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FOLLOWED BY INSTABILITY
    The early restoration of healthy trade and diplomatic relations with Japan after the war was an achievement with economic as well as strategic dimensions. Japan’s post-war industrialisation brought the centre of gravity of the global economy closer to Australia. Reduced transport costs created new opportunities for the export of bulk commodities: iron ore, coal, and raw and lightly processed aluminium and nickel ores. Through the 1960s, small towns grew rapidly and new towns appeared in remote regions of northern and western Australia.
    Australia’s terms of trade rose in the early 1970s to the highest levels since the Korean War boom as Japan’s industrial growth approached its apogee, and energy prices were lifted by restrictions of oil supply in the Middle East. Our terms of trade increased by 46 per cent in three years from December 1971 (a low point). Australia spent most of the higher income as the money was received. Between September 1970 and September 1974, a burst of inflation and belated currency appreciation lifted the real exchange rate by what was then an unprecedented 17 per cent. The Australian econometrician Adrian Pagan, cited by Ian McLean in an important recent economic history of Australia, described this rise in the real exchange rate as ‘disastrous’ and as bringing the post-war boom to an end.
    The higher oil prices were the immediate trigger for a global slump. The developed countries in the northern hemisphere entered recession, and Japan shifted gears from rapid to moderate growth in 1974. Commodity prices declined swiftly, leaving Australia hopelessly uncompetitive with its high real exchange rate. The nominal exchange rate fell from late 1974, but real incomes didn’t, which entrenched high inflation despite recession. Australia entered nine years of low growth, high inflation and unemployment.
    These years of economic instability incorporated a brief resources boom from 1979 to 1981. The restriction of Middle Eastern oil supplies from 1979 in the Iran–Iraq War encouraged export-oriented investment in thermal coal for the first time. Japan sent its energy-intensive and highly polluting industries offshore, which underpinned investment in aluminium smelting in Australia.
    The collapse of this boom in 1982 again left Australia with a cost structure that was out of line with global economic reality. Unemployment rose to a new post-war peak in early 1983, while inflation remained high.
    TWO PRECONDITIONS FOR REFORM
    The economic disappointments between 1974 and 1983 were followed by a remarkable Reform Era. This began with the election of the Hawke Labor government in March 1983. It reached its apogee in 1989–91. It was weakened by a deep recession in 1990–91 and the long period of high unemployment that followed. It ended following the political contest over the Goods and Services Tax (GST) in 2000.
    What made the Reform Era possible? One precondition was the abolition of the White Australia Policy. Discriminatory immigration had stood in the way of productive relations with Australia’s neighbours in Asia. A second precondition was growing understanding in the populace of the need for economic reform if Australians were to continue to enjoy the living standards of modern developed countries.
    The first breach in the White Australia Policy was made by the Holt Coalition government in 1966. The Whitlam Labor government brought racial discrimination in immigration formally to an end in 1973, but the practical effects of this were diminished by big cuts in the number of migrants. The Fraser Coalition government ushered in large-scale non-European immigration for the first time since Federation with a politically courageous decision to accept substantial numbers of refugees from Indochina. The White Australia Policy was laid to rest in practice as well as in principle in the mid-1980s, when the Hawke government applied the new non-discriminatory policies to a