Volume 13 | APRIL 2013


Feature articles

Lessons from the global financial crisis
Martin Wolf

Celebrating 50 years at the Melbourne Institute
Mark Wooden

Securing the future: how Australia can thrive in a volatile world
Deborah Cobb-Clark, Hielke Buddelmeyer, Terence Cheng, Abraham Chigavazira, Gaétan de Rassenfosse, Trinh Le, Felix Leung, Kris Li, Viet Hoang Nguyen, Alfons Palangkaraya, Peter Sivey, Domenico Tabasso, Russell Thomson and Roger Wilkins

Sustainability reporting: past, present, and trends for the future
Naomi Soderstrom

A larger GST in a tax-mix change
John Freebairn

Reciprocity and regard
Avner Offer

Occasional Addresses

Asian opportunities
Paula Dwyer

Workplace cultures
Jonathan Elliot

Celebrating 50 years at the Melbourne Institute

(Pages 15-19 of the printed journal)

By Mark Wooden

Illustration Employment Today

Go to any university website, follow the appropriate links and you will invariably find a long list of research centres and institutes with impressive sounding titles. But dig a bit deeper and you will find many are little more than a nameplate on a door. Furthermore, research centres today are increasingly virtual centres, where people are connected by common interests and expertise but where the centre has no direct responsibility for the employment of those people. And of those that are 'real', the majority will have only been around for a relatively short period of time. The life of most research centres is an ephemeral one, often dependent on the enthusiasm of one or two key people, and often unable to survive once the original funding source dries up or if those people leave.

The Melbourne Institute of Applied Economic and Social Research is an exception. It started life some 50 years ago, and while its fortunes have waxed and waned, and it has reinvented itself a number of times, it has made an indelible imprint on policy-relevant research and decision making in Australia.

In 2012 the Institute turned 50, a customary time for all involved in its history to look back and reflect on its achievements. A history The Policy Providers, written by Ross Williams (2012), a former Dean of the (then) Faculty of Economics and Commerce, was published; staff, both past and present, and friends of the Institute were invited to a celebratory dinner at Ormond college; and a one-day conference was held. It is the proceedings of the latter that are the subject of this article.

Inauspicious beginnings

The first speaker at the conference was Ross Williams, who reflected on the environment and events that gave rise to the creation of the Institute and its challenges in those early years. He argued that the major force behind the creation of the Institute was the need for independent sources of economic advice, and that fear of such advice from the key economic policy agencies at the time was a major obstacle. Indeed, Treasury, under the leadership of Roland Wilson, actively torpedoed efforts to obtain public funds for the establishment of an institute. The newly created Reserve Bank, under the leadership of H.C. ('Nugget') Coombs was not so defensive and actively encouraged the setting up of an independent applied economic research group, preferably at ANU where he was Pro-Chancellor. The University of Melbourne, however, had concocted its own plan, formulated by Ronald Henderson, a Cambridge man with interests in the study of financial markets, but with strong family ties to Melbourne. Richard ('Dick') Downing progressed the proposal and with Melbourne more advanced than ANU in its plans, Coombs was persuaded to back the Melbourne venture. While the Bank did not provide core funding, it would become a significant source of funds for individual research projects during the 1960s.

Henderson was duly offered the job of heading the new Institute of Applied Economic Research, although thanks to University red tape that position was only at readership level. Nevertheless, he accepted and commenced his appointment on 15 December 1962; his promotion to professor would not come until 1966.

Key features of those early years included:

- The establishment of a nationally-based advisory board (though without representation from either the Treasury or the Reserve Bank);

- The establishment of the Australian Economic Review, a vehicle for publishing reviews of the state of the economy and short-term economic forecasts;

- Development of expertise in both data 'production', including conversion of hard-copy data into machine-readable form, and data collection (as reflected in the Melbourne Poverty Study); and

- The gradual extension of the Institute's research program into what might be described as social economics, and reflected in a change in name in 1969 to the Institute of Applied Economic and Social Research.

A place for big ideas

Attention during the conference naturally gravitated towards the big ideas that have emanated from the Institute. Ross Williams highlighted three major areas of research during the Institute's first decade or so, which would prove to have an enormous impact on policy. These were: (i) research into Australia's health insurance system by John Deeble and Dick Scotton; (ii) research into poverty and the subsequent inquiry led by Ronald Henderson that this early research called for; and (iii) research into the regulation of the finance sector led by John Rose.

The role the Institute played in the creation of Medibank (now Medicare) is almost certainly still the most significant public contribution ever made by the Melbourne Institute. This was largely the subject of John Deeble's presentation. One of Henderson's earliest appointments, Deeble along with Scotton proposed a system of compulsory health insurance that would become the Whitlam Government's Medibank system, the essential features of which remain today (Williams 2012).

