Great War’s great impact on economy
THE 100th anniversary of the Anzac landings has seen the focus very rightly on the sacrifices made by those involved. Much has been made of how the Anzac spirit shaped the Australian identity.
But Gallipoli and the broader conflict also shaped the Australian economy and financial markets.
The most immediate impact of the war on the Australian economy was the disruption to international trade.
The slump in exports was short lived as the war effort geared up.
But the weakness in imports persisted for the duration. Imports of manufactured items were particularly hard hit.
The need to replace imported goods gave a significant boost to Australian manufacturing. The steel industry and chemicals are key examples.
Production of iron ore rose by 150% during the war years.
And crude steel production jumped by 1200%. Companies that now dominate the business landscape such as BHP rode the wave.
The difficulties of trading with Europe saw a re-orientation of Australia's trade towards Asia. Old trading patterns resumed post war.
But this tilt towards Asia provided a taste of things to come.
Isolation provided a form of protection for Australian industry.
One outcome was a demand for "protection" to continue.
While production and employment benefited initially, this policy approach did contribute to weak productivity outcomes and some of the structural impediments that the economy is still working through.
Australia's strong focus on immigration is allied to the defence theme. Immigration virtually ceased during the war years.
But the Federal Government vigorously promoted migration to Australia when the war finished.
Assistance schemes were put in place.
These schemes were mainly targeted at British migrants.
But interest from Italy and Greece picked up and Australia took the first steps down the multicultural path.
Agriculture was the largest sector within the Australian economy. And the rural sector was required to make a significant contribution to the war effort. Governments responded to war needs by seeking orderly marketing through statutory marketing authorities.
The first Australian Wheat Board appeared at this time.
When policy makers sought to unwind some of these arrangements after the war they found strong support for maintaining formal marketing arrangements backed up by government legislation.
As they evolved, many of these schemes came to adversely affect the efficiency of resource use.
Wars are expensive: in treasure as well as lives.
And paying for the war wrought some significant changes in fiscal policy and financial markets. Public debt rose from 75% of GDP in 1913 to 123% by 1918.
Today's budget deficits and debt burdens look modest by comparison.
The war also influenced economic thought.
Politics and economic directions differed sharply.
But the central bank focus on controlling inflation that we see today, for example, had its genesis in the hyper-inflation that damaged economies such as Germany after the war.
Much of the thinking of the great economic minds, such as Keynes, was shaped by their experiences of war and its aftermath.
Lest we forget.