Weathering the Global Financial Crisis: Reflections on the Capacity of the Institutions of Australian Governance

Abstract

The global financial crisis (GFC) of 2008 sent the economies of major developed nations into freefall. As credit markets froze and investor and consumer confidence collapsed to levels not seen since the Great Depression, governments clamoured to develop policies and interventions aimed at preventing wholesale economic meltdown. The Australian economy has come through the crisis relatively unscathed. In contrast to most other advanced economies, Australia avoided recession and, despite dire forecasts, has experienced only modest increases in rates of unemployment. Consumer confidence has recovered, investment is returning and the economy has performed consistently above expectations. What accounts for Australia's success in navigating the global financial crisis? Economists will emphasise the combination of monetary and fiscal policy responses - significant cuts to interest rates, large stimulus packages, bank guarantees and other stabilising measures that were rapidly deployed as the crisis unfolded; the underlying strength of the nation's economy, surplus budgets, comparatively low rates of debt and effective prudential regulation. Each of these was undoubtedly crucial, but as this paper argues, features inherent to the institutions of Australian governance must also be taken into account. This paper examines the structures of advice and support to Australian decision-makers that enabled decisive action to be taken and decisions implemented as the financial crisis loomed. It highlights the significance of the economic policy settings established by successive Australian governments, supported by a cadre of economic advisers - career officials and partisans, whose experience and institutional memory proved valuable to the newly-elected Labor government. The paper argues that Australia's success owes much to timely and effective policy responses deployed quickly as the financial crisis loomed. The government's pre-emptive and aggressive response to the global financial crisis and the design of its fiscal policies was supported and enabled by an advisory system that had prepared for and which consciously drew on the lessons learned during earlier downturns. It concludes that the policy learning of key actors within the advisory and decision-making system was significant in helping to position Australia's economy to withstand the most significant economic shock since the Great Depression.