History of the Melbourne Institute
Ronald Henderson arrived to take up the inaugural directorship of the (then) Institute of Applied Economic Research on 15 December 1962. That year had been one of feverish activity within the University of Melbourne to beat rival claims from Canberra and Sydney to establish what was seen as a national institute of applied economic research. Professor Richard Downing, who had known Henderson since they were students at Cambridge, was the driving force behind the setting up of the Institute in Melbourne. Speed was so important that there was not time to establish a professorship for Ronald Henderson; this had to wait until 1966 when the Institute was up and running. The Institute was established as a separate entity from the faculty, although it was colocated with the department of economics. It reported not to the dean but to an advisory board chaired by the Vice-Chancellor.
Ronald Henderson came to an Institute that had limited funding. The faculty and university between them cobbled together funds for the director, support staff and four other positions. But none of the funding was for more than three years. The Reserve Bank had wanted to provide core funding for an independent economic research institute but its desires were torpedoed by the Commonwealth Treasury.
Given the limited university resources available, it is amazing what was achieved under Ronald Henderson’s leadership in the first decade, although he was quick to tap external sources such as the Myer and Potter foundations, the Reserve Bank and the forerunner of the ARC. John Deeble and Dick Scotton developed proposals for a national compulsory health scheme that was adopted by the Whitlam government as Medibank, now Medicare. John Rose, through his influential position on the Senate select committee on securities and exchange, did more than any other individual to bring about a national stock exchange and the forerunner of the Australian Securities and Investment Commission.
A major survey of poverty in Melbourne carried out in 1966 alerted the public to severe pockets of poverty, led to changes in the level and design of government welfare payments, and provided the impetus for the national inquiry into poverty in the 1970s that was directed by Ronald Henderson. The Institute’s poverty line was a by-product of the Melbourne poverty project. The Institute’s move into social economics led in August 1969 to its name being changed to the Institute of Applied Economic and Social Research.
From the beginning it was Ronald Henderson’s intention to establish a quarterly journal that contained overviews of the Australian economy, macroeconomic forecasts and other articles. The Australian Economic Review commenced publication in 1968 with Duncan Ironmonger as its editor. In its first few years the Review published trend and seasonally adjusted data series that were all constructed internally after transcribing hard copy data onto magnetic tape for feeding in to a mainframe computer. This was pioneering work, done in advance of the official statistical agencies. It was however an expensive operation and the Review absorbed about one-third of the Institute’s revenue. In the 1970s, through its Review, the Institute became an important and often controversial contributor to the national economic policy debate. Major contributors to what became known as ‘the Institute view’ were Peter Sheehan, Duncan Ironmonger and Ronald Henderson.
In 1973 the Institute underwent a number of fundamental changes. Most importantly, it formally became a division of the faculty of economics and commerce. The Institute also broadened the scope of its activities. Consumer surveys were initiated. More formal econometric modelling of the Australian economy was introduced. The new initiatives led to an increase in the number of academic staff to 23, a rise of 50 per cent over the previous year, and a further increase to 34 in 1974.
The expansion was in externally funded projects. Consequently, the proportion of revenue provided by the university fell to a third. It remained at around that level for the rest of the decade. The Institute Multi-Purpose Model (IMP) led by Peter Brain was a large ongoing project financed by subscribers from the private sector and government. It provided the basis for regular medium and longer term forecasting conferences, but failed to win the support of the academic community. Quarterly household surveys commenced in 1973. The Index of Consumer Sentiment has been published continuously from this date. The surveys used methodology borrowed from the experience of the Survey Research Centre at the University of Michigan. The pioneer of household polling, Dr George Gallup, attended an international conference organised by the Institute in March 1979.
