Last edited by fxh (2012-02-25 22:13:03)

THE 1980s in Australia is known as "the decade of greed". It was the peak of a business cycle, of readily available credit and super-optimism. It was a fantasy time when speculators sought, as in all boom times, to defy economic gravity.

But the bubble burst, bringing down a group of bold-riding entrepreneurial cowboys. Their names - and their huge losses - are now legendary. But there was a vastly bigger financial loss that has remained repressed.

This disaster befell Australia's once great foundation industry, wool. The losses were staggering: some $12 billion, or more than $20bn in today's terms. Moreover, the seeds of this disaster were planted well before the 80s and involved corruption of the political process at the highest levels in the land.

A long run of favourable climatic years, rising wool prices and easily made profits in the 80s meant wool attracted investors and speculators with an eye to the main chance. Merino genetics and wool became the hot topic in corporate boardrooms and so the big players moved in. They included John Roberts, Kerry Packer, Alan Bond, Rupert Murdoch, National Mutual Superannuation Fund, Robert Holmes a Court, Rodney Price, John Elliott and many others. Most were novices to the wool game.


None of these players imagined wool would crash and burn. After all, until 1991 wool had been the backbone of the nation's economy for 150 years. The industry had helped shape much of modern Australia, its national character and distinctive culture. A merino ram's head had adorned the shilling coin and industry notables stared out from decimal notes.

But in a brief period between January 1988 and February 1991, the wool industry self-destructed like a blazing comet. The ensuing losses and the disintegration of wealth, merchant and manufacturing capital in Australia and globally were to dwarf what has been regarded as Australia's greatest corporate-business disaster: that of Adelaide Steamship's $7bn loss.

Gross political deception, flawed policies and leadership failures were what precipitated the spectacular and egregious collapse of Australia's once greatest industry. The debacle can be laid at the feet of a small group of federal government ministers, agri-politicians and wool industry and statutory leaders.

Why hasn't Australia heard about this monumental crash, a collapse that has debilitated and handcuffed the wool industry to this day? And more to the point, how could such a disaster have come about in this old, most careful and staid of industries?

While the antecedents of the great wool crash of 1991 reach back to Australia's early pastoral history, it was in the 1920s that there began an unremitting quest by agrarian socialist federal and agricultural politicians for a reserve price scheme. This scheme, above all other factors, would contribute to the collapse of the wool industry.

An RPS is a variation of a buffer-stock scheme, aimed at "price stabilisation" through government intervention. It functions when a central authority (usually a government or its agency) purchases supply of a commodity. This is then stored and subsequently released on to the market in an attempt to reduce price fluctuations. But through time, and throughout the world, almost all such schemes (involving many commodities) have failed. They fail because greed invariably kicks in and they evolve into price-gouging vehicles. Huge stockpiles then accrue as buyers hang off because of artificially high prices and in time the scheme collapses. But the wool industry believed it could ignore the lessons of history.

The key factor that led to the instigation of an RPS was the rise to gargantuan status of synthetic fibres (such as polyester and acrylic) combined with the renaissance of cotton. Under intense competitive pressure, wool prices collapsed through the 50s, and halved again by 1971. This proved cataclysmic for the wool industry, commercially and politically. Inevitably, pressure to instigate an RPS became intense: so intense that this idee fixe attained the status of a religious quest.

The Australian wool industry was thus presented with a clear choice: either it could meet competitors with healthy competitive means or else choose a political solution.

Unfortunately the latter path was taken, sealing the industry's fate.

Critical to what now became the inevitable imposition of statutory intervention and an RPS in the Australian wool industry was the emergence in the 50s of Country Party leader John "Black Jack" McEwen. He was the gloved fist behind prime minister Robert Menzies' throne. McEwen deeply entrenched protectionism in the Australian economy, and both he and his departmental head John Crawford were strong RPS supporters. They aligned with a third key player in their quest for statutory intervention, a man who would rise to dominate the Australian wool industry like no other before or since, William Gunn.

Gunn was a bulky, 195cm, rough-cut Queenslander who would become one of the most famous Australian politicians to bestride the national and international stage.

Throughout his long career Gunn remained a gauche outback bushie. His minders who tried to make him presentable, along with some of the world's elite tailors, simply gave up, as the best English and Italian suits were quickly reduced to crumpled potato sacks on his large frame. But in his pursuit of government intervention in the wool industry, this charismatic, larger-than-life conundrum was as cunning as a fox and as focused, patient and deadly as a trap-door spider.

Gunn was McEwen's best friend and the two, aided by other Country Party ministers and by Crawford and pliable agri-politicians, converted statutory wool boards into highly politicised interventionist vehicles. This was the group that would unilaterally achieve an RPS and statutory control of the entire Australian wool clip. They would do this through a corruption of the Australian political process. This involved them engineering a secret coup that eventually resulted in the creation of the Australian Wool Corporation in 1973 and its notorious RPS.

The Australian Wool Corporation set about trying to convert itself into a giant Woolly Dupont: a transnational fibre marketer. But the attempt to defy history by running the first ever successful buffer-stock scheme was imbued with what Nobel laureate and philosopher Friedrich von Hayek dubbed "the fatal conceit": the belief people could order things better than the market. The result was a fatally flawed, quasi-socialistic business model that converted a diverse variety of beautiful fibres into bland and collectivised mediocrity. At the same time, and because of the undue influence of non-democratically elected agri-politicians on their national body the Wool Council, international customers were perversely regarded as the enemy in the push to turn the Wool Corporation into a giant trader.