Deeble reflected on the critical leadership role played by Henderson, the importance of the 'Whitlam factor' in shaping the direction of their research, and the stark differences between the world of the 1960s and that of today. While Henderson himself had no real interest in health economics, and indeed was initially sceptical about its research potential (Williams 2012), he was soon persuaded of its importance, and according to Deeble was instrumental in facilitating the Deeble-Scotton agenda. Significantly, neither Deeble nor Scotton knew where their funding came from; this was simply something they never had to think about.

The legacy of Deeble and Scotton, however, extended beyond public policy into academic research. As Jane Hall (University of Technology Sydney) made clear, Deeble and Scotton were global leaders in the development of modern health economics. In Australia they are identified as its fathers. Nevertheless, one disappointment is that the Institute vacated this area of research once Deeble and Scotton, who were soon in great demand from the growing number of government agencies operating in the health space, left the Institute. Two decades later Peter Dawkins took up the challenge of getting the Institute back into health economics, eventually appointing Tony Scott, who arrived virtually as Dawkins left, and who has now established a small team with a growing research reputation in the areas of performance, incentives and competition in the provision of healthcare and in the study of the health workforce.

Poverty research is another area where the Institute carved out a large reputation in its early years. Andrew Whitecross from the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA) reflected on the importance of the Institute – and Ronald Henderson in particular – in bringing income adequacy to the attention of the Australian Government, and the enduring legacy of its research, especially in terms of measurement. Whitecross also suggested that perhaps a more significant lesson for government concerned the value from stronger cooperation between academic researchers and the public sector. In his view, the Henderson Poverty Inquiry was one of the first real demonstrations in the social policy space of the value and power of academics and government working cooperatively. Such insights provide the rationale for many of the long-term contracts the Institute has entered into with governments and on which it depends so heavily today. Former Director Stephen Sedgwick, for example, highlighted the partnership between FaHCSIA and the Melbourne Institute that underpins the HILDA Survey (see below), describing it as both "unusual" and a major contributing factor to the ongoing success of that study.

Other important contributions that were recognised during the day's proceedings include:

- The work by Peter Sticker and Peter Sheehan on hidden unemployment in the late 1970s;

- The development and application of computable general equilibrium models during the 1980s under the leadership of Peter Dixon;

- The development and ongoing construction of leading indicators of business activity and the monthly inflation gauge;

- The various contributions the Institute made to the unemployment debate during the 1990s;

- The development of the Melbourne Institute Tax and Transfer Simulator (MITTS) in the 2000s and its contribution to a better understanding of labour supply responses to policy change; and

- The recent contributions of the Institute to the understanding of the economics of intellectual property.

The need for data

A theme that pervaded many of the presentations was the importance of data collection and production throughout the Institute's history. As already noted, following the appointment of Duncan Ironmonger in 1966 the Institute became, at least for a short while, the national leader in the development of computerised data. Even more significant given the dearth of unit record data in Australia at the time were the primary data-collection efforts that underpinned much research activity. Included here are: (i) the Melbourne Poverty Study; (ii) the work on voluntary health insurance by Deeble and Scotton; and (iii) the beginning of the quarterly household consumer survey in 1973, which is still conducted today and is the basis for many of the products produced, and much of the research undertaken, by the applied macroeconomics group.

Over the last decade, data collection has again assumed a very prominent place in the operation of the Institute. The household consumer survey (now known as the Consumer Attitudes, Sentiments and Expectations Survey), which moved to the collection of data on a monthly basis in 1986, is now the platform for not only the Survey of Consumer Sentiment (sponsored by Westpac), but also measures of consumer inflation expectations, unemployment expectations, wages growth and expectations, and household financial conditions. The Institute also currently runs a number of other major surveys including:

- The Household, Income and Labour Dynamics in Australia (HILDA) Survey, Australia's premiere household panel survey;

- Journeys Home, a 'shortitudinal' survey of disadvantaged Centrelink customers facing housing difficulties;

- The Medicine in Australia – Balancing Employment and Life (MABEL) longitudinal study of doctors; and

- The Global Proxy Shareholder Confidence Index, a telephone survey of persons who own shares in companies listed on the Australian Securities Exchange.

In addition, there have been many one-off surveys of firms with a focus on innovation and aspects of firm performance.

The significance of the HILDA Survey was highlighted in numerous presentations. Whitecross, who works for the government agency that funds and oversees the HILDA Survey, highlighted the significance of the commitment the government made and continues to make to HILDA, and the benefits that the government has been reaping. Sue Richardson from Flinders University, and an original member of the HILDA Survey External Reference Group, was assigned the task of reflecting on the contribution that it has made since its commencement in 2000. She drew attention to its contribution to public policy and debate, and highlighted how many of the questions being addressed with the data were not even on the policy agenda at the time of its inception. Further, the easy availability of the data has been accompanied by an exponential growth in research activity, a boon to both the social science research community and policy-makers alike. But the praise did not end there. Guy Debelle, Assistant Governor of the Reserve Bank, drew attention to the value of the HILDA Survey data to the Bank's research program, in particular its importance in understanding transmission of monetary policy. Finally, Hall pointed to the importance of HILDA Survey data in contributing to health-related research on issues such as lifestyle choices, workforce participation and mental illness.

