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The Princeton Economic History of the Western World #43
Why Australia Prospered: The Shifting Sources of Economic Growth
This book is the first comprehensive account of how Australia attained the world's highest living standards within a few decades of European settlement, and how the nation has sustained an enviable level of income to the present. "Why Australia Prospered" is a fascinating historical examination of how Australia cultivated and sustained economic growth and success. Beginning with the Aboriginal economy at the end of the eighteenth century, Ian McLean argues that Australia's remarkable prosperity across nearly two centuries was reached and maintained by several shifting factors. These included imperial policies, favorable demographic characteristics, natural resource abundance, institutional adaptability and innovation, and growth-enhancing policy responses to major economic shocks, such as war, depression, and resource discoveries.
Natural resource abundance in Australia played a prominent role in some periods and faded during others, but overall, and contrary to the conventional view of economists, it was a blessing rather than a curse. McLean shows that Australia's location was not a hindrance when the international economy was centered in the North Atlantic, and became a positive influence following Asia's modernization. Participation in the world trading system, when it flourished, brought significant benefits, and during the interwar period when it did not, Australia's protection of domestic manufacturing did not significantly stall growth. McLean also considers how the country's notorious origins as a convict settlement positively influenced early productivity levels, and how British imperial policies enhanced prosperity during the colonial period. He looks at Australia's recent resource-based prosperity in historical perspective, and reveals striking elements of continuity that have underpinned the evolution of the country's economy since the nineteenth century.
Natural resource abundance in Australia played a prominent role in some periods and faded during others, but overall, and contrary to the conventional view of economists, it was a blessing rather than a curse. McLean shows that Australia's location was not a hindrance when the international economy was centered in the North Atlantic, and became a positive influence following Asia's modernization. Participation in the world trading system, when it flourished, brought significant benefits, and during the interwar period when it did not, Australia's protection of domestic manufacturing did not significantly stall growth. McLean also considers how the country's notorious origins as a convict settlement positively influenced early productivity levels, and how British imperial policies enhanced prosperity during the colonial period. He looks at Australia's recent resource-based prosperity in historical perspective, and reveals striking elements of continuity that have underpinned the evolution of the country's economy since the nineteenth century.
300 pages, Paperback
First published November 11, 2012
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Displaying 1 - 11 of 11 reviews
August 4, 2024
The passing of Ian McLean in May 2021 reminded me that his 2013 book on Australia's economic history had been on my 'to read' list for a long time.
An epigraph to the last chapter of Why Australia Prospered quotes the Greek poet Archilochus that 'the fox knows many things, but the hedgehog knows one big thing' (popularised by Isaiah Berlin).
McLean was a fox, with this nicely undogmatic book looking at the many factors that can influence economic growth both in general and in Australia, rather than seeking one big theory to explain it all. It takes sceptical looks at theories that might claim too much policy wisdom (post-WW2 Keynesian economics, 1980s & 1990s 'economic rationalism'), and too little, that Australia was just a 'lucky country', as Donald Horne famously put it.
Australia was and is lucky in its natural endowments. These were the earliest source of its economic comparative advantage, as the wool industry developed in the first half of the 19th century. Sheep grazing land was taken without paying for it – whether the wronged 'owners' are taken as the Indigenous people who had traditionally lived on it or the Crown as represented by the governor of the colony – and the mild climate made winter housing for sheep unnecessary. Combine these capital savings with cheap convict labour and Australian wool was very competitively priced on international markets.
By the mid-19th century copper and then gold gave Australia a mining industry, contributing to Australia being one of the world's richest countries in the second half of the 19th century (Australia is sometimes said to be richest at this point, but McLean observes that 'Australia' still had a small total economy at the time, and regions in other countries were richer).
Australia was lucky to have these natural advantages, but McLean notes the theory of the 'resource curse', where the dominance in a country of a single or small number of commodities has been economically distorting, and brought with it political and social problems. Avoiding these is an achievement.
This seems to be one reason why McLean takes a more benign view of 20th century protectionism, which shielded Australian manufacturing with tariffs, than is fashionable. Despite the low productivity tariffs promote, Australia did develop manufacturing exports, and of course these local industries partly replaced imports. This made Australia less exposed to the volatility created by big shifts in the prices of agricultural products and minerals on world markets.
A manufacturing industry was also important during the war with Japan. Its rapid conversion and expansion into war production led to GDP being 41 per cent higher in 1943 than it had been in 1939. After a dismal 50 preceding years of economic growth that was a staggering turnaround.
In the 25 years after WW2 Australia was part of a global period of economic prosperity, before that ended in 1970s 'stagflation' – the combined high inflation and unemployment that was not supposed to happen according to then prominent economic theories. While Australia hit these problems at the same time as other countries, it took much longer to solve them. Wage increases promoted by the Whitlam government and real exchange rate appreciation get some of the blame.
