jazz & plastic
This page considers Australian precedents for the telco
and dot-com bubbles, including the 1890s land boom, 1960s
mineral boom and 1980s exuberance.
It covers -
- the shape of booms and busts in Australia
roaring nineties - property speculation,
financial malpractice and regulatory weakness in the
greatest of all Australian bubbles?
and manias - conglomerates, resources and collapses
in the 1960s and 1970s
shoes and sailboats - Bond, Skase and peers during
Australia's history has been punctuated by financial booms
and crashes that have overlain - and sometimes accentuated
- deeper economic developments within growth of the national
and global economies.
It has been claimed that the Australian colonies and nation
have been peculiarly susceptible to excess (or merely
slow to recover), for reasons variously attributed to
the shallowness/immaturity of domestic capital markets,
small population size and export orientation, or even
a weakness for gambling - exposure to the Southern Cross
apparently inducing a compulsion for a flutter on the
nags, pokies or penny dreadfuls.
As other pages of this profile suggest, booms and busts
are not particular to Australia, although geography, regulation
and markets mean that irrational exuberance has taken
Geography precluded pre-railway speculative investment
in canal building, so there was no Australian equivalent
of the canal giddiness evident in Britain, New England
and France. (Spending from the 1920s through 1980s on
irrigation in the Riverina and Ord region was environmentally
disastrous and financially unjustified but did not damage
the overall economy).
Government ownership of railways and the telegraph network
- unsurprising given the early social compact and the
shape of colonisation - meant that Australia did not experience
the recurrent rail and telegraph bubbles evident in Europe
and the US, although as with regions .
The 1890s financial crash, exacerbated by prolonged drought,
arguably had a greater impact on economic growth than
similar crises in the northern hemisphere. Seventy years
later Australia's bubble centred on extractive industries,
in contrast to electronics and services speculation in
the US at that time.
The local dotcom bubble was less spectacular and later
than the US counterpart, reflecting both the scale and
shape of the Australian economy (fewer opportunities,
a tradition of investment in residential property rather
the roaring nineties
Arguably the definitive bubble in Australian history occurred
during the 1890s, following several decades of economic
and population growth fuelled by government investment
in infrastructure, intensified agricultural development
after early settlement and the emergence of a substantial
domestic manufacturing base funded by local and UK capital.
Aggregate overseas investment, primarily from the UK,
in the four major colonies from 1876 to 1880 was around
£33.6 million. That climbed to £70 million
from 1881 to 1885; from 1886 to 1890 it was £100
million (of which over 50% went to Victoria).
Problems were most apparent in 'Marvellous Melbourne'
- the Brisbane of the 1880s - where speculation in property
development and land purchases saw a slowing of real estate
sales in late 1880s and difficulties for an unusual number
of builders, estate agents and builders. Bursting of the
bubble in 1891 saw the collapse of building societies
and mortgage banks. That was exacerbated by weaknesses
in corporate governance (in particular inadequate disclosure
and ineffective restrictions on insider dealings by company
executives and directors). Urban property values sank
by over 64% in four years.
It was also exacerbated by systemic weaknesses in agricultural
lending, with the collapse of pastoralists and farmers
during a lengthy drought (and amid slumping commodity
prices attributable to new technologies and international
competition at the height of pre-1914 globalisation) demonstrating
that local and overseas financiers had lent unwisely.
Those problems had overseas counterparts: the spectacular
collapse of UK promoter Jabez Balfour (1843-1916) in 1892
for example involved £7 million - the equivalent
of several billion dollars in today's values. However,
along with a withdrawal of funds from overseas and reconstruction
of local savings and trading banks they resulted in a
general crisis of confidence.
Asa Briggs problematically claimed that the crisis affected
Melbourne's 'personality', so that from being the Empire's
most 'American' city it became its most 'British'. That
assertion is difficult to sustain when Melbourne is compared
with, for example, Christchurch. However it may have fuelled
both Australian interest in 'gas & water socialism'
and in federation.
One clear effect of the crash was a reform of corporate
governance, with the Victorian Companies Act 1896
for example preceding the UK Companies Act 1928
and US corporate law reform in 1934.
minerals and manias
Australia recovered in coming decades because of
demand for agricultural and other commodities
of its overall economic base through investment in infrastructure,
education and industry
'rule of law' and social compact
thus did not experience the pervasive inequalities and
corruption that eroded the performance of peers in South
America - resource-rich, able to take advantage of demand
from the northern hemisphere during the post-war years
but progressively falling behind in GDP rankings.
