It is highly unusual for a former prime minister, especially a fairly reclusive one, to trek to Canberra during a parliamentary sitting week to address the caucus. There has to be a really good reason. And in this case, for Paul Keating, that reason is to mark the 30th anniversary of the Hawke-Keating Government’s nation-changing decision to float the dollar on 12 December 1983.
In the captivating four-part interview with Keating conducted by Kerry O’Brien recently, the former Treasurer-then-PM described the decision as “necessary because the Australian economy was locked up and uncompetitive and the dollar was too high in value” and that the fixed exchange rate “pumped up the money supply and added kerosene to inflation”.
Of course, this high-quality economic story-telling got less attention to some of his more colourful descriptions of his friend-turned-rival, Bob Hawke, in the interview series. This is a shame because it robs attention from an account of the widespread renovation of the Australian economy told by its chief architect.
But credit must be shared throughout the Labor cabinets of the 1980s and particular to its leader, Hawke. As Prime Minister, Hawke showed remarkable courage and collegiality. That’s why, in a gracious moment, Keating told O’Brien “Let me say this in Bob’s favour – many prime ministers would not have done this” because “they need reforming treasurers like they need a dose of rabies”. The romanticised impression that treasurers sit alone in their office, hands on the economy’s levers, was not true then or now.
This makes it entirely unnecessary to prolong the argument about who can take more credit for the decision to float the dollar. Not everyone can agree on the heroes of the story – not least the heroes themselves. But most of the facts and sequencing of the momentous decision are well-known and well-established.
From day one of the Hawke Government in 1983, exchange rates were at the centre of attention. Paul Kelly tells us in The End of Certainty that the very first decision of the new government was to reverse Fraser’s pre-election ten percent depreciation of our dollar.
The idea that a new Prime Minister or a Treasurer could have such a sizeable effect on the exchange rate seems foreign to us now. For years, Australia had been persevering with this absurdity that a few blokes sitting around a table in Canberra could determine the exchange rate for a little nation in a big global market. Every night, after a day of trading, there would be hundreds of millions of dollars waiting on Australia’s doorstep; ready to engage in the ‘one-way bet’ that was currency speculation in that period.
On the last parliamentary sitting day of 1983, advisors discussed through the night the best course of action for the dollar with the Treasurer and Prime Minister. It wasn’t until 1 am that Hawke and Keating came to the decision that the dollar should float. By 5pm that Friday, the float would be announced and markets had the weekend to prepare for the floating exchange the following Monday. Hawke and Keating had exposed Australia and our companies to the blow torch of the global market and history had been made.
The facts of the float are well-known, and so too are the villains of the story: John Howard and John Stone. John Howard as Treasurer had spent several years prevaricating on the issue, commissioning a report which he then ignored. Howard couldn’t even convince his colleagues in cabinet of the merits of the Campbell Report, let alone the country.
His Treasury Secretary, then Treasury Secretary under Keating, was one of the advisors to Hawke and Keating on that fateful night in 1983 who opposed the float. According to Hawke’s memoirs, John Stone said to Hawke, “Prime Minister, you’ll regret this; you’ll come to see this as a terrible decision.” History proved him badly wrong.
Rather than wasting monetary policy on targeting exchange rates, the full power of the Reserve Bank could then be focused on targeting inflation and interest rates, a point made by former treasurer Wayne Swan in an unpublished tribute to former Governor Bob Johnston marking the 50th anniversary of the Bank. Swan called it an act of patriotism that gave us the shock absorber we needed, when we needed it.
What’s more, the float of the dollar prepared our industries for changes in the global environment, making them more adaptable and outward-looking. This has caused some industries pain, particularly in recent years, but it’s to this achievement that we owe the past thirty years of international competitiveness and trade growth.
The floating of the dollar is now rightly seen as one of a handful of the Labor Party’s proudest ever achievements. It set Australia on an irreversible course of economic reform. As Chris Bowen argued this week, the float “meant that further reforms became not optional extras, but absolute essentials.”
Even politicians with Hawke and Keating’s confidence would have had hearts in mouths on that fateful day in December 1983 when the Australian economy was set on a new, less predictable course. Uncertainty was met with courage; opposition with decisiveness. And there lies the parallel with another, more recent episode in Labor’s and Australia’s history.
Labor’s success in steering Australia’s economy around the shoals of recession during the sharpest synchronised global downturn since the Great Depression. Labor’s decisiveness under Rudd, Gillard and Swan was world’s best practice, according to Nobel Laureate Joseph Stiglitz. The villains in that case were the Liberals who opposed the stimulus that saved 200,000 jobs and prevented a destruction of skills and communities.
As time passes and the dust settles, we need to remind the country that the defining acts of Labor in Power under Hawke and Keating, then Rudd and Gillard, was not leadership crises, but economic crises avoided. Avoiding recession, creating a million jobs when other nations shed tens of million – these are the legacies of the last Labor Government just as floating the dollar was a proud legacy of the one before.
We demonstrated one thing above all else: the courage of our convictions. And as we face new challenges like climate change or a global collapse in intergenerational mobility, the courage shown by Hawke and Keating thirty years ago provides the necessary template.