Why Australia Prospered: The Shifting Sources of Economic Growth

Why Australia Prospered: The Shifting Sources of Economic Growth

Why Australia Prospered: The Shifting Sources of Economic Growth

Why Australia Prospered: The Shifting Sources of Economic Growth


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.


Australian history is almost always picturesque; indeed, it is so curious and
strange, that it is itself the chiefest novelty the country has to offer, and so it pushes
the other novelties into second and third place. and it does not read like history,
but the most beautiful lies. and all of a fresh new sort, no mouldy old stale ones.
—Mark Twain

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. 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 after having achieved membership into the rich club of nations in the early twentieth century (Argentina). Tragically, many less-developed economies have managed only low or intermittent growth such that they have not even begun to close the gap between their living standards and those of the richest countries. What explains Australia’s enviable record of prosperity?

This inquiry into why Australia is rich adopts a historical approach because the roots of prosperity are embedded in the past: the levels of income observed in the currently rich economies are in every case the result of very long-run processes. Economies do not move rapidly from poverty and backwardness to advanced industrial status and concomitant prosperity despite the achievements of

Twain (1989 [1897]), p. 169.

the richest countries over the last 150 years include, in addition to Australia, the United States and Britain throughout; and the Netherlands, Canada, New Zealand, and Switzerland for much, but not all, of this period. See Prados de la Escosura (2000) for a review of alternative historical estimates of per capita income for the currently rich economies.

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