The clever country

from The Age newspaper, March 23, 2007

by John Hirst

Manufacturing may be in decline, but we are not yet just one big quarry, writes John Hirst.

WHEN the Hawke government took away the support for manufacturing, it urged Australians to become the clever country. It is not yet clear what our clever industries are to be. We outsourced to Asia the manufacturing of clothing and footwear on the basis that we would concentrate on high technology. But now the Indians are good at IT as well as call centres. We survive by digging up iron ore and coal.

There is one clever Australian achievement that until recently had to remain secret. When the United States government wants to assess the effects of some policy proposal, it runs it through the computer model of the US economy developed by the Centre of Policy Studies at Monash University.

But American pride finds it hard to cope with Australians beating them at this game.

When Peter Dixon, the head of the Monash modellers, arrives in the US, the immigration officials assume he has come to receive instruction, not to teach. To protect his American business, Dixon has had to keep quiet about his success. Now he can speak more openly because his centre has instructed the Americans in the Monash model and they are doing more of the work themselves.

The Monash model is far more sophisticated than anything developed in the US. It is, most importantly, able to detail the regional effects of any proposal so that policymakers know the likely response to their plans from "The Hill", that is, from Congress. It was used to assess the new policy recently announced by the President of replacing 20 per cent of oil (which is chiefly imported) by bio fuels that are home-grown. There is a complex pattern of winners and losers in this process.

Dixon created what is in effect a small business with about 15 people on the staff. They earn their own salaries and pay something to their host university. Their policy has been to share their knowledge. They run courses around the world in their methods. They have developed scores of models of national economies and economists on every continent have learnt from them.

They make money out of their teaching and after-sales service on their models. Dixon is pleased they took this path rather than keeping their secrets to themselves; it is, he declares, much more morally and intellectually satisfying.

Dixon learnt his trade in the 1970s as an attacker of the policy of protecting Australian manufacturing. Alf Rattigan, the quixotic last head of the Tariff Board, wanted to show how damaging tariffs were to the Australian economy. He thought he might succeed if he could put exact numbers on the cost. Hence the need to model the whole economy, which was the work that fell to Dixon.

Today's models are dynamic; they can track any proposed change to economic policy through time, showing the short-term and long-term effects. This is important for policymakers.

The more advanced modelling depended on highly sophisticated mathematics.

This reached Dixon by chance or rather by that sort of chance that universities are designed to facilitate. Ken Pearson was a mathematician at La Trobe University, where Dixon was then based.

Pearson thought his students were bored with applying their maths to the same old problems; perhaps he was bored himself. He had heard of the economists' interest in building mathematical models of the economy and so he approached Dixon.

His career thus took a decisive turn and he ended up as Dixon's deputy at the Monash centre.

So why has Dixon's team been a success? In the first place it is a team, an ensemble outfit that operates differently from the usual academic economists. They work alone and their advancement depends on getting papers published quickly. Dixon's success depends on painstaking work in assembling data and analysing results as well as on the clever maths. Dixon himself works on the statistics of industry and the ever-changing classification of industry groups. The Americans, he says, would leave this work to a research assistant.

As he speaks, I am reminded of the operation of the Australian film industry, another of our successes, if intermittent. An Australian production is also much more of an ensemble effort with the stars being treated less like gods and everyone having to pitch in on a variety of tasks.

It is reassuring to think that there are some Australian characteristics that help us to operate differently and sometimes bring success where it is least expected.

John Hirst is the author of Sense and Nonsense in Australian History.