over bank liquidity in Australia even in the early 1960s makes her experience in these matters more directly comparable with that of countries relying more on such measures than do Britain or the USA, for example. But the growing use of market measures of monetary control in Australia now makes her experience of monetary policy (as well as budgetary policy) of much greater relevance than it used to be for countries such as Britain and the USA with well-developed capital markets, as well as to less developed countries that are in the process of developing a range of different measures of central banking control.
This analysis of the main features of macro-economic policy in Australia will first outline the main problems of internal and external balance that arose during the period 1960-71, and the use made of the various weapons of macro-economic policy in meeting these problems. There will then be some discussion of the role of Australia’s system of determining award wages, coupled with the absence of prices and incomes policies as normally understood, followed by a brief discussion of the lack of any form of indicative economic planning. A concluding section will suggest some of the principal conclusions to be drawn for future policy, principally with the aim of emphasizing those lessons that are likely to be useful not only for Australia but also for the economies of the many other countries, both highly developed and less developed, that resemble Australia in a number of the relevant respects.
During the period 1959/60 to 1970/1 the Australian economy achieved a real rate of growth of nearly 6 per cent per annum. Over the second half of the decade the rate of growth was appreciably higher than in earlier years, despite the fact that rural output was considerably curtailed in several of these years by severe drought.
This rate of economic growth was sustained to some extent by a rate of immigration of about 1 per cent per annum – which was probably greater than that of any country of comparable living standards. In addition, the natural rate of increase of the population was also approaching 1 per cent, and the work force was growing even faster than the 2 per cent growth rate of population, partly because of a heavy concentration of the population into the age groups being added each year to the work force, and partly because of a sustained rise in the proportion of married women entering the work force. Towards the end of the decade the work force was in fact rising at around 3 per cent per annum.
The other main factor helping to maintain this rate of growth was the relatively high rate of savings, coupled with a capital inflow, the value of which was equivalent to about a tenth of annual real investment. A large part of the relatively high level of investment was of course required to provide equipment and various services for the rapidly growing population; but a considerable part of it helped to make possible the rise in productivity, which was of the order of
per cent per annum.
The Management of the Australian Economy 1960–71
The degree of success achieved in managing the Australian economy during the 1960s varied from conspicuous failure – by present-day standards – up to about 1962/3 to remarkable success in the later years of the decade. In the early 1960s there were serious problems, when an external deficit and domestic inflation in 1960 led to excessively anti-inflationary domestic policies beginning late in 1960, and a consequent recession in 1961/2. These years were in marked contrast with the remarkable absence of either serious inflation or unemployment, or of external difficulties, in the last three years of the decade. Between these two extremes were periods of both fair success in managing the economy (in and around 1964), and of a minor lapse from full employment growth (in 1966/7). A fairly mild form of ‘stagflation’ occurred in 1970/1.
One may view these variations of experience as partly resulting from world-wide fluctuations in the rate of economic growth and trade, which were inevitably reflected in the Australian economy. For 1960, 1964 and 1968/9 were periods of rapid growth in world trade and incomes, whereas in 1961/2 and 1966/7 world trade and output were expanding much less rapidly. Moreover, towards the end of the decade world trade exhibited a rapid expansion not paralleled in earlier years of the decade; and th...