Another important data collection exercise, acknowledged by Debelle, is the monthly inflation gauge (funded by TD Securities). Introduced in 2003, this is Australia's first, and still its only, monthly index of consumer price changes.

New areas of research

Some of the speakers focused more on the potential for further research contributions by the Institute in the future, rather than reflecting on the past. Bob Gregory from the Australian National University discussed the growth in the number of Australians dependent on welfare, and the connections (or lack of) between recent research and policy. Stephen King from Monash University talked about the emergence of two-sided markets and the need for research in helping regulatory bodies understand how they work. Very differently, Andrew Leigh, MP, set out a ten-point agenda for research into education. This is an area in which the Institute has only recently invested: a dedicated economics of education program was established in 2011 with the appointment of Chris Ryan and the securing of a major research contract with the Victorian Department of Education and Early Childhood Development.

Final reflections

The conference concluded with a roundtable, chaired by Judith Sloan, an Honorary Professorial Fellow of the Institute and contributing economics editor with The Australian. Current Director Deborah Cobb-Clark and recent past directors Richard Blandy, Peter Dawkins and Stephen Sedgwick joined the forum. Each was asked to comment on the major difficulties, challenges, disappointments and achievements during their tenure, and to reflect on how they saw the Institute today.

With respect to challenges, the recurring theme was the financial constraint, a concern that has shaped much of the Institute's history (Williams 2012). Blandy, in particular, inherited an Institute in 1993 that had very few staff and a very large debt. He openly admitted that his greatest disappointment was not being able to break out of this poverty trap. However, almost as a final parting gesture (and with the considerable aid of the Chair of his Advisory Board, Peter Jonson), he was successful in getting the University to waive much of the Institute's debt prior to his departure. This would provide an important platform for his successor, Dawkins, who nominated identifying secure revenue streams as his biggest challenge. As it transpired, his efforts were spectacularly successful, securing two major long-term contracts with the then Department of Family and Community Services within his first five-year term. As a result, for the Directors to follow the challenge was considerably easier – how to resource and retain these long-term contracts while working to diversify the funding portfolio.

Another common theme, and one also reiterated in Williams (2012), is the tension between the achievement of academic objectives and other broader objectives, and in particular the importance of undertaking research with direct policy relevance. Sedgwick, for example, nominated having insufficient policy impact as his biggest disappointment during his time (2007-2009), while Cobb-Clark described influencing policy as the main current and ongoing challenge. This represents a turnaround from the Institute's past, where its impact on government was often highly visible but where traditional academic output was conspicuous by its absence, and in turn potentially undermined its standing within the Faculty, University and broader academic community. Nevertheless, an observation from Debelle earlier in the day suggests the Institute has struck a good balance between academic research and policy relevance. To quote him: "Academics are critical to public debate … but most have retreated to their ivory towers. The Melbourne Institute hasn't done this."

One reason for such perceptions may be the efforts the Institute has made in recent times to disseminate its research to a wide array of audiences and to bring representatives from government, policy-relevant NGOs and academia together. Perhaps the most obvious example of this has been the regular Economic and Social Outlook Conferences jointly hosted with The Australian newspaper, which have been held every 18 months or so since 2002 (see p23 for a report on the 2012 conference). Dawkins nominated establishing this forum as one of his most significant achievements.

Finally, and by way of conclusion, there was unanimous agreement around the table that the Institute has never been in a stronger position than it is today. Richard Blandy, for example, described the Melbourne Institute today as a "research powerhouse". The consensus seems to be that the Institute has a well established reputation that continues to be supported by continuing strong links with government and other key organisations, where world-class research is underpinned by a comparative advantage in the collection and analysis of data, and where "the kind of research undertaken … ultimately benefits all Australians" (Sloan 2012).


Sloan, J 2012, 'Vital source of policy elements is thriving at 50', The Australian, 11 December, p. 12.

Williams, R 2012, The Policy Providers: A History of the Melbourne Institute of Applied Economic and Social Research, 1962-2012, Melbourne University Press, Melbourne.

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A selective summary of key themes discussed at a one-day conference held at the Melbourne Institute on 6 December 2012 to celebrate the Institute's first 50 years. Papers presented at the conference will be published in full in the June 2013 edition of the Australian Economic Review.

Mark Wooden is Professorial Research Fellow and Director of the HILDA Survey in the Melbourne Institute.

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