A counterpart to the US 'transistor' boom was found in
the 1960s, with speculative commercial property development,
consumer finance innovations and expansion by retailers
of whitegoods. The Korman property group was a prominent
casualty when interest rates were raised, with the demise
of Reid Murray, Stanhill and HG Palmer.
A decade later wild speculation in resource stocks - illustrated
by increase in shares of Poseidon from $1.85 in September
1969 to $280 on 10 January 1970 - centred on claims about
mining companies that had never commercially extracted
nickel or other metals (and in some cases never did).
Soaring values were attributable to puffery, upbeat reporting
and crowd behaviour.
The grotesquely over-geared resources conglomerate Mineral
Securities Ltd (Minsec) went on a wild ride from 1965
before collapsing later in 1970 after becoming one of
the largest share traders in Australia's history.
white shoes and sailboats
A decade later exuberance in corporate lending, borrowing
and asset shuffling - again accompanied by regulatory
weakness and uncritical coverage by the media, academics
and professional bodies - saw the demise of leading enterprises,
consolidation of local institutions and pain for overseas
lenders such as HSBC and Standard Chartered Bank.
It has been estimated that aggregate write-offs by major
financiers were over $34 billion, with an undetermined
cost to small investors (some of whom unwisely sunk substantial
money in disasters such as Bond group and Adsteam or lost
opportunities as the big end of town regrouped).
Relaxation of monetary policy after the 1987 crash in
Australian and overseas share markets (the ASX index dropped
25% on October 20, with an overall decline of 50% by 11
November) saw continuation of speculative excess in 'entrepreneurial'
industrial stocks and in the commercial property market
before collapses cascaded through the economy.
Those collapses were driven by tightening of loans from
overseas financiers to major conglomerates, questioning
of claimed values and closer scrutiny by the media and
government agencies of dealings by business figures such
as Alan Bond and Christopher Skase. Takeovers by those
figures had failed to result in tangible efficiencies
or investment in innovation and market development, contrary
to hype from business schools and the business press that
a new generation of executives would replace complacent
managers and make best use of sleepy assets.
Restructuring of leading businesses included -
Steamship - the nation's largest industrial conglomerate,
with interests from tugboats to wineries
major commercial television networks - Nine (Bond),
- the second largest newspaper group
Brewing - with roughly half the market
Corporation - property and diverse industrial holdings
in Australia and overseas
Bank of South Australia
- finance, property and industrial conglomerate with
interests in Australia and New Zealand
Bank of Victoria - rescued by the Commonwealth Bank
after meltdown of its Tricontinental merchant banking
- Victoria's largest building society
- largest car rental company
- the largest textile group
- brewery, agribusiness and finance conglomerate
Pacific - merchant bank rescued by parent Westpac
'near-death experiences' for over-extended groups such
The near collapse of two of Australia's four state banks
was reflected in Royal Commissions that damned managers,
governments and the financial watchdogs (albeit to little
effect, judging by misbehaviour in the insurance sector
a decade later).
Bond Corporation had announced a record $980 million loss
(with overall debt of $US10 billion on sales of around
$9.5 billion) before going into receivership. Alan Bond
was declared bankrupt in 1992, paying his personal creditors
$3.25 million to settle debts of over $500 million.
As a starting point we recommend John Simon's 2003 Reserve
Bank conference paper Three Australian Asset-price
An introduction to Australian financial hysteria, up and
down, and creative accounting is provided by Trevor Sykes
in Two Centuries of Panic (North Sydney: Allen
& Unwin 1988), The Money Miners: Australia's Mining
Boom 1969-70 (Sydney: Wildcat Press 1978) and The
Bold Riders: Behind Australia's Corporate Collapses
(North Sydney: Allen & Unwin 1994).
