Jubilee Fellow – 2022

Professor Peter Dixon AO FASSA

BEc (Monash), PhD (Harvard)

Discipline: Economics

Year Elected: 1982

2022 Reflections

Three Sirs and a Bob

My first ASSA function was a dinner in Canberra, 40 years ago. I was young and awkward. In an act of kindness, Sir John Crawford waved me to the seat next to him. The conversation didn’t reach great heights. I was shy and Sir John was rather deaf in a situation of many voices, an affliction to which I can now relate.

I had met Sir John a few years earlier when he chaired the Crawford Inquiry, set up by the Fraser government to investigate the causes and cures for what was perceived as a malaise besetting the Australian economy. The malaise referred to high unemployment combined with balance-of-payments deficits. Sir John had heard of the IMPACT project, directed by Alan Powell, which was set up in 1975 to build a detailed model of the Australian economy. He asked Alan whether IMPACT could make a modelling contribution to the Inquiry. Alan was a legendary research leader. He got the best out of his team by backing his junior players. In that spirit, he sent me forward to make IMPACT’s presentation to Sir John’s Committee.

There were four Committee members. First there was Sir John himself who had a distinguished career in public service and academia. Sir John understood institutions and policies for specific industries. Next there was Sir Neil Currie, secretary of the Department of Industry and Commerce. Sir Neil favoured protection for Australian manufacturing. The third member was Sir Brian Inglis, managing director of Ford Australia. The Committee was rounded out by Bob Hawke, Secretary of the Australian Council of Trade Unions.

For the presentation, I prepared IMPACT modelling results showing that unemployment could be eliminated without deterioration in the balance of payments by a two-pronged approach involving cost reduction and demand stimulation. Explaining these results to the Committee was potentially daunting, but perhaps I was too naive to be daunted. I had to explain:

  • to Sir John that the malaise was not a problem requiring specific industry policies, it was a macro problem;
  • to Sir Neil that manufacturing protection was not the answer, it was part of the problem;
  • to Sir Brian that macro-economic recovery would restore growth to all industries with one exception, motor vehicles; and
  • to Bob Hawke that the key cause of the malaise was excessive real wages and that reductions in labour costs would be essential for economic recovery.

Lead by Sir John, always a gentleman, the Committee listened politely and mentioned the IMPACT contribution 13 times in their final report, somewhat negatively but respectfully. Later I worked with Max Corden on the implications of a wage-tax bargain. This was a way of implementing IMPACT’s two-pronged solution to the malaise. The bargain requires union-government cooperation so that tax cuts can be used to reduce labour costs (before-tax wages) without reducing after-tax wage income, while simultaneously stimulating aggregate demand. Wage-bargains became part of economic policy under the Hawke-Keating governments.

The IMPACT Project has changed its name. It is now the Centre of Policy Studies or CoPS. It has moved through four universities and several funding arrangements. But CoPS continues to prosper after 47 years. Two factors explain its longevity.

First, CoPS has produced a stream of modelling innovations relevant to analysis of contemporary issues in trade, environment, taxation, immigration, infrastructure, labour-markets, epidemics and terrorism events. This has enabled CoPS to publish strongly in academic outlets and to finance its research mainly by contracts with governments in Australia, the U.S., China, Indonesia and many other countries. CoPS software is used in 700 organizations in 95 countries.

Second, starting under Alan Powell’s leadership, CoPS has provided a happy, team-based workplace. This enables CoPS to hold staff and accumulate experience. Several CoPS members have been with the group for over 30 years. I have done all 47 years! The team approach facilitates specialization. Within CoPS, there are specialists in economic theory, data, policy analysis, software development and algorithm design. CoPS combines these specialties to generate world-class research.

CoPS is a challenge for modern university administrators. It ticks boxes concerning funding, research output and community engagement. But it insists on a high degree of independence including its own budget with the right to accumulate/decumulate surpluses. Another tension concerns KPIs. CoPS insists on KPIs for the team, not individuals. This is uncomfortable for universities wedded to individual publication counts. I suspect that ASSA also struggles to give proper recognition to team players who provide critical inputs to larger research efforts.