25 JUNE 2013 FRESH CONFERENCE SLIDE 1 Good afternoon, my ...

25 JUNE 2013 FRESH CONFERENCE SLIDE 1 Good afternoon, my name is Bill Apter and my presentation is … “We are forced increasingly to look to the United States”: Australia‟s economic development and foreign policy, 1942-1952 SLIDE 2 I‟d like to start with an observation from Stuart Harris SLIDE 3 “[International economic and political systems are linked to domestic systems] - we pursue foreign policy to meet domestic objectives. … for Australia - priority in the post-war years was to the domestic economy.”1 Stuart Harris was Secretary of the Department of Foreign Affairs and oversaw it become the Department of Foreign Affairs and Trade in the 1980s. I have used this as both his comments and the merger itself point to an appreciation of the importance of economics in foreign policy, however this seems to be a lesson that historians have largely chosen to ignore. SLIDE 4 In the period bookended by the wars against Japan and Korea, Australian governments began to shift from their historical relationship with Britain to the beginning of a primary reliance upon the United States. Whilst military strength and cultural links were critical, Australia‟s search for security had domestic economic development at its core. Reconstruction and the impacts of the changed post-war economic environment caused radical changes in 1940s Australia and these impacted upon its relationships; however, these fundamental domestic transformations and their consequences are largely absent in studies of Australian diplomacy. Commonwealth economic historians have observed what they have called Australia‟s decline in complementarity with the UK but have tended to treat these as topics separate from overall Australian foreign policy.2

Stuart Harris, „The linking of politics and economics in foreign policy,‟ Australian Outlook, 1986, pp. 5-10 For example, the Anglo-Australian relationship - Gianni Zappalà, ‟The decline of economic complementarity: Australia and the sterling area,‟ Paul Robertson, „The decline of economic complementarity? Australia and Britain 1945-1952‟; and Tim Rooth, „Economic tensions and conflict in the Commonwealth, 1945-c.1951 1 2

I should explain that I am not an economic historian; I began my thesis by trying to understand Australian foreign policy in the latter stages of the Second World War, particularly in the context of the ongoing but ultimately unsuccessful attempts to obtain a major role for the Commonwealth in defeating Japan in the Pacific. This led me to studying the debates regarding Australia‟s realignment from the United Kingdom to the United States. There have been two principal schools of thought on this: the first was that the rejection of Britain occurred with the loss of Singapore and was symbolised by Curtin‟s “look to America” call of December 1941 and the “cable wars‟ of 1942-43 with Churchill over the return of Australia‟s troops from the Middle East; whilst the second, which has now represented the academic consensus for over a decade, correctly perceived that, in the later stages of the war, Australia turned back to Britain and sought its security within a re-invigorated Commonwealth however it goes on it claim that this continued until it was rejected by Britain‟s application to join the European Community in the early 1960s.3 What is striking about both schools of thought is their emphasis upon the diplomatic, military and cultural aspects. Trade occasionally figures but domestic economics is almost completely absent. This seems strange in light of Stuart Harris‟s comments and the emphasis we know that the Curtin-Chifley government placed upon post-war reconstruction and the Menzies‟ administration on National Development.4 Consequently I have tried to reintroduce the economics and find that a different picture emerges. Consequently what I‟d like to outline today is the impact of economics upon Australian foreign policy and, in particular, Australia‟s relationships with Britain and America in the immediate post-war era. As Arthur Fadden‟s quote in my title, from the 1952 Commonwealth Finance Ministers‟ meeting, illustrates, the Menzies government found itself increasingly looking to America and, in spite of the popular view of Menzies‟ own Anglophilia, at odds with London.