They can be supplemented by Stephen Bell's Australia's
Money Mandarins: the reserve bank and the politics of
money (Cambridge: Cambridge Uni Press 1994), The
Australian Economy in the Long Run (Cambridge: Cambridge
Uni Press 1987) edited by Rodney Maddock & Ian McLean
and Australia in the Global Economy (Cambridge:
Cambridge Uni Press 2000) by David Meredith and Barrie
There is a more episodic but often revealing treatment
in Australian Financiers (South Melbourne: Macmillan
1988), edited by Boris Schedvin & Reginald Appleyard,
and in the profiles of particular protagonists - such
as the Baillieus and Stanley Korman - within the Australian
Dictionary of Biography.
For the 'Argentine Mirror' see A New Economic History
of Argentina (Cambridge: Cambridge Uni Press 2003)
edited by Gerardo della Paolera & Alan Taylor and
Argentina and Australia: Essays in Comparative Economic
Development (Clayton: Economic History Society of
Australia & New Zealand 1985) edited by AE Dingle
& David Merrett. A contemporary perspective on resource
bubbles is provided in Richard Leaver's 2005 Australia
and Asia-Pacific energy security: the rhymes of History
The 1890s debacle has attracted increasing attention,
whether for innate interest, the effect on the national
psyche, impact on urban architecture or as a driver of
federation and nasties such as the White Australia Policy.
The most lucid introductions remain Michael Cannon's The
Land Boomers (Carlton: Melbourne Uni Press 1966),
Graeme Davison's The Rise and Fall of Marvellous Melbourne
(1978) and Geoffrey Searle's The Rush to be Rich:
A History of the Colony of Victoria (Melbourne: Melbourne
Uni Press 1971). Noel Butlin's Investment in Australian
Economic Development, 1861-1900 (Cambridge: Cambridge
Uni Press 1964), Ernest Boehm's Prosperity and Depression
in Australia, 1887-1897 (Oxford: Clarendon Press
1971), Barry Eichengreen's Capital Flows and Crises
(Cambridge: MIT Press 2003), Evolving Capital Markets
and International Capital Flows: Britain, the Americas
& Australia, 1865-1914 (Cambridge: Cambridge
Uni Press 2001) by Lance Davis & Robert Gallman and
John Weaver's 2005 paper
A Pathology of Insolvents: Melbourne 1871-1915
are of particular value. For Balfour see Jabez: The
Rise & Fall of a Victorian Rogue (New York: Atlantic
2004) by David McKie.
For the 1980s boom and bust see in particular Paul Barry's
lucid Going For Broke: How Bond Got Away With It
(Sydney: Bantam 2000) - updating the story in The Rise
& Fall of Alan Bond (Sydney: Bantam 1991) - and
Corporate Collapse: Accounting, Regulatory & Ethical
Failure (Cambridge: Cambridge Uni Press 2003) by
Frank Clarke, Graeme Dean & Kyle Oliver.
Giddiness in the banking sector is highlighted in Tricontinental:
The Rise & Fall of a Merchant Bank (Carlton:
Melbourne Uni Press 1995) by Hugo Armstrong & Dick
Gross and in Edna Carew's Westpac: The Bank that Broke
the Bank (Sydney: Doubleday 1997). For property adventures
in Queensland see Samurai in the Surf: The Arrival
of the Japanese on the Gold Coast in the 1980s (Canberra:
Pandanus Books 2005) by Joe Hadju.
Henry Bosch's The Workings of A Watchdog (Port
Melbourne: Heinemann 1990), Corporate Collapse: Accounting
Regulatory and Ethical Failure (Cambridge: Cambridge
Uni Press 2003) by Frank Clarke, Graeme Dean & Kyle
Oliver, Of Manners Gentle: Enforcement Strategies
of Australian Business Regulatory Agencies (Melbourne:
Oxford Uni Press 1986) by Peter Grabosky & John Braithwaite
and The Big End of Town: Big Business and Corporate
Leadership in Twentieth-Century Australia (Cambridge:
Cambridge Uni Press 2004) by Grant Fleming, David Merrett
& Simon Ville and Anne Lampe's Media Coverage
of Complex Commercial Fraud paper
offer insights into contemporary regulatory failures.
As discussed later in this profile, there has so far been
no major study of the dotcom bubble in Australia and New
Zealand. Most writing has been evanescent or has centred
on particular enterprises, such as Paul Barry's crisp
account in Rich Kids (Sydney: Bantam 2002) of
the OneTel debacle.