One of the prominent theories of economic growth is that it is to do with 'human capital', the knowledge and skills of a country's people. Colonial censuses in the late 19th century showed that most people could read and write, and primary education was made free and compulsory in the 1870s (although attendance was generally well below enrolment). But compared to the USA, Australia was slow in introducing secondary education, and correspondingly also later in developing tertiary education.
McLean is cautious on the economic significance of Australia being late to mass post-primary education. Education is consumption as well as investment; rich countries can afford to keep healthy young people out of the labour market. Australia's apprenticeship system, which lacks a direct equivalent in the US, was at least partly a substitute source of skills development. Weaknesses in education did not stop Australia maintaining its comparative advantage in agriculture and mining, something it has now done for 200 years.
Why Australia prospered is an academic book, but in the positive sense of being a search for the best explanations of complex historical events, rather than an exercise in confirming pet theories or fighting obscure intellectual battles.
An epigraph to the last chapter of Why Australia Prospered quotes the Greek poet Archilochus that 'the fox knows many things, but the hedgehog knows one big thing' (popularised by Isaiah Berlin).
McLean was a fox, with this nicely undogmatic book looking at the many factors that can influence economic growth both in general and in Australia, rather than seeking one big theory to explain it all. It takes sceptical looks at theories that might claim too much policy wisdom (post-WW2 Keynesian economics, 1980s & 1990s 'economic rationalism'), and too little, that Australia was just a 'lucky country', as Donald Horne famously put it.
Australia was and is lucky in its natural endowments. These were the earliest source of its economic comparative advantage, as the wool industry developed in the first half of the 19th century. Sheep grazing land was taken without paying for it – whether the wronged 'owners' are taken as the Indigenous people who had traditionally lived on it or the Crown as represented by the governor of the colony – and the mild climate made winter housing for sheep unnecessary. Combine these capital savings with cheap convict labour and Australian wool was very competitively priced on international markets.
By the mid-19th century copper and then gold gave Australia a mining industry, contributing to Australia being one of the world's richest countries in the second half of the 19th century (Australia is sometimes said to be richest at this point, but McLean observes that 'Australia' still had a small total economy at the time, and regions in other countries were richer).
Australia was lucky to have these natural advantages, but McLean notes the theory of the 'resource curse', where the dominance in a country of a single or small number of commodities has been economically distorting, and brought with it political and social problems. Avoiding these is an achievement.
This seems to be one reason why McLean takes a more benign view of 20th century protectionism, which shielded Australian manufacturing with tariffs, than is fashionable. Despite the low productivity tariffs promote, Australia did develop manufacturing exports, and of course these local industries partly replaced imports. This made Australia less exposed to the volatility created by big shifts in the prices of agricultural products and minerals on world markets.
A manufacturing industry was also important during the war with Japan. Its rapid conversion and expansion into war production led to GDP being 41 per cent higher in 1943 than it had been in 1939. After a dismal 50 preceding years of economic growth that was a staggering turnaround.
In the 25 years after WW2 Australia was part of a global period of economic prosperity, before that ended in 1970s 'stagflation' – the combined high inflation and unemployment that was not supposed to happen according to then prominent economic theories. While Australia hit these problems at the same time as other countries, it took much longer to solve them. Wage increases promoted by the Whitlam government and real exchange rate appreciation get some of the blame.
One of the prominent theories of economic growth is that it is to do with 'human capital', the knowledge and skills of a country's people. Colonial censuses in the late 19th century showed that most people could read and write, and primary education was made free and compulsory in the 1870s (although attendance was generally well below enrolment). But compared to the USA, Australia was slow in introducing secondary education, and correspondingly also later in developing tertiary education.
McLean is cautious on the economic significance of Australia being late to mass post-primary education. Education is consumption as well as investment; rich countries can afford to keep healthy young people out of the labour market. Australia's apprenticeship system, which lacks a direct equivalent in the US, was at least partly a substitute source of skills development. Weaknesses in education did not stop Australia maintaining its comparative advantage in agriculture and mining, something it has now done for 200 years.
Why Australia prospered is an academic book, but in the positive sense of being a search for the best explanations of complex historical events, rather than an exercise in confirming pet theories or fighting obscure intellectual battles.
September 26, 2024
Why Australia Prospered : The Shifting Sources of Economic Growth (2012) by Ian W McLean is a terrific book that goes over the economic history of Australia and describes how Australia became a wealthy country and how it managed to stay wealthy. McLean was a Professor of Economic History at the University of Adelaide. The book is really valuable because it makes the reader think about something that tends to be taken for granted.
The book starts with a description of the Indigenous economy before examining the economy of the penal settlements that were early Australia. Dependent on the British government and having a population of only tens of thousands they managed to survive. By the 1830s wool became a profitable export. Wool was really important to Australia’s economy until the 1950s. McLean talks about the institutions in Australia and how early electoral chambers didn’t allow the squatters to control the country.
The discovery of gold is the next major phase. Gold’s discovery led to rapid growth that Australia managed fairly well and from the 1860s to the 1890s Australia was probably the richest country in the world per capita. The demographic boost of the gold rushes of getting a large number of working age men helped the economy.
