Howard's place 
in history

The final numbers are in, allowing us to put the former prime minister’s economic performance into perspective, write Rodney Tiffen and Ross Gittins.

John Howard in a boat.

How much difference did the Howard government make to Australian society? The heat and hyperbole of partisan controversy and the passing parade of media excitements mean it is often difficult to get perspective on a government’s achievements and failures. Moreover, because of the credit and blame games that lie at the heart of party competition, the focus is usually introspective, looking only at domestic factors, and then only at party political factors.

Such a focus greatly exaggerates a government’s power to influence social and economic developments, but to say a government has more limited power than political debates suggest is not to say that it has no power. The Howard government was in power for more than 11 years, a sufficient period for its policies to have a cumulative impact on the distribution of public resources and social practices. But equally, over that time, social and economic changes, over which the government had little influence, were also occurring. And of course, many important features of Australian society continued as they had with little change.

When people make political judgments, they normally do not employ a comparative perspective. They gauge government performance by referring to their own circumstances, and how these have changed from the recent past. An example of how a comparative view qualifies a solely domestic one would be the economic record of the Menzies government and its immediate successors. Viewed domestically, compared with the years of depression, war and immediate post-war stringency which preceded it, and compared with the higher inflation and unemployment which followed it, the period 1950-1973 stands as an oasis of growing and relatively problem-free prosperity in Australia.

When viewed comparatively, a different and equally valid perspective emerges. Australia's record of economic growth, measured as GDP growth per capita, was mediocre. Among the selected countries, Australia's growth rate was second lowest, ahead only of New Zealand, and only around two-thirds of the mean of the other countries.

What can statistics reveal and what can't they? Many aspects of politics involve issues of morality or principle, which statistics cannot resolve. No statistics can ever decide the rightness or wrongness of the Iraq war (although statistics can highlight some of the costs of the war, both financial and human). Statistics will not resolve issues surrounding the government's behaviour in the children overboard incident during the 2001 election campaign.

Central to the political credentials of the Howard government, and, since it left office, to the way its supporters want it remembered, is its claim to have been a successful economic manager. The figures both historically and comparatively give some, but not unqualified, support to this view.

Figures show Australia's per capita economic growth rate moving somewhat, but far from perfectly, in alignment with the mean of the selected countries. The figures give little comfort for anyone wanting to draw partisan conclusions. They show that until 1991, the end of the Hawke government, Australia had a growth rate rather less than the mean, but then under Keating and Howard it grew more quickly than the mean. The highest rates of growth were between 1992 and 2000, with both all the other countries as a whole and Australia having a somewhat lower growth rate between 2001 and 2006.

Political leaders' terms do not fit neatly with the economy's inescapable tendency to move through cycles of boom and bust. One reason for the Fraser government's comparatively poor performance was that it bore the brunt of Whitlam's economic miscalculations. And Hawke's record was rendered unimpressive by the aftermath of Fraser's recession of the early '80s and by his own recession of the early '90s, whereas Keating and Howard benefited from the economy's unusually long expansion phase during the rest of the '90s and the early 2000s. It is also widely agreed among economists that both Keating and Howard benefited from a delayed pay-off from the many economic reforms undertaken by the Hawke government.

Figures show a dismal history of progressively worsening unemployment from the mid 1970s to the mid 1990s, and then with the absence of a severe recession, improvement under Howard, at first modest and then considerable. They again show a tendency for Australia to move in tandem with the other economies, but while at first Australia had a lower unemployment rate than the selected countries as a whole, from the Fraser period on it was somewhat higher, until the very last period under the Howard government when it was again less than the mean.

The process of averaging the unemployment rates within each leader's term flatters Whitlam (the long-term deterioration began towards the end of his watch) but maligns Hawke, who made rapid progress in reducing the 10 per cent unemployment rate inherited from Fraser. But Hawke then presided over his own recession, which caused the rate to reach a new cyclical peak of 11 per cent early in Keating's term. The improvement under Howard was considerably better than in the selected countries as a whole.

It was a proud claim of the Howard government that it had kept interest rates low, at record lows said one advertisement in the 2004 election. Interest rates move in relation to inflation. At the end of the long post-war boom, under McMahon, inflationary pressures were already considerable. Then came a terrible blowout under Whitlam, only modest improvement under Fraser and Hawke, but a return to low inflation under Keating and Howard. The return to low inflation began in the '80s for most developed economies, but in Australia, it was delayed until the'90s while Hawke concentrated on using his accord with the union movement to lower real wages and thereby increase employment.

Since the 1990-1991 recession, Australia has returned to low inflation. Australian economists tend to attribute this continuing success to the side effects of economic reform, which, by heightening the degree of competition in the markets for many products, reduced the scope for excessive wage settlements ("sweetheart deals") and consequent excessive price rises.

But this raises the old question: how does this purely domestic argument explain the very low inflation rates in the other developed economies? Inflation under Howard was lower than under any other Australian government except for Keating. However, Howard's term coincided with the selected countries as a whole having their lowest period of inflation since 1970. The Australian rate was still considerably higher than the mean, although some domestic reasons contributed to this, such as the one-off impact following the introduction of the GST, and later the fall-out from the resources boom.

Although we do not have such a long run of data on interest rates, the figures we do have tell the same story as the inflation figures. Australian rates have moved in the same pattern as the countries as a whole, but always at a higher rate. Indeed, while the Australian long-term interest rate was 1.3 points above the mean in the five years preceding Howard, it was also 1.3 points above the mean in its last five years.

During the Howard years, Australia consistently had the second-highest interest rates among the selected countries, with only New Zealand having a worse rate. So while Howard's claims may appear impressive in relation to earlier periods in Australia, comparatively, his was among the highest interest-rate regimes in the selected countries.

The figures we have provide ample proof that governments are far from being masters of the economic destinies of their nations. Indeed, the way trends move in common shows how international influences help to set the economic conditions governments must deal with.