Chifley versus the banks
The big banks won the last great war against government interference, 70 years ago.
Originally published in The Canberra Times 6 June 2017
The predictable howls of outrage from the big banks about the $6.2 billion levy imposed on them in the federal budget are unlikely to arouse any sympathy from the electorate, nor will the move do the government any foreseeable harm. But resistance will continue regardless – and the banks have a long history of winning.
The levy – coming after the banks repeatedly hosed down mounting calls for a royal commission – is small beer compared to the existential battle they waged 70 years ago this year when the Chifley Labor government sprung one of the biggest surprises ever in Australian politics – a proposal to the nationalise the private banks.
Quite apart from the merits of the proposal – and they made a lot of sense with the bitter memories of the Great Depression still very vivid – the bank nationalisation plan of 1947 represents a compelling case study of how not to do public policy. Public opinion, as it was, could have been a useful tool in Prime Minister Ben Chifley’s armoury had he chosen to court it, with the banks enjoying as much popular support then as they do now. The aftermath of the Great Depression had left a legacy of deep distrust of banks because of the banks’ perceived inability or unwillingness to safeguard the interests of ordinary Australians. But Chifley, quite inexplicably, did nothing to prepare the ground.
The government, which had been re-elected in 1946, had made it clear that it needed more effective control over the economy, especially so in the uncertain years of recovery from the ravages of both world war and depression, and Chifley saw it as a powerful instrument in post-war reconstruction.
In March 1945 Chifley (as Treasurer under John Curtin) had introduced legislation to continue the wartime controls on the private banks, consolidate the Commonwealth Bank’s role as a central bank and replace the Bank’s board with a single governor and an advisory board of officials. The Banking Act 1945 and the Commonwealth Bank Act 1945 were very much the work of Chifley, who explained that the legislation was “based on the conviction that the Government must accept responsibility for the economic condition of the nation … the Government has decided to assume the powers which are necessary over banking policy to assist it in maintaining national economic health and prosperity.”
It was a matter of deep faith for the homely Chifley. Then out of parliament in 1936, the conservative Lyons government had appointed him to the Royal Commission on Monetary and Banking Systems which studied the country’s financial institutions in detail, and what he gleaned from that experience – especially in regard to the banks’ actions during the Depression contrary to government policy – made him a determined foe.
Federal Cabinet met in Canberra on a Friday, 15 August, after which ministers were asked to remain in Canberra and return next morning, a Saturday, to attend to “unfinished business.” That business concerned a decision by the High Court handed down two days earlier, upholding an appeal by the Melbourne City Council against a section of the 1945 legislation requiring, in the interest of monetary stability, all government and semi-government bodies to conduct their business with the then government-owned Commonwealth Bank.
The assembled ministers heard from the Attorney-General, Bert Evatt, about the implications of the decision after which Chifley said there were two choices: swallowing the decision and waiting for the inevitable attack on the 1945 legislation by the private banks or striking first by removing the potential challenge by nationalising the banks. Cabinet opted for the latter, perhaps not surprisingly as bank nationalisation had been a plank in the Labor Party platform since 1921.
In one of the worst lapses of prime ministerial judgment in Australian political history, the usually savvy Chifley let the public in on the news with nothing more than a terse 42-word announcement conveying the decision but without any details, justification or explanation.
The statement, headed “Banking Nationalisation – Proposed Legislation” read: “Cabinet today authorised the Attorney-General, Dr Evatt, and myself to prepare legislation for submission to the Federal Parliamentary Labour Party for the nationalisation of banking other than State banks, with proper protection for shareholders, depositors, borrowers, and staff of private banks.”
Short on substance and feebly defended, it sparked a political mobilisation of unprecedented scale – an assault from which the government did not recover. The manner of the announcement, without any attempt at justification, was seen by many as arrogance on Chifley’s part. It delivered to the Opposition a ready-made platform from which to attack the government and its “socialist” policies, an attack made even more potent within the context of the emerging Cold War, industrial unrest and the deliberately-fanned fears of Communist subversion.
Within days, Opposition Leader Robert Menzies had organised a public meeting in the Sydney Town Hall, and in a speech likened the move to “Fascism,” claiming that it was part of “the Chifley pattern” of “coming dictatorship in Australia.”
Chifley might have changed his approach, but a full month went by before he publicly addressed it again, merely reiterating his firm belief that the government must have full control over the economy, especially in times of great economic uncertainty.
In October 1947, Chifley introduced his banking legislation to parliament, arguing the control of money and credit was too important to be left in the hands of private banks. Government, he said, would be able to guard against both depression and inflation, and “open a long-locked doorway to the development of a monetary and banking system truly adequate to our national requirements and wholly devoted to the service of Australia.”
The Opposition attacks grew ever more shrill, with Menzies claiming this opened up “a second battle for Australia,” while Country Party leader Earle Page called it a “communist ramp” and warned, ominously, that his supporters might use “physical means” to oppose it.
But before the legislation could be implemented, a challenge by the private banks to the High Court in 1948 was upheld on constitutional grounds and an appeal by the Commonwealth to the Privy Council was dismissed in 1949. In what amounted to another tactical miscalculation, a defiant Chifley retained the invalid acts on the statute books, much to the delight of Labor’s opponents who continued to make capital from it.
In a very real sense, Chifley, the government and the Labor Party never regained the initiative after such an inept start.
With Labor enjoying its longest term in office, and with a Labor Government having been re-elected for the first time ever in 1946, it might have gone into the 1949 elections with a degree of confidence based on a substantial record of achievement, but the defeat on the banking issue had dealt a severe body blow, symbolically as well as politically.
With the mood of the nation now uncertain and with the peculiar circumstances of the elections being fought for the first time for a greatly enlarged Parliament – the House of Representatives up to 123 from 75 and the Senate up to 60 from 36 – a great many unknowns clouded the horizon. The uncertainty was magnified by a range of post-war concerns and expectations that the expansionary 1949 Budget brought into sharp focus.
The nation was still war weary, tired of austerity and impatient with rationing and controls; people also wanted to spend their accumulated savings on the new household goods starting to appear in stores and the taxation burden was resented. Further, rising inflation was a problem, with the Consumer Price Index rising by more than 10 per cent in 1949. It was little wonder that Menzies’ pledges to end rationing and “put value back in the Pound” fell on such eagerly receptive ears.
Labor’s enemies, notably the banks and most big business but also including the doctors who objected to subsidised medical care, were organising like never before; in all, they commanded a campaign war chest estimated at ten times that of Labor. Prominent Catholics, like Archbishop Duhig in Brisbane, also campaigned preaching that a vote for the “socialist” ALP was inconsistent with Catholic doctrines.
The issues of bank nationalisation and medical benefits were not in themselves fatal flaws; indeed, they enjoyed strong support in Labor’s heartland, but the cumulative effect in tandem with the Communist scare acted as a deterrent to many lower middle-class, swinging voters who most likely had voted ALP in 1943 and 1946. The association of Labor with wartime rationing and controls – and the banking move was depicted by its opponents as part of this – contrasted sharply with the carefully cultivated image of the young, energetic ex-servicemen promoted by the Liberal Party who preached the virtues of free enterprise.
That defeat in 1949 consigned Federal Labor to the wilderness for a generation.
Dr Norman Abjorensen, of the ANU Crawford School of Public Policy, is the author of The Manner of Their Going: Prime Ministerial Exits From Lyne to Abbott. He has also served as Canberra Branch President of the ASSLH.