Recommended Citation

Martin, Stephen, Labor and financial deregulation: the Hawke/Keating governments, banking and new

labor, PhD, Department of Economics, Department of History and Politics, University of Wollongong, 1999.

http://ro.uow.edu.au/theses/319

Research Online is the open access institutional repository for the University of Wollongong. For further information

contact the UOW Library: research-pubs@uow.edu.au

This online version of the thesis may have different page formatting and pagination

from the paper copy held in the University of Wollongong Library.

You may print or download ONE copy of this document for the purpose of your own research or

study. The University does not authorise you to copy, communicate or otherwise make available

electronically to any other person any copyright material contained on this site. You are

reminded of the following:

Copyright owners are entitled to take legal action against persons who infringe their copyright. A

reproduction of material that is protected by copyright may be a copyright infringement. A court

may impose penalties and award damages in relation to offences and infringements relating to

copyright material. Higher penalties may apply, and higher damages may be awarded, for

offences and infringements involving the conversion of material into digital or electronic form.

LABOR AND FINANCIAL DEREGULATION

The Hawke/Keating Governments, Banking and New Labor

A thesis submitted in fulfilment of the requirements

for the award of the degree

B.A. (Australian National University)

M.A. (University of Alberta, Canada)

M.T.C.P. (University of Sydney)

Dip. Ed. (University of New South Wales)

December 1999

I wish to acknowledge and express my sincere thanks and appreciation to my

supervisors, Professor Robert Castle and Associate Professor Andrew Wells, who

provided guidance and encouragement throughout the writing of this thesis. Their

suggestions and comments were invaluable.

I convey my thanks to Ms Alison Byrnes, who assisted in computing and

administration needs over the entire process of producing this study.

My appreciation to Mr Bernie Fitzpatrick for his proof-reading skills.

My special thanks to my Parliamentary colleagues, both present and former, who,

knowingly and unknowingly, contributed in a variety of ways, their knowledge and

insights.

To my understanding staff, thanks for their patience during a long and seemingly

interminable journey producing this thesis.

Finally, to my wife Carol and my children, Kiley, Cassandra, Luke and Tegan, to

whom this thesis is dedicated, my thanks.

iii

This thesis is an insider’s analysis of the decision-making processes of the Australian

Labor Party in dealing with substantive economic issues during its tenure in office

between 1983 and 1996. It presents a study of -

• how the Party “reinvented” itself as a “New Labor” Party during this time,

• how this process occurred; and

• who was most responsible for this fundamental change in the Party’s philosophy.

As a necessary precursor to examining these two central themes, an analysis was

undertaken of the foundations and philosophy of social democratic parties. In

particular, the unique type of social democratic party that evolved in Australia, based

on the notion of Labourism, is outlined. Through this examination, an appreciation

emerges of the philosophical underpinnings, historical evolution and policies of the

Australian Labor Party from its creation.

Any study of Australia’s economic history must consider the relationship between

banking and the Australian Labor Party. Accordingly, the evolution of Australia’s

financial system, and how Labor’s policies and platforms for decades reflected

outright antagonism towards banks, is presented. Issues such as the Money Power,

creation of the Commonwealth Bank, bank nationalisation and financial deregulation

all provide a background to Labor’s modernising agenda in the 1980s and 1990s.

The thesis uses financial deregulation to examine how and why Labor embraced non-traditional,

market-oriented economic policies during the Hawke/Keating

Governments. It considers three case studies of financial deregulation in detail:

• the float of the dollar,

• the entry of foreign banks, and

• the sale of the Commonwealth Bank.

In doing so, this analysis concludes that financial deregulation became part of a

wider process of modernising the Australian Labor Party.

Each of the case studies examines the roles of various actors along this modernisation

path to elicit an understanding of the magnitude of the changes to the Party’s

economic policy. The roles of Cabinet, Caucus, National Conference, National

Executive and the factions presents a unique insight into a Party embracing

fundamental change.

Using the writer’s inside knowledge as a member of the Hawke/Keating

Governments, and drawing on the recollections of past and present Parliamentary

colleagues, bankers, Party officials and advisers, the study concludes that Labor’s

embrace of deregulatory economic policies did create a “new-style” Labor Party.