Ronald Henderson retired as director of the Institute and from the University of Melbourne in September 1979. In retirement he became a consultant to the Victorian Council of Social Service (VCOSS) and retained links with the Institute as an honorary senior associate. Of the many tributes, the following, taken from the academic board’s minute of appreciation, most succinctly sums up his attributes as director of the Institute:
The value of the institute’s work is today recognized by the State and Commonwealth governments and by the business and general community. That this is so is a tribute to Henderson’s contagious enthusiasm and skill as a leader of research, as an indefatigable campaigner for funds and above all as an economist who combines the highest skills of his discipline with a determination to work toward those social reforms which he believes to be both practicable and equitable.
Ronald Henderson retired from the Institute in September 1979 after 17 years as director. A giant’s boots are difficult to fill and so it proved. Ronald’s loyal lieutenant, Duncan Ironmonger, was appointed acting director. Although not envisaged at the time, Duncan was to remain in that position until the end of 1983. In the interregnum, Peter Sheehan left the Institute to become head of the Cain government’s Department of Management and Budget. A number of other senior staff also joined the Victorian public service.
Much of the work in the Institute in the period 1979 to 1983 was centred around the Institute Multi-Purpose (IMP) Model. This project consumed around one-third of staff time and one-third of the budget. It was an era of large-scale structural econometric models of the economy. Other large-scale models were those of the Commonwealth Treasury, the Reserve Bank and the IMPACT model associated with the Industries Assistance Commission and led by Alan Powell and Peter Dixon. Both IMP and IMPACT used an input–output core that enabled forecasts at the industry level.
Research in social economics had declined in the 1970s, but the appointment of Ian Manning, who worked on the Poverty Inquiry with Ronald Henderson, strengthened the area.
The directorship was advertised in 1980 and Clifford Wymer, a New Zealander then at the IMF, was appointed but ill health prevented him from taking up the position. The University of Melbourne embarked on a major review of organisational structures and the Institute and Faculty were not exempt. This further delayed the appointment of a new director. Not until December 1983 was an appointment made when Peter Dixon accepted the position. By this time the IMPACT project had moved to the Faculty with the appointment of Alan Powell as Ritchie Professor. Attempts to reconcile researchers in the IMP and IMPACT projects were unsuccessful and most of the staff working on the IMP model left the Institute, taking the project with them.
Under the directorship of Peter Dixon, the Institute became a leading world centre in computable general equilibrium modelling. Econometric forecasting for both the short and medium term continued and new subscribers enlisted. The ORANI general equilibrium model was modified to make it more suitable for medium-term forecasting.
Ern Boehm developed economic indicators from 1985 with sponsorship from the Westpac Bank; from 1990 the bank also sponsored the Index of Consumer Sentiment. In 1992 these activities were combined into the Westpac – Melbourne Institute Centre for Business Cycle Analysis which soon obtained an ARC collaborative research grant
In 1989 the Institute moved to refurbished accommodation in the Baldwin Spencer Building. But it was to be a short occupancy. Peter Dixon left the Institute at the expiration of his seven-year contract in February 1991 and took most of the staff with him to Monash University. The few remaining staff returned to their old location in the Economics and Commerce Building.
Ian Harper was appointed acting director for 1991. The Institute statute was repealed and the Institute formally became a department within the Faculty. Richard Blandy, director of NILS, was appointed as the new director effective from May 1992. He was keen to reconnect Ronald Henderson with the Institute: the two spent time together discussing research directions. The director’s title was restyled the Ronald F Henderson Chair.
In order to maintain operations with a small staff, Richard Blandy formed a series of alliances, most notably with NILS. A NILS offshoot was opened in Melbourne, with Meredith Baker seconded to head it. Research now swung more towards labour economics. After nearly three decades, econometric forecasting was abandoned as a research area. Richard Blandy restructured the Institute’s Advisory Board, which for the first time was not chaired by the Vice-Chancellor. Peter Jonson became the new chair and was joined on the Advisory Board by heads of government departments and welfare agencies.
Richard Blandy instigated the full employment project that was designed to publicise the undesirable effects of unemployment and put forward policies to alleviate it. The enterprise performance project that used the rich IBIS database began. For a period, the Asian Business Centre was located in the Institute.
