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Why Australia Prospered

Why Australia Prospered: The Shifting Sources of Economic Growth

Ian W. McLean
Copyright Date: 2013
Pages: 304
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  • Book Info
    Why Australia Prospered
    Book Description:

    This book is the first comprehensive account of how Australia attained the world's highest living standards within a few decades of European settlement, and how the nation has sustained an enviable level of income to the present. Beginning with the Aboriginal economy at the end of the eighteenth century, Ian McLean argues that Australia's remarkable prosperity across nearly two centuries was reached and maintained by several shifting factors. These included imperial policies, favorable demographic characteristics, natural resource abundance, institutional adaptability and innovation, and growth-enhancing policy responses to major economic shocks, such as war, depression, and resource discoveries.

    Natural resource abundance in Australia played a prominent role in some periods and faded during others, but overall, and contrary to the conventional view of economists, it was a blessing rather than a curse. McLean shows that Australia's location was not a hindrance when the international economy was centered in the North Atlantic, and became a positive influence following Asia's modernization. Participation in the world trading system, when it flourished, brought significant benefits, and during the interwar period when it did not, Australia's protection of domestic manufacturing did not significantly stall growth. McLean also considers how the country's notorious origins as a convict settlement positively influenced early productivity levels, and how British imperial policies enhanced prosperity during the colonial period. He looks at Australia's recent resource-based prosperity in historical perspective, and reveals striking elements of continuity that have underpinned the evolution of the country's economy since the nineteenth century.

    eISBN: 978-1-4008-4543-9
    Subjects: Economics, History, Business

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-viii)
  3. List of Figures
    (pp. ix-x)
  4. List of Tables
    (pp. xi-xii)
  5. Preface and Acknowledgments
    (pp. xiii-xv)
  6. Map
    (pp. xvi-xvi)
  7. CHAPTER 1 Introduction: Weaving Analysis and Narrative
    (pp. 1-10)

    Australians attained the highest incomes in the world by the mid-nineteenth century, only a few decades after European settlement. Despite losing that remarkable position around 1900, they have retained to the present a standard of living that is not appreciably exceeded elsewhere. Few economies have been as successful over so long a period.² Some have achieved comparable levels of income only since the Second World War (think of Japan or Italy). Many are currently making good progress in catching up to these levels, though still have some distance to travel (think of South Korea). One has experienced long-term relative decline...

  8. CHAPTER 2 What Is to Be Explained, and How
    (pp. 11-36)

    In this chapter I first lay out the evidence that motivates this inquiry. That is, I review the conventional money-based measures of Australian economic prosperity and place these in a comparative context before broadening the focus to see whether other indicators of prosperity tell a similar story. Taken together they conveniently summarize the historical record the remainder of the book is devoted to explaining. Drawing on the literatures on growth economics and Australian history, I then introduce those determinants of this prosperity that, I will argue, are pertinent to any accounting for the variation across time in Australia’s average level...

  9. CHAPTER 3 Origins: An Economy Built from Scratch?
    (pp. 37-56)

    What were the “initial conditions” in the Australian economy relevant to an inquiry into the historical foundations of its prosperity? Conventionally the story begins in 1788 with the arrival of the first Europeans intending permanent settlement. Hence the common use of the term “European Australia” or the phrase “since European settlement.” But the Australian Aborigines had been occupying the continent for forty thousand or more years. Thus the first question, in a chronological as well as logical sense, is the extent to which the pre- 1788 “Aboriginal” economy formed an element in that of the later “European” economy. This can...

  10. CHAPTER 4 Squatting, Colonial Autocracy, and Imperial Policies
    (pp. 57-79)

    In the three decades following 1820, Australian prosperity was determined primarily by the relative strength of two sets of influences. On one side were the factors I have identified as critical to the level of income already achieved in the colony: the favorable workforce participation ratio due to the high masculinity ratio and an age distribution skewed toward those of working age, and the “subsidy” from the British government. If the proportion of convicts among total immigrants were to fall, and the proportion of families rise, both of the advantageous demographic sources of prosperity would be weakened, even though the...

  11. CHAPTER 5 Becoming Very Rich
    (pp. 80-112)

    In 1851 the discovery of gold delivered a major shock to the predominantly pastoral economy of Australia and ushered in a dramatic episode in the history of the country’s prosperity. Considered in relation to the size of the economy it triggered the largest economic disruption ever experienced. And though an economic shock by origin, its effects quickly permeated the social, political, and even cultural spheres, some so deeply that their impression has lasted to the present. The importance of gold in domestic and international finance at the time made Australia akin to some of today’s oil producers. Like a midnineteenth...

  12. CHAPTER 6 Depression, Drought, and Federation
    (pp. 113-143)

    The long boom that began in the 1850s came to an end in the early 1890s. And the slump that followed was both deep and protracted. Indeed, per capita real GDP fell by 22 percent by 1895 and did not regain its 1889 peak for a full two decades—until 1909 (figure 6.1). To give this context, both the extent of the fall in incomes, and the number of years that elapsed before the previous peak was regained, were greater than that which occurred during the depression of the interwar period (when they were 18 percent and thirteen years, respectively)....

  13. CHAPTER 7 A Succession of Negative Shocks
    (pp. 144-175)

    During the quarter century following 1914, the Australian economy was battered by a sequence of external, negative shocks. So severe were they, and so limited were the recoveries from each, that incomes show very little improvement between 1914 and the postdepression peak in 1938. If real per capita GDP is set to 100 in 1914, it is below that level in every subsequent year until a postwar peak in 1925 when it stands at 103 and (with the exception of 1927) does not regain 100 until 1938 when it stands at 105. The alternative GDP estimates recently provided by Bryan...

  14. CHAPTER 8 The Pacific War and the Second Golden Age
    (pp. 176-209)

    I have described the First World War as delivering a severe negative shock to the Australian economy. By contrast, the Second World War was a much “better” war than the First when assessed solely in terms of its economic effects on Australia. Real GDP in 1919 was 4 percent below its prewar level in 1914, whereas between 1939 and 1946, real GDP increased by 26 percent. Considering per capita rather than aggregate trends requires caution because wartime population figures were affected by departing and returning troop movements as well as war casualties. But the contrast between the two conflicts is...

  15. CHAPTER 9 Shocks, Policy Shifts, and Another Long Boom
    (pp. 210-245)

    For much of the 1970s and 1980s, it is likely most Australians felt they were living through years of diminished prosperity relative to the immediate past. And they would certainly have been aware of an increased volatility in economic conditions. For the growth rate of the overall economy slowed markedly after 1974; unemployment and inflation both rose sharply; and a series of economic shocks buffeted the country for the next decade or more, the two oil-price spikes of 1973 and 1979 being the most prominent. The ugly term “stagflation” was coined to describe an economy simultaneously experiencing higher inflation, higher...

  16. CHAPTER 10 The Shifting Bases of Prosperity
    (pp. 246-256)

    When embarking on this journey tracing Australia’s economic prosperity, we looked (in figure 2.1) at the level of its per capita GDP since the early nineteenth century relative to that of the United States and the other settler economies—Argentina, Canada, and New Zealand—and also that of the United Kingdom. And in chapter 2 we examined alternative measures of living standards or economic well-being such as the human development index (HDI) to assess the extent to which per capita GDP might serve as a reliable proxy measure for these. In chapter 6 we speculated on the reasons for Australia...

  17. Appendix Note on Statistics and Sources
    (pp. 257-258)
  18. References
    (pp. 259-276)
  19. Index
    (pp. 277-281)
  20. Back Matter
    (pp. 282-282)