Socialism defeated but liberalism not triumphant (on David Kemp’s A Liberal State: How Australians Chose Liberalism over Socialism 1926–1966)

The first three volumes of David Kemp’s Australian political history told the story of Australian liberalism’s rise and fall between 1788 and 1925. In a global comparative sense Australia remained a liberal democracy in 1925, but ‘policy change by erosion’ (to use a Kemp phrase from another context) was undermining its liberal characteristics.

From a contemporary liberal perspective, Kemp’s third volume showed that key policy erosions such as the White Australia policy, protectionism and industrial arbitration came from governments that were broadly on the liberal side of the then dominant ideological conflicts. The increasing influence of socialist ideas, the growth of trade unions, and Labor Party electoral successes all threatened a more radical abandonment of liberal ideas and institutions.

This fourth volume in Kemp’s series, covering the decades from 1926 to 1966, is sub-titled ‘How Australians chose liberalism over socialism’. By 1966 the socialist threat to Australian liberalism, which began in the late 19th century and peaked in the 1930s and 1940s, had been defeated. But this was not a foregone conclusion. A Liberal State tells the story of how the semi-liberal order of 1925 survived the challenges it faced over the next 40 years.

Australia and its political system were under huge strain in the 1930s. The Great Depression inflicted poverty and misery on much of the Australian population. The ruling parties and ideologies were inevitably brought into question. The fascist ideas prevailing in Germany and Italy had some support. But the dominant challenges to the status quo came from the left, building on the institutional strengths the unions and the Labor Party had developed since the late 19th century.

From 1921 Labor’s platform included the goal of the ‘nationalisation of banking and all principal industries’, although significantly caveated with for ‘the purpose of preventing exploitation’. Especially in NSW, parts of the Labor organisation supported a transition to socialism. Some members debated whether Labor should be a constitutional or revolutionary party.

Jack Lang, NSW Labor premier in the late 1920s and then again in the early 1930s, was less radical than some in his party. But in resisting an austerity approach to government spending during the Depression, including defying the federal Scullin Labor government on paying interest to foreign lenders, he offered a radical alternative to orthodox views on how an economic downturn should be handled. NSW Labor was expelled from the federal Labor Party and Lang was dismissed as Premier by the Governor.

The United Australia Party, the latest version of the fusion of non-Labor parties of 1909, won the subsequent NSW election in 1932. But Lang retained significant support. Lang Labor won 40 per cent of the 1932 vote, compared to 4 per cent for the Federal Labor Party.

Robert Menzies, the key figure in Kemp’s fourth volume, was UAP prime minister in September 1939 when World War II began. Menzies was returned in a minority government in the September 1940 election, with the government relying on two independents. In June 1941 Menzies, facing criticism over the war and conflict with his Country Party coalition partner, resigned as prime minister. Country Party leader Arthur Fadden briefly replaced him, but by October 1941 had lost parliamentary support. Labor, led by John Curtin, came to power for the first time since Scullin’s defeat a decade earlier.

Wartime economic controls had already been introduced under the UAP, but Curtin stepped these up to what Kemp calls ‘wartime socialism’. This included the power to direct industry and control prices, profits, wages and the sale or investment of capital. ‘Rule 77’, a ministerial power to direct people to perform whatever the minister specified, was among the most controversial measures. Menzies attacked Rule 77 as laying the foundation for an Australian Gestapo.

While the 1940s Labor Party significantly reduced freedom, a far worse threat lay to its left. Communists controlled key unions. In the early years of World War II the Communists were, due to the Nazi-Soviet pact, effectively on the Nazi side. Kemp argues that ‘near treasonous’ strikes denied Australian troops vital supplies. The Communists had an estimated 23,000 members in 1945 and by 1948 controlled unions covering 26 per cent of Australian unionists.

This was the 1940s political context in which Menzies and others sought to reassemble centre-right political movements and forces into something that could more coherently and effectively resist the dangers present in Australian politics. Menzies’ Gestapo remark was perhaps a case of hyperbole, but in the 1940s the fear of totalitarian rule was real.

Kemp’s book covers two main, but intertwined, strands to a centre-right political revival, the philosophical and the organisational.

Menzies set out his own philosophical views in his ‘Forgotten people’ radio talks of 1942. They ranged widely, from the core ‘forgotten people’ appeal to the middle class to freedom of speech to whether capitalism had failed to the nature, sickness and achievements of democracy. Kemp notes Menzies’ silence on the ‘flagship policies on the Deakinite agenda’ (protectionism, etc) but also the absence of economic concepts such as markets and productivity.

In the following year, 1943, the Institute of Public Affairs was established. Its economic analysis was important to Menzies and others on the centre-right in constructing an attractive capitalist alternative to socialism. Friedrich Hayek’s The Road to Serfdom was published in 1944. Although Hayek’s view of where increasing government controls would lead turned out to be too pessimistic, it crystallised the fears many people had at the time.

The 1943 election was a disaster for the divided UAP and the Country Party. They suffered large swings and lost 14 seats between them. Labor won 49 of the 74 House of Representative seats, giving it a comfortable majority. A 1943 document records Menzies as saying that ‘if Liberalism fails to state its case, the choice in six years will be between Labour and Communism’.