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For example, Coral Bell, Dependent Ally: a study of Australian foreign policy; David Lowe, Menzies and the ’great world struggle’: Australia’s Cold War, 1948-1954; David McLean, „Australia in the cold war; a historiographical review;‟ Neville Meaney, „Britishness and Australian Identity;‟ Wayne Reynolds, Australia’s bid for the atomic bomb; Stuart Ward, Australia and the British embrace: the demise of the imperial ideal 4 Even the three books which attempt to integrate Australia‟s economic policies with its foreign policy focus upon the international economic and trade negotiations in isolation from their domestic causes (Andrea Benvenuti Anglo-Australian relations and the ‘turn to Europe,’ David Lee, Search for security and Roger Bell, Unequal allies, Australian-American relations and the Pacific War)

It is Australia‟s domestic economic transformations that are at the heart of its changing foreign policy as, over the decade, its post-war reconstruction started to push Australia towards the dominant United States and other Pacific Rim countries and away from the weaker Britain. In the 1920s, Stanley Bruce had called for Britain to provide the “men, money and markets” for Australia‟s development. Post-war reconstruction accelerated Australia‟s need but Britain was clearly unable to play its historic role. Britain could not supply the men, neither soldiers nor immigrants. Australia‟s need for the latter was increasingly filled by Europeans; after 1947, for every Briton, Australia took two European migrants. An industrialising Australia supplied fewer of the raw materials Britain required, provided a less attractive market for British manufactured goods and had to go to America for investments and loans for its development needs as these could not be sourced within the sterling area. In the crises of both Japanese expansion in 1941 and Asian communism in 1950, Australia looked for US support and it was forthcoming. However in the Second World War this was only transitory – illustrated by this contemporary cartoon SLIDE 5 (note the reference to just 24 hours)….

Curtin: 'No offence, mum, but I'm shifting to these here apron strings - at least for twenty-four hours.’5

SLIDE 6 5 Cartoon by John Frith,

The Bulletin 31 December 1941

After the Japanese crisis ebbed in 1942-43, Australia resumed its traditional imperial links with Britain. However the stabilisation of the Korean War did not see the same result. A decade of Australian economic development, non-Anglo immigration, the decline in Anglo-Australian trade complementarity, lack of sterling funding for investment in new secondary industries and the increasingly obvious British weaknesses drew Australia into the American orbit. Despite the continuation of strong Anglo-Australian cultural links well into the 1960s, Australia‟s need for “men, money and markets” had increased and Britain could not provide them. Australian foreign policy in this era has been explained as a response to geo-strategic threats, from Japan initially and then, post-war, from the Communist bloc, and in the context of Australia‟s ongoing sense of Britishness. This analysis has shown that the threats caused Australian politicians to search for greater protection for Australia which, at various stages they sought from the United States, the British Commonwealth and, in the Chifley administration, through the United Nations. When the Menzies government rejected reliance upon the UN, it entered into an alliance with the United States, however the traditional view is that Australia still saw its primary role within the Commonwealth and, influenced by ties of race and blood, continued to look to Britain for leadership and protection. The problem with this analysis, which represents the current consensus, is that it treats foreign policy in isolation and so ignores the priority afforded to economic development by the post-war governments. For both Chifley and Menzies, this was their pivotal policy. Its combination of growth and jobs was seen as the solution to the twin problems of unemployment and external threats; as well as delivering long term full employment, a larger, industrialised Australia would provide security against possible foreign invaders. However this development of the Australian economy required foreign investment and markets. Traditionally Britain had provided these but, as Australian economic advisers regularly told their ministers, not only was Britain not able to do so but, Australian industrial development was actually potentially contrary to British economic interests. Australian foreign policy has not been subject to the same debates as seen in the US, where, for example, the Cold War historiography has been marked by arguments between the Orthodox school, claiming geostrategic security interests drove US diplomatic decisions, and the Revisionists who saw domestic economic interests prevailing. Even in the rare instances where histories of Australian foreign policy reflect

economic matters, they tend to do so by considering international trade and political economy; recognising neither the prime importance of domestic economic goals nor the Chifley and Menzies view of economic development as fundamental to national security. Australia‟s post-war relationship with Britain appears different when it is viewed from alternative perspectives. In some of these viewpoints, the Anglo-Australian relationship, although dotted with arguments and squabbles, continues to be strong. My thesis will particularly consider the two traditional explanations of Australia‟s foreign policy and relations with the United Kingdom and the United States, geo-strategic security and Australia‟s sense of Britishness, and contrast them with the economic perspective. Following the ebbing of the crisis of Japanese advance, Australia looked to London for military support. 1944 saw detailed Anglo-Australian planning to base nearly threequarters of a million British forces in Australia to play a role in the final victory in the Pacific War. Australian imperial desire is illustrated in this 1944 cartoon. Whilst Britain and Australia are supposedly “Together for victory,” 6 the flag of the country actually defeating Japan, the US Stars and Stripes is conspicuously absent: SLIDE 7

