In Australia too, the undertow of anti-globalisation has grown. Yet mainstream political parties and their platforms have not yet succumbed to protectionism or isolationism. What accounts for this difference?

This question is all the more compelling when we recognise the huge challenges that Australia is now facing following the collapse of primary commodity prices. The prices of iron ore, coal and natural gas have fallen to a third of their previous levels, costing the country a significant share of its national income.

Yet still the economy continues to grow, and unemployment is more or less back to its pre-2008 crisis level. The contrast with other large commodity-exporting countries could not be greater. In Brazil, South Africa and Venezuela, a collapse in export revenues has led to economic dislocation and then to political crisis.

One key reason why things are so different in Australia is the strong set of macroeconomic policymaking institutions that Australia has developed since federation.

At the beginning of World War II, a group of Australia’s first economists, led by Lyndhurst Giblin, established a Financial and Economic Committee in Canberra. Their task was to provide then prime minster Robert Menzies with advice on the kind of economic policy necessitated by the war. Giblin was guided in this work by John Maynard Keynes, in a detailed correspondence which the two men carried out, on how to pay for the war. The outcome, in Australia, was a policy framework which cast aside the balanced-budget conservatism that had accompanied the gold standard.

Because of Australia’s international vulnerability, the form of Keynesianism adopted by Australia’s economists was, from the very beginning, of an open-economy kind.

In the run-up to the Bretton Woods conference in 1944, Australia’s economists contributed significantly to discussions, in London and Washington, about how to reform the international monetary system. They were determined that, after the war, the world would not return to the deflation which had characterised the gold-standard world of the 1930s. They insisted that the new International Monetary Fund be charged with ensuring that countries carry out a full employment policy after the war.

And when it came to devising domestic macroeconomic policy within Australia, these economists recognised the need to achieve not just ‘internal balance’ — full employment of resources without inflation — but also ‘external balance’, meaning a satisfactory balance of trade. An open-economy policy framework of this kind made possible a period of unprecedented growth for Australia, lasting right through until the breakdown of the Bretton Woods system in 1971. Things then turned rather bad. In the first half of the 1970s, a difficult time throughout the world, Australia’s growth strategy gave way to an era of class conflict and high inflation.

But a remarkable thing about the Australian macroeconomic policymaking system was that it was strong enough, and flexible enough, to remake itself. As a result, Australia’s exceptionalism in macroeconomic policymaking has greatly evolved over time. Five important things happened.

First of all, in the 1980s and 1990s, prime ministers Bob Hawke and Paul Keating overturned two key aspects of Australian political economy: protectionism and centralised wage fixing. The two policies had been connected, since protectionism had sheltered the wage-fixing process from the pressures of international competition.

Gradually during the next 20 years, centralised wage-fixing gave way to a centralised system of enterprise-level bargaining about wage levels. Yet Australian political economy, in the years after the Hawke/Keating era, has retained a powerful and distinctive concern for fairness, and a determination to moderate income inequality.

This is a legacy of the era of centralised wage-fixing, and it is an important part of the reason why there has not been a working-class rebellion against Canberra, like that directed against London and Washington. Though there is cynicism directed towards politics in Australia, there remains a sense that government will ensure that opportunities continue to grow for all Australians, including for those who have been negatively affected by the removal of protectionism and by a move to a more competitive labour market.

Second, through the 1980s and into the 1990s, there was a move towards an inflation-targeting regime. In this new regime, interest-rate setting, rather than centralised wage fixing, came to be used to stabilise inflation.

Third, in 1983, Australia finally cast aside its continuing adherence to quasi-pegged exchange rates and moved to a floating exchange rate regime. In this regime, as interest rates are moved, the exchange rate responds, in a way which pays a hugely important part in stabilising the economy.

Fourth, there has been a gradual establishment of fiscal discipline in Australia. The country’s stock of public debt is small by international standards. And Australia has a much better-than-average private pension system and a growing young population. Care of the elderly is not likely to become an unmanageable burden on public finances as is likely to happen in many other countries.

Finally, Australia has developed a form of financial regulation as good as that in Canada, or indeed anywhere else in the world. This was in part a response to Australia’s own history: memories of the financial fallout from the house-price collapse in the early 1990s engendered a sense of caution both by banks and by regulators. But the effect of this regulatory caution was to clearly dampen the effects of the Global Financial Crisis in Australia in 2008.

These five changes have given rise to a macroeconomic policymaking system in Australia that has steered the country through the last four decades in a remarkably effective manner. During this period the Australian economy experienced four major shocks: the fall in terms of trade in the mid-1980s, the Asian financial crisis in 1997–98, the global financial crisis and the commodity price collapse in 2014–15. The outcomes in each case have been remarkably successful.

Movements in the nominal exchange rate played a major role in defending the country against the effects of each of these shocks — the exchange rate has devalued in the way required to sustain growth. But these movements in the exchange rate have only achieved such an outcome because they formed part of a coherent macroeconomic policy system: currency adjustments have not caused threats to either the control of inflation or the sustainability of the fiscal position. The reforms that have made this possible were hard won and politically challenging. But once in place, they have enabled Australia to achieve a superior level of macroeconomic performance.

This macroeconomic policymaking capability is part of the reason why Australian citizens are less disgruntled about politics than those living elsewhere. Yes, there is cynicism. But Australia’s exceptionalism in macroeconomic policymaking remains a source of hope not just for its economic prospects. It is also a reason for hope about the country’s social future and political stability.

David Vines is a Professor of Economics, and a Fellow of Balliol College, at the University of Oxford. He is currently a Visiting Fellow at the Crawford School of Government at The Australian National University.