Australia's 'Employment Approach' to International Postwar Reconstruction: Calling the Bluff of Multilateralism

Article excerpt

Abstract: In the 1940s Australian economists sought an international agreement that would bind countries to the pursuit of full employment. Seen as a necessary prerequisite to agreements on monetary and commercial policy, the 'employment approach' was advanced with a 'crusading zeal' before the great international conferences concerned with postwar reconstruction. Sometimes regarded as Australian posturing, the employment approach was based on a sound understanding of contemporary economic theory. The purpose of this paper is to reappraise the employment approach in terms of this theory. It concludes that the Australian economists were correct in their advocacy; their actions are a timely reminder of a period when Australia sought to positively engage the international community.

'... we have had our final banquet and celebration. The love feast was completed by the two black sheep, the Australians and the Russians, receiving their telegrams in time ... amidst loud and continued applause, and embraces all round, the erring sheep were received into the fold' (Keynes 1980, p. 112).

1 Introduction

The tension between internal and external balance has been a perennial dilemma in Australia's economic history. A dilemma that has created some of the most original and characteristic features of the nation's political economy, it has also prompted some of the more extreme episodes of national defensiveness in dealing with the rest of the world.

In the 1940s it inspired a bold and positive response. Widely known as the 'employment approach', this response took the form of an Australian proposal to establish an international agreement binding countries 'to do all in their power to maintain employment within their own territories, and thereby expand demand for internationally-traded goods'. (1) This policy informed Australia's economic diplomacy throughout the 1940s and was the product of H.C. 'Nugget' Coombs, L.F. Giblin, Leslie Melville, and other influential economists from this 'golden age of Australian economics'. (2) Devised initially in response to pressure from the United States for a system of free trade and payments in exchange for 'lend-lease' aid, the 'employment approach' was motivated by the concerns for external balance, but it was also self-consciously an attempt to apply the economics of Keynes on a global scale.

Advocacy of the employment approach primarily took place at the great international conferences concerned with the postwar reconstruction of the global economy and its institutions. But, as Keynes's comments from his final report on Bretton Woods above indicate, it was not always welcome. A persistent irritant to the Great Powers, it was largely seen as an unnecessary complication to what were regarded as the more important tasks of deciding upon new monetary and trading regimes.

As an historical narrative, the employment approach has been examined before. The wartime conferences and the role of the Curtin/Chifley Labor governments in its propagation are examined in a volume of Australia's official war history (Butlin and Schedvin 1977). Elsewhere, surviving protagonists have told of their experiences (Crisp 1965, Coombs 1981, Tange 1996). The approach has also been examined as an episode in Australia's diplomatic relations, especially with the United States, and its emerging place in the postwar world (Beresford and Kerr 1980, Lee 1990, 1995, Lowe 1996). Finally the approach has been used to a limited extent in works that have attempted to account for the spread of Keynesian economics in Australia (Markwell 1985, Cornish 1994). What has been missing, however, has been an examination of the economics behind it. This is unfortunate. Condemned at the time as Australian posturing, a charge repeated in a number of the works above, an examination of the economic theory behind the employment approach reveals that its premises were largely correct.

The purpose of this paper is to examine the employment approach through the ideas of its economist advocates, rather than tracing its policy successes and failures and diplomatic travails. …