SLIDE 8 Whilst these plans faded as it became clear that neither Britain nor Australia had the capacity to follow through and, in any event, Allied victory in the Pacific was assured 6

Together for Victory - the alliance of Australia and Britain ©The National Archives/TopFoto

without significant Commonwealth assistance, the Chifley government sought to rebuild its traditional links with Britain. Post-war, Chiefs of Imperial General Staff still came to Australia and discussed Commonwealth-wide planning that assumed roles for Australian forces in Malaysia and the Middle East. However, by 1950/51 Australia supported the US in Korea and signed the ANZUS Treaty despite British objections. The turn to America in 1950 reflected Britain‟s weakness rather than a desire to align with America. Curtin, Chifley and Menzies all spoke of Australia as part of the British world; diplomatic and political historians have pointed to this ongoing link whilst noting the tensions and disputes. However, whilst Australian Prime Ministers‟ statements have been given prominence, there has been less consideration of how these publicly expressed attitudes and beliefs compare to the actions they actually took. Contrary to historians‟ presentation of the ALP as the party which sought to shed off Imperial links, Chifley, as Treasurer and Prime Minister, chose to reinforce Australia‟s relationships with London and to support British economic policy through a series of sterling crises which resulted in abandonment of sterling-dollar convertibility, increasing restrictions on Australian dollar imports and barriers to Australian industrial development. By contrast, after 1949, the Menzies‟ government reversed this stance. They rejected further dollar import restrictions, obtained US investment funding and, faced with yet another sterling crisis, pushed for a long-term solution of convertibility. In order to maintain its economic development which was seen as critical to its long term security, Australia needed American investment. In January 1952, Britain pushed for a more restrictive sterling area and further cuts in dollar trade at Commonwealth Finance Ministers Conference. Needing US capital for development, Australia forcibly rejected this approach. In the 1990s, several economic historians noted what they have described as the decline of complementarity and its implications for Australian realignment away from Britain and the sterling area.7 The implications were noticed by the British government too. Although British imports from Australia rose in cash terms in the immediate post-war period, this was distorted by the six-fold increase in the price of wool between 1946 and 1951. In real terms the volume of the United Kingdom‟s retained imports from Australia, having For example Gianni Zappalà, ‟The decline of economic complementarity: Australia and the sterling area‟ and Paul Robertson, „The decline of economic complementarity? Australia and Britain 1945-1952‟; Paul Robertson and John Singleton, „The Commonwealth as an economic network‟ and Tim Rooth, „Imperial selfinsufficiency rediscovered‟ 7

increased steadily from 1946 to 1949, fell significantly in both 1950 and 1951 and was 21 per cent below 1946 levels in 1951.8 By 1952, British officials were expressing their desire for Australia to “get back to the cow shed” and for the necessary realignments to “force people out of the artificial new industries in the towns back to the land.”9 However, Australian economists and other public servants considered Australia‟s postwar commercial policies from a rational, nationalistic perspective. Although Australia was rapidly developing its secondary industries and they believed that this was both necessary and beneficial, they recognised that this development would require foreign capital and equipment which could only be paid for from increases in Australian exports. In the short term, these exports were overwhelmingly primary commodities, in particular wool, and were sent to Britain, which took around half of Australia‟s exports in the immediate post-war period. The problem of international commercial policy they debated was whether to focus upon supporting Britain, on the basis that the recovery of their “best customer” would ultimately secure the best outcome for Australia, or whether they should accept that Britain was in long term decline, unable to provide the population growth or capital for investment that Australia needed and, in a system where Australia was over-reliant upon Britain to buy its produce, it would be vulnerable to being exploited in price bargaining. The latter choice would require Australia to look outside the Commonwealth, in particular to the United States, which had emerged from the war as the world‟s superpower, and to a developing Asia. Although politicians regularly referred to the ties of Britishness and implied that this link of kinship was critical, the evidence shows that their advisers carefully considered the economic, political and strategic benefits to Australia in the various commercial negotiations with Britain, the rest of the Commonwealth and the USA. The advice, whether it came from the war-time Finance & Economics Committee, Treasury or the Departments of Post-War Reconstruction, Commerce and Agriculture or External Affairs, consistently attempted to balance the short-term advantages Australia obtained from its relationship with Britain and the sterling area with longer-term needs to diversify and seek to build investment and trading relationships with, firstly, the United States and, eventually, Asia.