The depression of the 1890s led to a decline in Australia’s relative prosperity that lasted for decades. However Australia still managed to keep a high standard of living and didn’t decline as much as Argentina did. McLean again suggests that good institutions managed to maintain Australia’s prosperity even if there was some relative decline.
The First and Second World Wars had a profound influence on Australia. McLean describes the impact of the First as being detrimental while the second had some positive impacts. The depression sandwiched between the two causing a profound downturn in Australia.
After the Second World War Australian manufacturing and the substantial development of mining became drivers of prosperity. Australia also handled substantial migration well and the country and the economy grew strongly until the 1970s. McLean also writes about the increase in the level of education in Australia and how that helped prosperity.
In the 1980s and 1990s reforms led to an improvement in the economy and again Australia found new ways to create wealth through mining and services.
McLean also makes the interesting point that Australia and New Zealand had fairly similar levels of per capita wealth until about 1970 after which Australia became quite a bit better off than New Zealand. McLean also compares Australia’s per capita wealth with the United States and ponders why the US has become wealthier than Australia. McLean places Australia in a group of settler economies that includes the US, Canada and New Zealand. All states that were settled by the British.
Why Australia Prospered really is an excellent book on an important topic. McLean writes well and it’s an enjoyable read. McLean’s explanation for Australia’s wealth, being a combination of good institutions and natural resources makes considerable sense. He makes the point that in many ways Australia counters the ‘resource curse’ argument. The book is definitely worth reading for any Australian.
The book starts with a description of the Indigenous economy before examining the economy of the penal settlements that were early Australia. Dependent on the British government and having a population of only tens of thousands they managed to survive. By the 1830s wool became a profitable export. Wool was really important to Australia’s economy until the 1950s. McLean talks about the institutions in Australia and how early electoral chambers didn’t allow the squatters to control the country.
The discovery of gold is the next major phase. Gold’s discovery led to rapid growth that Australia managed fairly well and from the 1860s to the 1890s Australia was probably the richest country in the world per capita. The demographic boost of the gold rushes of getting a large number of working age men helped the economy.
The depression of the 1890s led to a decline in Australia’s relative prosperity that lasted for decades. However Australia still managed to keep a high standard of living and didn’t decline as much as Argentina did. McLean again suggests that good institutions managed to maintain Australia’s prosperity even if there was some relative decline.
The First and Second World Wars had a profound influence on Australia. McLean describes the impact of the First as being detrimental while the second had some positive impacts. The depression sandwiched between the two causing a profound downturn in Australia.
After the Second World War Australian manufacturing and the substantial development of mining became drivers of prosperity. Australia also handled substantial migration well and the country and the economy grew strongly until the 1970s. McLean also writes about the increase in the level of education in Australia and how that helped prosperity.
In the 1980s and 1990s reforms led to an improvement in the economy and again Australia found new ways to create wealth through mining and services.
McLean also makes the interesting point that Australia and New Zealand had fairly similar levels of per capita wealth until about 1970 after which Australia became quite a bit better off than New Zealand. McLean also compares Australia’s per capita wealth with the United States and ponders why the US has become wealthier than Australia. McLean places Australia in a group of settler economies that includes the US, Canada and New Zealand. All states that were settled by the British.
Why Australia Prospered really is an excellent book on an important topic. McLean writes well and it’s an enjoyable read. McLean’s explanation for Australia’s wealth, being a combination of good institutions and natural resources makes considerable sense. He makes the point that in many ways Australia counters the ‘resource curse’ argument. The book is definitely worth reading for any Australian.
February 18, 2024
I really recommend this book for people new to Australian development
January 21, 2020
Having lived in North America for many years, I was surprised by the high living standard and income level when I first moved to Australia. Why Australia is rich and prosperous? This book tries to answer the question. It offers historical narratives of a young Australia becoming the richest country in the world after mere 60 some years since European settlement, and maintaining its rich country status ever since. It described three golden ages in Australian history (gold rush, post war boom, and the recent mining boom). The book is quite dry through out but great for catching up on some history lesson.
December 22, 2025
It's not a light summer read, but if you want to understand how the Australian economy got to where it is today, there isn't a better book. This book inspired me to start an anki deck to try and remember some of the brilliant facts, stats and anecdotes Mclean digs up. Every page has a couple of gems that you'll be smarter for having read.
May 23, 2023
A pretty good book and very comprehensive. Just a bit dry at times. Obviously this is written as a textbook sort of vibe and hence isn't exactly intriguing in the ordinary meaning of the word. Still, interesting to learn about the nation's history.
August 2, 2023
Hard to get my head around
December 17, 2025
Took me ages because I found it a real snore. That said, a great account of Australian economic history.
May 16, 2023
This work is splendid, covers economic History of Australia.
June 19, 2014
McClean offers great information and insight about Australia's prosperity, but the style is very textbook-like. A strong economics background is highly recommended.
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April 12, 2018I am pretty used to reading dry books but christ that was dull
Displaying 1 - 11 of 11 reviews