Most credit for this philosophical leap of faith is given to Paul Keating, whose

intellectual drive and sheer persistence saw Labor become a modern, outward-looking

and relevant political party.

iv

The study has taken many secondary accounts of the ways in which policies were

developed under the Hawke and Keating Governments and subjected them to rigorous

analysis. The writer’s position as a participant in the government, as an author of

elements of financial deregulation policies, and as a person with access to many of the

major actors, ensures that the study makes a unique contribution to the understanding

of policy development processes in the Labor Governments of the 1980s and 1990s.

v

1.1 Background to the Study ...................................................... 1

1.2 Scope of the Study ............................................................... 4

1.3 Methodology .......................................................................10

2.1 Introduction.........................................................................13

2.2 Social Democratic Parties...................................................14

2.3 The British Experience........................................................27

2.4 The Australian Context ....................................................... 31

2.5 Emergence of the Australian Labor Party ........................... 34

2.5.1 Unions, Labor and Labourism .................................. 36

2.5.2 Political and Economic Change……………………… 41

2.6 The Whitlam Years .......................................................... 45

2.7 1975–1983 – Labor Pragmatism Emerges ......................... 50

2.8 1983–1996 – Labor’s New Age........................................... 56

2.8.1 Factions in the Modern Labor Party ......................... 56

2.8.2 Policy Development ................................................. 65

2.8.3 The Hawke/Keating Governments – Contemporary

Assessments............................................................ 67

vi

3.1 Introduction.........................................................................75

3.2 Australia’s Financial System – The Early Years ................. 77

3.3 The Money Power – Shaping Labor’s Ideology .................. 81

3.4 The Twentieth Century – Seeds of Regulation ................... 84

3.4.1 Central Banking and Nationalisation ........................ 85

3.4.2 Reserve Bank, Private Banks and Beyond .............. 90

3.4.3 Growth of Non-Bank Financial Intermediaries.......... 94

3.4.4 Forces of Change in the 1970s................................ 96

3.4.5 Declining Effectiveness of Monetary Controls........ 100

3.4.6 1980s – Moves Towards Deregulation................... 102

3.4.7 Consolidation Into the 1990s.................................. 103

3.5 Banking and the ALP Platform.......................................... 106

4.1 Introduction.......................................................................115

4.2 Why Financial Deregulation?............................................ 116

4.3 Deregulation in Australia – Practical Realities .................. 120

4.3.1 The Campbell Committee ...................................... 122

4.3.2 Consequences of Deregulation.............................. 129

4.4 Deregulation and the Labor Party..................................... 140

4.4.1 Keating and Hawke

– Champions of Deregulation................................. 145

4.4.2 The Keating Philosophy of Deregulation................ 156

5.1 Introduction.......................................................................160

5.2 Financial Deregulation and the Float ................................ 162

5.2.1 Background to the Float ......................................... 165

5.2.2 The December Float .............................................. 169

5.2.3 The Consequences................................................ 172

5.3 Caucus and the Float........................................................ 175

5.4 Keating or Hawke: Whose Baby? ..................................... 181

vii

6.1 Introduction.......................................................................194

6.2 Campbell and Foreign Banks............................................ 195

6.3 Foreign Bank Entry and the ALP ...................................... 198

6.3.1 The Process........................................................... 201

6.3.2 Post-National Conference Implementation............. 215

6.4 Martin Committee Report 1991......................................... 218

6.5 One Nation Response 1992.............................................. 223

6.6 Consequences..................................................................224

7.1 Introduction.......................................................................227

7.2 Historical Outline of the Commonwealth Bank.................. 228

7.3 Deregulation of Banking ...................................................237

7.4 Labor’s Road to Privatisation............................................ 241

7.4.1 Party Response ..................................................... 245

7.4.2 Caucus Views ........................................................ 249

7.4.3 Cabinet Discussions............................................... 251

7.4.4 Leadership ............................................................. 255

7.5 1990 Restructure of the Commonwealth Bank ................. 257

7.6 The 1993 Sale .................................................................. 259

7.7 The 1995 Sale .................................................................. 263

7.7.1 The Approval Process............................................ 265

7.7.2 Reaction to the Sale Announcement ..................... 269

7.7.3 ALP Reaction ........................................................ 273

viii

1. Backgrounds of Members of Labor Caucus, as measured by their former

occupations.

2. Average age and gender of Members of Labor Caucus.

3. A selection of Campbell Committee Recommendations.

4. Selected events in the evolution of the Australian financial system.

ix

ABEU Australian Bank Employees Union

ACTU Australian Council of Trade Unions

AFR Australian Financial Review

AGC Australian Guarantee Corporation

ALP Australian Labor Party

ANZ Australia and New Zealand Bank

ES&A English, Scottish and Australia Bank

GBE Government Business Enterprises

GDP Gross Domestic Product

GSB Government Savings Bank

GST Goods and Services Tax

LGS Liquid Assets and Government Securities

NAB National Australia Bank

NBFIs Non-Bank Financial Intermediaries (Institutions)

OECD Organisation for Economic Co-operation and Development

RBA Reserve Bank of Australia

SBV State Bank of Victoria

SRD Statutory Reserve Deposits

TAA Trans Australia Airways

WATLC West Australian Trades and Labor Council

x