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Tim Rooth, ‘Imperial self-insufficiency rediscovered’, pp. 33-36 UK Board of trade and Commonwealth Relations Office, Quoted in Gianni Zappalà, ’The decline of economic complementarity’, p. 17 9

I‟d like to illustrate this with three specific examples which show Australian politicians and public servants attempting to coming to terms with results of economic changes upon Australia‟s relationship with Britain and America: Nugget Coombs in 1945, Menzies in Washington in 1950 and Arthur Fadden in London in January 1952. London‟s view of the Commonwealth and Empire as an economic entity was based upon the concept of complementarity. As late as 1950, reporting upon the prospects for industrialisation, a commentator had noted that the Colonial Office still had “the mystical view that the Almighty meant some countries to specialize in manufactures and others on agriculture.”10 Australia was ceasing to fit within this reciprocal system even pre-war and was aware that the growth of its secondary industries was potentially opposed by Britain, as shown by its reluctance to agree to Australia‟s industrialisation in the limited renegotiation of the Ottawa Agreement in 1938.11 The war-time Finance & Economics Committee had expressed its concerns that Britain would seek to “prevent the development and diversification of secondary industries in under-developed countries” such as Australia.12

In 1945, Coombs, Director of Post-War Reconstruction, wrote to Chifley warning of the risk that, post-war, Britain would seek to build an increasingly autarkic sterling bloc, which would include long-term bulk purchase contracts of commodities, a common pool for dollar expenditure and inevitable discrimination against the US.13 He pointed out the problems to Australia from this outcome on several occasions and suggested seriously pursuing negotiations with the United States.14 SLIDE 9 Australia, if it hopes for expanding production …, cannot afford to rely upon a market whose purchasing power is depleted and which will of necessity be a hard bargainer, whose population is declining and whose import needs will contract.15 SLIDE 10 10

W Arthur Lewis, Industrialization of the British West Indies, 1950, quoted in B R Tomlinson, ‘The economy of the Empire on the periphery, The Oxford history of the British Empire: the twentieth century, p. 303 11 Crawford (ed.), Australian trade policy 1942-1966, p. 320 12 L G Melville, ‘Report on London discussions on Article VII, February-March,1944’, Crawford papers, MS4514, Box 1 13 H G Coombs, ‘Commercial policy: issues for Australia,’15 October 1945, A9816/1945/525, part 2 14 For example, in 1945, as above and in 1947, Coombs to Chifley 11 Feb 1947– ‘The declining position of the United Kingdom’, A1068/ER47/70/7 15 Coombs to Chifley, 11 Feb 1947, A1068/ER47/70/7

Coombs‟ memos are important for three reasons. Firstly, although warning against a restrictive sterling bloc and outlining its disadvantages for Australia, they actually predicted the path that the Chifley government took during the next four years as Australia failed to obtain concessions from the US and economic weakness pushed Britain towards an ever increasingly restrictive sterling bloc. Secondly, by raising the prospect of British membership of a European economic area, a possibility which emerged again in 1948 following Bevin‟s Western Union speech, Coombs foreshadowed the eventual British decisions over a decade later to seek to join the EEC. Thirdly, and perhaps most interestingly, they set the commercial policy debate in terms of Australia‟s own interests rather than any attempts to seek to pursue policies of benefit to the entire British Commonwealth. This line of argument was followed by Australian public servants as the sterling crises of the 1940s and early 1950s unfolded; although there was debate about whether Australia should follow Britain in restricting its dollar imports and depreciating its currency, it was based upon narrow economic self-interest rather than any blind acceptance of British blood ties. By contrast, the politicians regularly used the language of Commonwealth loyalty and, during the Chifley administration, tended to take economic decisions in support of Britain. The Menzies government reversed this process. Their determination to pursue economic development, which they saw as critical for Australian security, a concern heightened as the Cold War heated up in East Asia in 1949/1950, resulted in decisions to oppose British dollar discrimination and to obtain US support. They rejected Commonwealth-wide petrol rationing, symbolised in this famous Bulletin cartoon for the 1949 election, “Going my way” setting the choice between Chifley‟s old British jalopy and Menzies‟ shiny new FJ Holden which, although built in Australia, was ultimately owned by the American