Momentum on the path to destruction accelerated when, from 1979, the Wool Corporation was led by a powerful "wool emperor", the autocratic executive chairman David Asimus. As the 80s unfolded, Asimus, his team and the Wool Council (legislatively empowered by now to play a key role in the industry's governance) built the corporation into the queen bee of the global wool industry.

Because of the massive size of the Australian wool clip and the Wool Corporation's reserve price settings, Australia dictated the global wool price while foisting its culture and systems on the wool trade.

With this domination of culture came arrogance and hubris. And so, by the mid 80s, an entire global industry was brought to the edge of the precipice as the Corporation tried to impose its flawed business model.

But this ultimately failed, as had been long predicted by some of Australia's leading economic brains. What followed was an extraordinarily rapid unwinding of the free market system for wool, an unwinding that ended in calamity on the collapse of the Wool Corporation's RPS in February 1991. This did not just constitute Australia's biggest ever business collapse (based on conservative accounting), but the staggering sums do not include the incalculable opportunity, environmental and social costs in Australia and overseas.

One of the most striking things about this story is not just the inexorable nature of the ensuing catastrophe, but the breathtaking speed with which the crisis unfolded. Once the wrong policies and structures were in place, basic human nature took care of the rest: arrogance, greed, duplicity, ignorance and indecision. There were cover-ups at the highest statutory levels; fatal group-think under crisis; denial; and cabinet-level indecision.

Notable also was the fight for the prime ministership between prime minister Bob Hawke and treasurer Paul Keating in 1990, which trampled on the wool industry at a critical moment.

On the brink of imminent disaster in late 1990, key individuals on the Wool Corporation board and in Wool Council sought to blame the government and primary industries minister John Kerin, and also the woolgrowers, for the debacle. But the debacle was due in large part to their misjudgment and intransigence. Hundred-million-dollar schemes were hatched to shoot tens of millions of sheep, while the wool-taxed "peasants" were forced to pay a scarcely imaginable 25 per cent up-front tax on gross wool income, with imminent plans to reduce their effective income by 75 per cent.

Despite the size and scope of the wool industry's collapse - one that reached across seven federal governments and into the highest levels of office, as well as its effect more generally on Australian society and overseas - there has never been a royal commission.

Tragically, however, the debacle did not cease on the great crash of 1991. Subsequent federal governments, instead of disbanding statutory intervention, have only entrenched it. They thereby have perpetuated the industry's path of death by ten thousand cuts. Consequently today, Australia's once greatest export industry has been reduced to a third the size and value of what it was in 1990.

Yes, Australia once rode on the sheep's back and now it does so no longer. But Australia still dominates the world's trading of high quality apparel wool. It still possesses huge natural advantages and intellectual property in wool production and the marketing of a high-quality apparel fibre. Out of the ashes an alternative pathway is achievable. It is one that envisions a vibrant industry boasting a collection of high-end brands and responsive value-chain alliances that treasure the customer. These brands, alliances and the opportunity they would present could multiply export revenue and rebuild gutted rural communities. Moreover, in the face of the onrushing challenge of large social-ecological problems and climate change, the Australian wool industry, if allowed, could play a crucial role in this area. It can provide solutions through the production and value-recognition of wonderful natural fibres and healthy food.

To go this next step, however, the Australian government now needs to absolve its complicity in the great wool disaster. It can do this by enabling a fully competitive and free market environment to operate.

Therefore, the challenge for Joe Ludwig, federal Minister for Agriculture, Fisheries and Forestry, is to unwind ongoing and retrograde statutory intervention and its attendant heavy load of parasitic rent-seekers and flawed systems and culture. This means breaking the shackles of decades of path-dependence, whose effects constrain the industry at every turn. Then, and only then, can innovation and creativity be fully released and an unencumbered industry fly freely.

How Australia Kissed Recessions Goodbye
By Matthew Yglesias | Posted Friday, Feb. 24, 2012, at 1:57 PM ET


Australia is currently undergoing an amusing leadership battle between two titans of the Labor Party, incumbent Prime Minister Julia Gillard and Foreign Minister Kevin Rudd who used to be Prime Minister until his then-deputy Gillard deposed him in a swift intra-party coup. Perhaps related to the relative lack of substance in the leadership battle, Australia is awesome at fighting recessions. While American economic commentators have looked at two straight long "jobless" recoveries and concluded that the very structure of the world economy has changed, Australia . . . just skipped those recessions:I would sugges that not coincidentally, while Australia is better than the USA at avoiding prolonged periods of agonizing mass unemployment and wage stagnation, they're not as good at generating consistently low and stable inflation

People sometimes try to tell you that Australia is just a story about commodities exports to China, but I think the inflation numbers are telling. Around the late-90s boom, Australia's inflationary peak was much larger than ours and then when they corrected downward they weren't as aggressive about it as the Fed was. After the global financial crisis the US CPI slipped into negative territory specifically because of tumbling commodity prices, but commodity-oriented Australia kept inflation positive and then re-inflated a bit. These things can be done if you want to do them.

http://www.slate.com/blogs/moneybox/2012/02/24/australia_kissed_recessions_goodbye.html

Aye, the rates being paid in oil & gas in Perth are outstanding, what puts me off relocating there, is the anti-oxford cloth weather and the fact that house prices for a house, any house, now start at over a million Aussie dollars. Which informs me the boat has well and truly been missed.

That's from my colleagues over there, they also say it's seriously expensive for food and going out to restaurants compared to Europe.

My last experience of your end of the world was two years ago in Rotterdam, Amsterdam, scotland, mainly Aberdeen and around Ireland.  Unless its changed dramatically eating out there was up to twice as expensive  as here, less choice and less quality. Much the same with wine.