Features Australia

Out of step with the times

Malcolm Fraser was the last of the Keynesian Liberals - and the only one to lose an election on economic management

28 March 2015

9:00 AM

28 March 2015

9:00 AM

Malcolm Fraser had little time for Milton Friedman. When the Nobel Prize winning economist visited Australia in April 1981, the businessmen who paid for his trip hoped his macroeconomic wisdom would rub off on the Liberal prime minister.

It didn’t. Friedman later recalled in his memoir that ‘the discussion with Mr Fraser was not among the most friendly discussions we ever engaged in.’ Fraser, he says, was cold and arrogant, ‘quite uninterested in hearing anything other than an echo of what he himself said.’ Maurice Newman, who organised the trip, recalls that Bill Hayden, by contrast, hung on Friedman’s every word, keen to hear his thinking on the devilish challenges of the day: inflation, unemployment and a stagnant economy.

The anecdote speaks volumes about the nation’s late 22nd prime minister. Fraser’s great achievement was to re-establish sane and stable government after the mayhem created by his predecessor. Yet a failure of imagination left him struggling with the modern world, unable to see that the old economic tools were broken and a new way had to be found.

While Friedman’s prescriptions would show results in Margaret Thatcher’s Britain, in Ronald Reagan’s United States and elsewhere in the developed world, Fraser stuck stubbornly to the Keynesian script. He invested his hopes for economic recovery in state-managed growth – manipulating interest rates, fixing the dollar, regulating banking – the very policies that entrenched stagflation – while ignoring the growing chorus of voices advocating the opposite.

Fraser did reduce the growth in government spending with Treasurer Philip Lynch’s razor gang cutting some Whitlam programs, but in other respects found himself on the wrong side of history.

At the 1977 election Fraser boasted that ‘unlike Mr Whitlam we have not exported thousands of jobs through across the board tariff slashing.’ At the same time he increased the value of the Australian dollar, making domestic goods uncompetitive, and wiping out businesses and jobs. He also refused to tackle the trade unions, led by the charismatic Bob Hawke, allowing wages and prices to lock the country into spiralling inflation and unemployment.

In 1979 the newly elected Margaret Thatcher visited Australia, attending Cabinet where, as then-treasurer John Howard recalls, she gave ‘an uncompromising outline of what she intended to do in her own country.’ Yet as Howard laments in Lazarus Rising, many of his Cabinet colleagues, including one assumes the prime minister, thought Thatcher unrealistic.

A year later, Singapore’s late Lee Kuan Yew urged Fraser’s administration to get with the plot warning that unless it mended its old-fashioned, strike-prone ways Australia would end up as ‘the poor white trash of Asia.’ Yet Fraser was wedded to the economic logic of John Maynard Keynes, an economist he once confessed had a profound influence on his life. In an essay written during his student days at Oxford, Fraser said that thanks to Keynes ‘we have the technical knowledge to keep the economy on a level keel.’

Fraser’s love affair with Keynes never faltered. Five years ago he told his co-biographer Margaret Simons that Keynes was ‘by far the best economist of the last century… much maligned and much misunderstood.’

And so Fraser struggled through the early ‘80s, like a general fighting the last war. Howard appointed stockbroker Keith Campbell to hold an inquiry into the financial system but Fraser shied away from its recommendations.

When Bob Hawke deposed Hayden as opposition leader on the eve of the 1983 election, his script was virtually written. Fraser’s economic miscalculations gave Hawke the rhetorical ammunition he needed. Seven years under Fraser had produced the highest unemployment rate since the Great Depression, Hawke told the audience in his keynote election rally: ‘One in ten Australians out of work… one in four young Australians looking for work… the highest level of sustained inflation in Australian history… the highest personal taxation levels… the highest interest rates… the highest number of business bankruptcies on record.’

Hawke had barely started. ‘For the first time since World War II, the percentage of Australians owning or buying their own home is falling,’ he said. ‘For the first time in living memory, Australian living standards – the real buying power of wages and salaries – are falling.’

So it was that Fraser became the first – and so far only – Liberal prime minister to lose an election on economic management, a skill which was supposed to be the party’s greatest strength. The country’s pain had been prolonged; jobs lost and industry, protected from the harsh world of competition, ever more set in its inefficient ways. Fraser liked to proclaim himself a liberal but in economic policy he was illiberal, wedded to the traditions of interventionist government and unable to change his step. Less courageous and open to new ideas than Thatcher and less trustful of the free market than Reagan, Fraser was an economic fuddy duddy out of step with the times.

None of this should obscure his great social achievement – the burying of the White Australia legacy once and for all. His Liberal predecessor Harold Holt had started the process in 1967, and by degrees the legislative and administrative apparatus that kept the ugly program in place was gradually removed. Whitlam’s part in the shift towards non-discriminatory migration is slighter than his fans claim, and his refusal to admit South Vietnamese refugees fleeing communism one of his less glorious moments. Fraser showed courage in accommodating the Vietnamese in the humanitarian refugee program.

Myth has it that Fraser began on the Right and progressed to the Left, yet that misunderstands the man. He was a progressive in office and out of it, making bold strides in social policy while misreading the dynamics of a modern industrial economy.

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