company, General Motors.16 SLIDE 11

SLIDE 12 In July 1950, Australia chose to again defy British policy by breaking requests for a whole-of-Commonwealth approach. It raced to announce a decision to send ground troops to Korea in support of an American appeal and followed this up with a request for dollar loans for development. Menzies specifically linked the two in his meetings with Truman and Secretary of State, Dean Acheson. The State Department saw the relationship between Australia‟s economic development and foreign policy too, supporting the loan and noting: We recognize that Australia‟s economic development … enhances the role which Australia can play in military matters in the Pacific.17 These events eased the path to the ANZUS Agreement of 1951, which again earned British ire as it was sidelined. A further contemporary cartoon shows this, Uncle Sam is

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“Going my way - on a full petrol tank?” Scorfield, Bulletin, 30 November 1949 - National Library of Australia FRUS, 1950, volume VI, ‘Importance of Prime Minister Robert Menzies’ visit’, 24 July 1950, p. 200

walking out with the Dominions whilst Britannia is abandoned at the Commonwealth Hall:18 SLIDE 13

SLIDE 14 By late 1951, in the face of another currency crisis, the British again sought further dollar restrictions for the sterling area, and were again opposed by the Australians. As Treasurer Arthur Fadden argued at the January 1952 Commonwealth Economic Conference, since Australia, needed to borrow for development, SLIDE 15 “we face the problem of capital for development. Under present day conditions we are forced increasingly to look to the United States.”19 SLIDE 16 Despite Menzies‟ own Anglophilia, he supported Fadden. He had consistently emphasised the importance of Australian economic development, explaining in 1950 18

“What – no chaperon!” Sid Scales, Otago Daily Times, 27 September 1952 Fadden, ‘Prime Ministers’ Conference – Opening statement by Sir Arthur Fadden,’ page 3, report to Australian cabinet 4 March 1952, A571, 1951/1723, part 2 19

that this development was the most important contribution that Australia could make to its own defence. Since, as the Head of the PM‟s Department, Allen Brown explained, the Commonwealth could not finance its own development, so SLIDE 17 “the only source of capital, on a scale sufficient for our needs, is likely to be the United States” 20 This was accepted as a reality, albeit reluctantly, as Brown explained, justifying across-the-board import restrictions of March 1952 which hit the British hardest and refusing to discriminate against US imports, “these fellows are very tiresome but, of course, they have the money.”21 SLIDE 18 Consideration of the Australian trade and economic policies in the decade from 1942 to 1952 shows the forces that were unleased by the decisions for post-war reconstruction and development firstly by Curtin and Chifley in the wartime government and then continued by both the Chifley and Menzies administrations. These decisions for a larger, industrialised Australia, generating more employment and greater defence capability, led them to review their relationships with the economically weak Britain and the increasingly powerful United States. Australia‟s cultural sense of Britishness remained, but this did not stop its governments pursuing Australian national interests at the expense of any Commonwealth sentiment. This change occurred in firstly in economic concerns but led increasingly to foreign and defence policy. Although the realignment continued through the 1950s and 1960s, it was initiated by the results of post-wear reconstructions and the Menzies government‟s responses to the realities of these results. SLIDE 19 Many thanks for listening to me. I am happy to take questions.

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A S Brown to Menzies, 29 July 1952, ‘Development in the British Commonwealth’, A1209, 1957/5919, part 1 Brown to Menzies, 9 April 1952, A1209/23, 1957/5055, p. 2