Prime Minister Anthony Albanese gave a landmark speech last week about the future of Australia’s economy.

If you didn’t catch it, let’s revisit its main theme quickly.

It’s important to know what he said because it signals where our economy could be headed in the coming years.

I think we can draw parallels with a famous speech from the 1930s, another era of rapid economic change.

A future made in Australia

One of the great things about a landmark speech that flags an intention to do something big, but which is light on detail, is how it will smoke out bad-faith commentators.

And after the prime minister’s speech last week, we saw the same old voices putting their hands up quickly to criticise it.

Some claimed Mr Albanese was planning to take us back to the bad old days.

Remember the folly of Australia’s post-war car industry? They said he clearly hadn’t learned anything from that failed attempt at homegrown manufacturing.

But what were they talking about?

I’ve read the prime minister’s speech a few times. I haven’t been able to find anything in his speech that warrants such specific criticism.

What his speech did include, however, and what we can therefore comment on, was a broad vision of the future.

He was letting us know how he sees the world and where he thinks our economy’s headed.

He said our global economic architecture had fractured.

Strategic competition had become a fact of life, he said, and major advanced economies were pouring trillions of dollars into their industrial bases, their manufacturing capability, and their economic sovereignty.

In the aftermath of the pandemic, when just-in-time global supply chains broke down and caused major problems for everyone, nations are now drawing an explicit link between economic security and national security.

“We need to be clear-eyed about the economic realities of this decade,” the prime minister said.

“We must recognise there is a new and widespread willingness to make economic interventions on the basis of national interest and national sovereignty.

“And — critically — none of this is being left solely to market forces or trusted to the invisible hand.

“The heavy lifting of economic transition and industrial transformation is not being done by individuals, companies or communities on their own. It is being facilitated, enabled and empowered by national governments from every point on the political spectrum.”

As a major speech signalling where the government’s head is, it was fine.

It clearly raised the spectre of industrial policy, which is controversial in some economic circles (as Ha-Joon Chang explains in the lecture below) and which has spooked some industry groups.

But we’ll have to wait to see more details from the government on that topic before we criticise it properly.

But while we wait, I thought I’d draw your attention to a fascinating lecture from the 1930s.

It’s a short one, just five pages.

It came to mind last week when Albanese was speaking because it shares very similar themes about the break-down of old economic orders, and the need for governments to adapt to new realities and be prepared to toss orthodoxies aside if necessary.

The historical parallels between that era, and this moment, are interesting if nothing else.

National self-sufficiency, and economic nationalism

In April 1933, British economist John Maynard Keynes gave a lecture in Dublin titled National Self-Sufficiency.

At the time, there were fresh political tensions between Ireland and Britain following the election of a new government in Ireland.

Keynes used the opportunity to gently caution Ireland’s new leadership about the economic risks of a small country such as Ireland pursuing protectionist policies against Britain, its largest trading partner.

Afterwards, he prepared edited versions of his lecture to be published in other countries, so the transcript of his Dublin lecture contained passages that didn’t make it into his shorter essay version for outside audiences.

But there was a wider political context to his lecture.

In early 1933 the Great Depression was in full swing.

In January of that year, Adolf Hitler had been appointed chancellor of Germany. In Italy, Benito Mussolini had been in power for a decade. In Russia, Joseph Stalin had long ago consolidated his power.

Keynes was aware that people were losing faith in the global financial system and laissez-faire capitalism and globalisation.

He knew that an increasing number of countries were leaning towards nationalism, economic self-sufficiency, and economic experimentation.

So how should democratic societies position themselves in the new world order where old certainties and economic relationships were rapidly breaking down?

The inaugural Finlay Lecture

Keynes began his lecture with an admission.

He said his opinion of the 19th century’s version of “free trade” had changed recently. He no longer saw it as an unalloyed good.

“I sympathise … with those who would minimise, rather than with those who would maximise, economic entanglement between nations,” he told his audience.

“Ideas, knowledge, art, hospitality, travel — these are things which should of their nature be international.

