Australia and the Great Recession
Few countries have weathered the recent global economic crisis with positive growth rates. Speaking at an Asia Program event on April 15, Kim Beazley, Australia's ambassador to the United States, noted that of the world's 33 advanced economies, only three maintained positive growth after the onset of the crisis, only two avoided recession, and only one, his own, had growth of over 1 percent. Beazley made these comments by way of introducing Australia's deputy prime minister and treasurer, Wayne Swan, and Swan's former chief of staff and current Wilson Center Australian Scholar, Chris Barrett. These two figures were central to Canberra's response to the crisis.
According to Swan, an understanding of details and values is central to success in policymaking in general, and no more so than in the recent financial crisis. During the crisis the Australian government was not merely focused on economic growth but keenly aware that the "destruction of jobs and capital" following an economic downturn would "eat away at communities," making future growth difficult. The deputy prime minister noted that key decision makers had clear memories of such social erosion during the recession of the early 1990s. The government's priorities therefore lay with "looking after people in a way that was rational." The result was a series of stimulus packages that Swan described as "one of the most successful policy responses of modern times."
As both Barrett and Swan made clear, Australia did have certain clear advantages over many other economies from the beginning. Chinese growth in recent years produced a favorable trade environment for Australia, and a stimulus package announced by Beijing in November 2008 eventually increased demand for Australian exports. Moreover, Australian banks, having largely avoided the move to subprime lending and large derivatives exposures that lay at the root of the crisis in the United States, maintained a degree of stability that was not possible elsewhere.
Nevertheless, other nations, notably Canada and New Zealand, also benefited from Chinese growth and well-regulated financial institutions and still fell into the recession that Australia avoided. Such positive variables are therefore insufficient in explanations of Australian growth. Moreover, as Swan pointed out, even though natural disasters in Australia in 2010 and in Japan—Australia's second largest export partner—in 2011 will shave as much as 0.75 percent from the Australian economy, it is still expected to grow at a rate of 3.5 percent. Australia was unique among developed nations in its strong emergence from the financial crisis.
Barrett stated that Australia's impressive economic performance during the global recession was the result of quick recognition of warning signs, followed by preparation and timely implementation of fiscal stimulus. Canberra recognized the possibility of a global financial crisis early. The treasurer's official party was in Washington in April 2008, the month after the Federal Reserve Bank of New York provided an emergency loan to the global investment bank Bear Stearns to try to avert a sudden collapse of the company. During the trip, it became clear that many official and unofficial contacts in the United States believed that the situation at Bear Stearns could be the prelude to a much larger crisis.
Early recognition of the crisis meant that the government had time to conduct preparatory work on a financial claims scheme in anticipation of a global downturn. Moreover, the Australian treasury had conducted preparatory work on fiscal policy as early as 2004, which the government reassessed and updated in anticipation of the need for stimulus measures.
Indeed, even before the collapse of the Wall Street trading firm Lehman Brothers in September 2008 made the extent of the global crisis apparent, the Australian government was ready to implement a range of stimulus projects to protect jobs in a downturn. One important stimulus measure was to provide funding for the construction and improvement of public facilities. The Australian federal government had already coordinated its anticipated implementation of stimulus polices with state governments, whose authority was needed to direct important projects, such as school renovations that would protect the jobs of working Australians. Architecture was also in place to send cash payments to lower income families before Christmas, providing a much-needed boost to the retail industry.
Throughout his presentation, Barrett consistently emphasized that the case of
Australia shows that stimulus measures are effective, but also stressed the importance of reducing lags in the implementation of such measures. Early warning systems are needed to anticipate economic crises and the design of "standing" stimulus packages is crucial for a quick response, as is being in a position to implement those packages when crisis arrives in earnest.
As a comparison to Australia, Barrett cited U.S. fiscal policy in response to the crisis. While he noted that fiscal stimulus did soften the recession in the United States, he also held that was not as effective as it could have been. The U.S. government's transition between the Bush and Obama administrations meant that there were significant time lags in the anticipation, design, and implementation of stimulus policies. Stimulus measures in the United States were therefore not introduced early enough to have as comprehensive effect as in Australia.
By Bryce Wakefield
Robert M. Hathaway, Director, Asia Program