THE decline and fall of the wool industry is a sad story, a riches-to-rags tale of an economic powerhouse that was also a part of Australian culture and folklore. This thoroughly researched and well-illustrated book canvasses the terrible reality of that slide, from the 1950s to the present.

As Charles Massy explains, from the 1840s wool was the backbone of the national economy. Indeed in the mid-20th century, Australia boasted the greatest wool industry the world had seen. Yet towards the end of last century, the industry self-destructed, culminating in the February 1991 crash of the Australian Wool Corporation’s reserve price scheme, a government-backed attempt to stabilise prices.

This, Massy argues, “precipitated what, in today’s monetary values, stands as the biggest corporate-business disaster in Australian history”.

Massy’s important if sometimes rather dense analysis seeks to answer how this happened. He explores the deeply flawed policies and personal weaknesses of the industry’s key players. In summary, he argues that the Australian reserve price for wool was a monumental and extraordinarily costly failure.

To understand why the wool industry declined to be a third of its former size, it is important to consider the roles of three influential figures who came to prominence in the 1950s. These were the Country Party minister for commerce and agriculture (and later minister for trade and deputy prime minister), John (“Black Jack”) McEwen; his departmental head, confidant and ally, John Crawford; and McEwen’s close friend, the Queensland-based William Gunn, a key member of the Wool Board.

A cunning political operator, an ardent protectionist, an unremitting advocate of government intervention and of a reserve price scheme, Gunn was, as Massy puts it, the most famous of the “wool emperors”, a man who dictated how the industry developed, in Australia and overseas.

Yet after the boom in wool prices as the result of the Korean War of 1950-53, Australia was ill-prepared to deal with the threat posed by synthetic fibres and the re-emergence of cotton, which had reinvented itself. This was despite the fact the energetic but fundamentally wrong-headed Gunn was appointed chairman of the Wool Board in 1958. He ruthlessly promoted a reserve price scheme and total government acquisition of the Australian wool clip. As a result, Massy argues, wool was increasingly left behind and, as time went on, the industry’s problems got worse and worse.

After reading and thinking about ‘Breaking the Sheep’s Back’, it is hard to resist Massy’s conclusion that the collapse of the reserve price scheme not only constitutes, by a wide margin, Australia’s largest business-corporate collapse but that the scheme was “one of the worst government-generated policy calamities in Australian history”.

To put things in perspective, compared with the more recent scandal that enveloped the Australian Wheat Board, Massy demonstrates that 40 times more money was lost in the wool industry debacle and that “vastly more collateral economic and social damage was done in this country and across the globe”.

In 2011 the situation remains dire. The sad fact is the Australian sheep flock is at its lowest level in 100 years, we produce a third of the wool we produced two decades ago and the industry that saw Australia “ride on the sheep’s back” has slipped to 24th on the list of export earners.

Massy’s fascinating expose demonstrates with considerable force the unforeseen effects that key ideas about “helping” an iconic industry via staunch protectionism, tariff walls, and other government interventions, have had in the not too recent past. Whether one agrees or not with his economic, fiscal and industrial policies, John Kenneth Galbraith was surely right in claiming that the ruling ideas of the time shape our history. As Galbraith put it in his 1977 analysis The Age of Uncertainty: “What men (and women) believe about the power of the market or the dangers of the state has a bearing on the laws they enact or do not enact – what they ask of the government or entrust to market forces.”

‘Breaking the Sheep’s Back’ is a detailed case study of what not to do, if we hope to promote and help key agricultural industries. It’s a cautionary tale indeed.

Ross Fitzgerald is emeritus professor of history and politics at Griffith University and the author of 34 books.

Breaking the Sheep’s Back By Charles Massy UQP, 432pp, $39.95

The Weekend Australian , August 27-28, 2011