“But let all goods be homespun whenever it is reasonably and conveniently possible; and, above all, let finance be primarily national.”

He said a considerable degree of “international specialisation” was always necessary in a world with differences of climate and natural resources.

But he thought countries had increasingly more to gain from gradually bringing producers and consumers within the ambit of the same national, economic, and financial organisation, given what was happening in the world.

“The decadent international but individualistic capitalism, in the hands of which we found ourselves after the war, is not a success,” he said.

“It is not intelligent, it is not beautiful, it is not just, it is not virtuous, and it doesn’t deliver the goods. In short, we dislike it and we are beginning to despise it.

“Even countries such as Great Britain and the United States, which still conform par excellence to the old model, are striving, under the surface, after a new economic plan,” he said.

Keynes said no-one knew where things were headed, but countries had a right to restructure their economies to fit their new circumstances within a very different global system of trade and finance.

“We are, all of us, I expect, about to make many mistakes. No-one can tell which of the new systems will prove itself best,” he said.

“But the point of my present discussion is this. We each have our own fancy. Not believing that we are saved already, we each would like to have a try at working out our own salvation.”

He said there was no turning back to the past, either.

“It is my central contention that there is no prospect for the next generation of a uniformity of economic system throughout the world, such as existed, broadly speaking, during the 19th century,” he said.

How costly would self-sufficiency be?

Then, Keynes turned his attention to the bean counters.

He said to build the kind of society we were capable of building, we had to ignore some old-value systems.

Part of the reason why people had become so exasperated with the old economic model, he argued, was due to the 19th century habit of judging every potential policy by its likely “financial results”.

“The whole conduct of life was made into a sort of parody of an accountant’s nightmare,” he complained.

“Once we allow ourselves to be disobedient to the test of an accountant’s profit, we have begun to change our civilisation,” he said.

He said policymakers would still have to pay attention to costs, obviously, but they’d achieve far more than was once thought possible if they allowed themselves to re-imagine the role of government and government finances.

“It is the state, rather than the individual, which needs to change its criterion,” he argued.

“If the functions and purposes of the state are to be thus enlarged, the decision as to what, broadly speaking, shall be produced within the nation and what shall be exchanged with abroad, must stand high amongst the objects of policy.”

Three dangers involved with the transition

And he wrapped up his lecture by warning of the risks involved in the shift to greater economic self-sufficiency.

He could see “three outstanding dangers” in the movement, he said.

“In those countries where the advocates of national self-sufficiency have attained power, it appears to my judgement that, without exception, many foolish things are being done,” he warned.

He said the first danger was “silliness” from policymakers, and the second danger was “haste”.

“The economic transition of a society is a thing to be accomplished slowly,” he cautioned.

“A rapid transition will involve so much pure destruction of wealth that the new state of affairs will be, at first, far worse than the old, and the grand experiment will be discredited. For men judge remorselessly by early results.”

The third danger was “intolerance” from authorities and their attempts to stifle criticism.

He said policymakers would have to embrace the fact that economic experiments had a better chance of surviving if everyone was involved in a rolling conversation about where things were headed and how things were going.

“We have no clear idea laid up in our minds beforehand of exactly what we want,” he admitted.

“We shall discover it as we move along, and we shall have to mould our material in accordance with our experience.”

Adapting to new conditions

But let’s end things there.

It’s fascinating to see someone like Keynes thinking his way through the severe problems of the early 1930s and explaining why every country has the right to adapt their economic structure to changing circumstances at the expense of economic shibboleths.

What works in one era won’t necessarily work in another.

And it’s enjoyable watching someone like him assert their right to think for themselves and to ignore pressure from peers to conform to the usual way of doing things.

“I bring my criticisms to bear, as one whose heart is friendly and sympathetic to the desperate experiments of the contemporary world, who wishes them well and who would like them to succeed, who has his own experiments in view, and who, in the last resort, prefers anything on earth to what the City reports are wont to call ‘the best opinion in Wall Street’,” he said.