ECON2313 Assignment Essay 1
What was the impact of the First World War on the Australian Economy? Australia’s involvement in the First World War began in the 1914, its actions representative of its support of Britain’s declaration of war. This unity is implied by the amount of men who felt duty bound to serve Britain’s interest, corresponding to 40% of men enlisted who are aged between 18 and 44. Of these amounts, 330000 men went abroad, whilst 60000 passed away and another 150000 returning with injuries (Dyster & Meredith 2012, p.96). Hence, the absence of these men during the period of Wold War One itself signifies major impacts to the Australian economy, coming in the form of a decrease in labour supply, thus triggering changes in the economy to attempt to replace these shortage. This dilemma is further compounded with the difficulties Australia experienced in its trade agreements during the war and its attempt to resolve it through import substitution, which however, triggers both positive and negative changes, hence altering the structure of the economy. Furthermore, the return of the soldiers from war, and Australia’s attempts to reabsorb them to the community also causes difficulties for Australia, which are compounded by the lack of finances involved to act upon this plan, hence straining Australia’s debt. The rise of the war meant a shift in the allocation of resources in Australia due to import substitution, causing a more rapid development in its manufacturing industry. This is in effect triggered by the cancellation in trade agreements with Germany and Austria Hungary, compounded by the circumstances which made Australia isolated in terms of its trading activities. The reason for this isolation was due to the scarcity of merchant vessels crossing the Atlantic due to the threats of warships, which consequently makes transportation costs to increase and making the costs of imports and exports to rise significantly, whilst some imports even became completely redundant (Robert Lewis 2004). Due to this situation, Australia is then forced to enforce an import substitution policy, a strategy which emphasises upon the replacement of these imports with local production. As a result, this period gives rise to a growth in the manufacturing sector, particularly in industries dealing with steel making, pharmaceuticals and electrical goods. Due to the war’s nature in indirectly being a form of protection to local and infant industries, existing companies are able to found new opportunities to expand and develop as they are being given contacts that were otherwise won by foreign enterprises that were above them in terms of the scale of their operations (Robert Lewis 2004). As these manufacturing sectors are often capital intensive, the strategy adopted by the government hence have the benefits of generating employment and developing self reliance in the economy whilst also stimulating innovation, despite the lack of comparative advantage Australia has and its lack of capital. However, these advantages were offset by the loss of men and hence the development of this sector was hidden as gross real output in the manufacturing sector during the war itself declined by 20%, and Australia losing a part of its export market for its main commodities as it stops transaction with Germany. Compounded with the drought during those circumstances that forces companies to limit employment levels, the costs of imports and exports rising significantly due to scarcity in transportation and the consistently dampened economic demand, these causes the unemployment figures at 1914 to double in size, despite the rise in employment opportunities apparent in that era. However, it is also important to note that these figures also hid the progress in the exports of Australia’s other commodities which are useful for the war and were hence in high demand, although only during a transitory period of preparing for the departing troops’ needs (Dyster &...
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