Furthermore, the return of the soldiers from war, and Australia’s attempts to reabsorb them to the immunity 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 recreant 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 emphasizes 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 amended 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 (Duster & Meredith 2012, p. 96-98). As a result of the war, Australia also experienced a strain in its finances, forcing it to extend its government bet to high levels. The Commonwealth government debt, which was EYE. 2 million on 30 June 1914, rose to IEEE. Million on 30 June 1919, half of it representing the credits owed to Britain for the military supplies bought in Europe and other formal loans (Duster & Meredith 2012, p. 100). In attempt, to resolve this, the government’s reaction of inflating the money supply, hence also contributed to the rise in inflation, which rose higher due to shortages and war profiteering, where scarce goods are sold at a very high price by the county they originated from in an attempt to protect heir defensive interests.
As a result of these events, Australians experienced a fall in their purchasing power, which was worsened by the fall in wages. The stated basic wage fell by 8% in real terms, with average weekly earnings in the manufacturing sector falling by 15%. Hence, as prices rise faster than wages did, and the fact that women were not suitable for the employment opportunities in the manufacturing sector, Australia experienced a decrease in its standard of living during that period.
As the war end, the difficulties presented in the reapportion of the soldiers back to he community also cause a strain in Australia’s finances, significantly contributing to the extent of its debts. It is important to note however, that this impact on the economy is dampened by the nature of the economy at that state which cushioned Australia’s difficulties. These cause for moderation include the intergovernmental marketing schemes which kept income for farmers and miners stable for a short period of time, and the import substitution policy which was geared towards the manufacturing sector rather than provisions for the war.
The Soldier Settlement Scheme though, which focuses on awarding them with a self sufficient property and gearing them towards becoming a profitable farmer, incurs considerable costs. Additional costs are also incurred through the training courses the government provided for 28000 men, including expenses in their living allowances. Hence, these numbers of factors caused the sharp increase of the government debt to в?325. 8 million by the end of the decade (Duster & Meredith 2012, p. 101-102).
Australia also developed a protectionist policy to protect their infant and local industries from foreign competition as the war ended. The Greene tariff, which was enforced to ease the transitional period of the reappearance of overseas competition, protects approximately 71% of all imports from the 57% prior to the war (Duster & Meredith 2012, p. 107). This scheme proves to be popular as the import substitution scheme brought many infant industries which as of that period could not compete with overseas competition.
As these industries are mainly capital intensive, they did provide many employment opportunities in the short term and ease the soldier’s reapportion and hence lower unemployment rates in 1921. This is possible due to the significant number of newly formed businesses, as symbolized by the fact that Australia were producing an additional 400 products by the end of the war due to its isolated state and import substitution strategy.
Furthermore, this tariff also provides further chance for Australia to develop its manufacturing sector, shown by the progress made by the steel industry, in which it doubles its output during this period. Further advantages of this tariff comes in the form of the higher wages that can be given to Australians which decreased during the war period. This is because as the tariffs placed on these industries causes extra costs in the production of the goods, it hence makes local goods more expensive than it otherwise has to be if protection strategies were put into place.
Hence, this enables employers to pay higher wages, and in turn cause a change in the allocation of resources as these industries are rendered more profitable and advantageous, and would hence attract more capital and labor. Hence, this tariff also encourages overseas firms to produce in Australia, thus encouraging an increase in its economic activity, further presenting he public with more employment opportunities and developing Australia to become more self reliant (Merritt 2011, p. 2). However, whilst the tariff does benefit Australia in the short term, it proved to be a disadvantage as world trade began to pick up vigorously, hence causing Australia’s products to be more expensive than its competitors, further compounding with the fact that its infant industries as at 1920-21 has not yet achieve its economies of scale nor have sufficient productivity to compete with foreign competitors whose comparative advantage lies in these industries.
As a result, during this period, and particularly on 1914-1915, Australia’s unemployment level peaked for both men and women as local industries can’t afford to keep employment levels as demand for their products decreases. Hence, the impact of the First World War on the Australian economy is both positive and negative, as it drives the economy to develop self reliance through its import substitution policies, causes an increase in the revenues garnered from trade for war provisions, and negatively impact upon the government debt from financing the war and reabsorbing the soldiers to the community.