In October 1944 Menzies was a key figure organising a ‘unity conference’ of centre-right organisations to create a replacement for the UAP. Eighteen of them attended, creating a federal structure based on state divisions and local branches. Kemp reports discussion of what the new party should be called. An IPA document suggested that the name ‘Liberal’ was too associated with the British Liberal Party, which Labour had displaced as the Conservative Party’s principal rival. The name ‘Conservative’ was also seen as attracting unwanted British connotations, this time of aristocracy. The IPA preferred ‘National-Progressive’. But Menzies wanted ‘Liberal Party,’ which was endorsed by the 1944 conference.

The Liberal Party’s first federal election in 1946, also the first election after WW2, was a disappointment. It improved on the UAP’s share of the vote in 1943 by 11 percentage points, but this converted into only four more seats. Labor was returned to office.

The ideological centre had shifted by the mid-1940s, and whichever party won in 1946 the federal government would play a larger role than prior to WW2. After the national traumas of the 1930s and 1940s, the Australian people wanted their government to provide greater personal and social security.

The theories of John Maynard Keynes, calling for greater macroeconomic intervention during recessions, influenced both major political parties. Although Kemp gives credit to the influence of Hayek, he argues that the ‘saviour of liberalism in the first instance was Keynes’, by making the ‘liberal economy seem salvageable’. (A Liberal State includes a good selection of photographs. I especially liked one showing the usually stern Hayek enjoying a joke with Keynes.)

The Labor and Liberal parties also both supported an expanded welfare state. In one of the great what-ifs of Australian policy history, the UAP legislated a contributory social insurance system in 1938, which it then did not implement. Menzies resigned from the Cabinet over this failure. As prime minister in 1941 he introduced the first national child endowment scheme. A rare successful constitutional referendum in 1946, which had bipartisan support, gave the Commonwealth clear legal authority to finance family, unemployment, medical and student benefits.

Although any post-WW2 government was going to expand on its previous peacetime responsibilities, Labor over-reached in its 1946-49 term. In 1947, with Ben Chifley as prime minister, Labor decided to implement the bank nationalisation policy that had been in its platform since 1921. Kemp says that Menzies was ‘both horrified and energised’ and campaigned strongly against the proposal. With Labor’s numbers in the Parliament the legislation passed, but the High Court found it to be constitutionally invalid in 1948. In the same year, Labor put up a constitutional referendum to give the federal government greater power over rents and prices. Voters in every state rejected it.

The momentum towards a more socialist system had been broken, and in 1949 the Liberal Party under Menzies won its first federal election. With some lucky escapes at the 1954, 1961 and 1969 elections, when Labor won on the two-party preferred vote but lost on seats, the Liberals remained in power until 1972. Kemp finishes his fourth volume in 1966, with the retirement of the now Sir Robert Menzies.

The long Liberal period of office after WW2 blocked any further national attempts to implement socialism. But with the Labor and Liberal parties competitive against each other at most federal elections, Australian socialism could only be defeated if Labor was also against it. Many in Labor had long been pragmatic on nationalisation. Improving wages and working conditions did not require such a radical measure. Post-war economic growth showed that capitalism could deliver rising living standards. Communist oppression in Europe undermined the attractiveness of alternatives to capitalism. By the 1960s the major figures in Labor were no longer interested in bringing private industries into state ownership.

But if socialism lost, does that mean liberalism won? In the sense that the semi-liberal institutions of 1925 survived to 1966, and indeed for many further years, the answer to that question is ‘yes’. But this is a sort-of ‘yes’. Like Kemp, I rate Menzies highly. More than anyone else he prevented Australia from adopting policies that would have left it less free and prosperous than in fact it was in the 20th century’s second half. But I rate him less highly for his contribution to pursuing what Kemp calls the ‘liberal project’ beyond the status quo as he found it.

Compared to the 1930s and 1940s, Australia felt like a freer country in the 1949-1966 Menzies era. Wartime controls eventually receded and post-war prosperity gave Australians new opportunities and choices. Menzies developed an important aspect of the Australian system of social services, assisting people in making their own choices in education, health and other services via tax concessions and subsidies. But in the later sections of A Liberal State Kemp cites numerous instances of slow or no progress towards a more liberal economy and society during the Menzies years.

Price controls were maintained during the early years of his government. Severe import restrictions were imposed to deal with balance of payments problems. Protectionism continued to distort the economy. The arbitration system of industrial relations persisted. Rural industries were ‘held back by detailed production and distribution controls’. Exceptions were made to the White Australia Policy, but it was not abolished. Many Indigenous Australians remained under paternalistic control in territories governed by the Commonwealth. Despite statements supporting equal treatment of the sexes, under Menzies women had to resign from the Australian public service when they married. The Censorship Board restricted access to books, absurdly putting The Catcher in the Rye on the banned list in 1956 despite it being widely available. Selective conscription was introduced to fight the Vietnam War.

From my imperfect understanding of 1950s and 1960s politics major reforms to the market structure of the Australian economy would have been difficult, as they were in subsequent decades. Trade barriers and the wage-setting system weren’t very liberal, but they were supported by unions and protected industries. The Liberal Party was always in coalition with the Country Party, which was strongly protectionist. Three narrow election victories in 1940, 1954 and 1961 showed that Menzies did not always have spare political capital he could spend on big policy changes.

While Menzies faced real political constraints, I am inclined to agree with the judgment in another recent book on Menzies that he wasn’t a doctrinal liberal, despite his attraction to some liberal ideas. His approach was broadly conservative, which made him liberal against the socialist forces of the 1930s and 1940s, but less liberal against the more individualist culture and market-oriented economic thinking that emerged during the 1950s and 1960s.


This review was first posted on the GoodReads site.

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