Richard Blandy had to contend with a debt incurred through contractual payouts to those staff who went to Monash. Largely as a result of intervention by the Advisory Board, the Vice-Chancellor, David Penington, agreed to wipe off most of the debt, but before the ink was dry on the agreement Richard Blandy announced that he had accepted a position as chief executive of the newly created South Australian Development Council. This time there was a smooth changeover to a new director: Peter Dawkins took up his position at the start of 1996, Peter Lloyd acted as director in 1995.
Peter Dawkins began his term as Director of the Institute in February 1996, the same month that Alan Gilbert became the University’s Vice-Chancellor. The two leaders each held their positions for around a decade. In August 2006, ‘Melbourne’ was formally added to the name of the Institute, a change initiated by Peter Dawkins but one that was consistent with Alan Gilbert’s emphasis on ‘The Melbourne Agenda’.
The early Dawkins years were devoted to setting a research framework and then obtaining funds to deliver the outcomes. The initial focus was on the two interrelated themes of economic performance and social outcomes, later to be encapsulated in the motto ‘hard heads, soft hearts’.
Funding gradually improved and was assisted by a faculty seeding loan repayable over five years. The federal government’s 1999 Green Paper on research and research training foreshadowed greater accountability in research funding which was to be based on defined metrics. The university and faculty budget procedures were altered to reflect research performance which benefited the Institute and allowed a significant increase in staff.
Major research projects in the late 1990s included the IBIS collaborative research program in enterprise dynamics, a project on the efficiency and equity effects of tax reform, and work on business cycles. The early years of the new millennium saw the commencement of the Household, Income and Labour Dynamics in Australia (HILDA) Survey, led by Mark Wooden, which has become one of the most significant research programs in the social sciences in the last 50 years. A behavioural microsimulation model of the Australian tax and social security system was developed, with the acronym of MITTS. Both the HILDA and MITTS projects were developed in association with the Department of Family and Community Services (DFaCS). Under a retainer-type contract, the Institute began to undertake other social policy research for DFaCS. The Institute was a joint participant in the establishment in 2002 of the Intellectual Property Research Institute of Australia (IPRIA).
In 1999 the Canberra Public Economics Forum was launched. It was modelled on the Institute’s quarterly Melbourne Forum which began in 1997. In April 2002 the first Economic and Social Outlook Conference was held, organised in association with The Australian newspaper.
For the first time in the Institute’s history professorial appointments were made to provide research leadership to support the Director. Management practices evolved to meet the growth in staff numbers with the setting up of a senior management group. In 2003 Tony Cole was appointed as Chair of the Advisory Board on the retirement of Peter Jonson after a decade of service. Relocation to the Alan Gilbert Building in 2004 solved the accommodation problem, at least for a few years.
Peter Dawkins left the Institute in April 2005 to move to positions in the Victorian government and in 2011 to the vice-chancellorship at Victoria University. During his tenure as Director, revenue rose from $1.5 million to $10.2 million and there was a commensurate increase in output.
A number of leadership changes occurred over the period 2005 to 2010. John Freebairn was appointed as Director for a two-year period, on secondment from the Department of Economics. Stephen Sedgwick was appointed as Director from August 2007, but resigned in mid-2009. Mark Wooden was Acting Director for two periods. The current Director, Deborah Cobb-Clark, took up her position in April 2010. Unlike in some earlier times when changes in the directorship were very disruptive, the Institute continued to prosper. This owed to the system of devolved research leadership, the continuity in the academic staff heading the different areas and the competence of the directors.
A major new area of research is Health Economics under the leadership of Tony Scott. The key feature of the research is a longitudinal survey of doctors, labelled MABEL, an acronym for Medicine in Australia: Balancing Employment and Life. The project is providing important findings on the dynamics of the medical workforce. In 2011 a new research program in the Economics of Education and Child Development was established with funding from the Victorian Department of Education and Early Childhood Development. By 2012, around 70 staff were employed in the Institute, including seven fulltime at the professorial level.
In this brief overview of the history of the Institute from 1996, emphasis has been placed on new initiatives. But the Institute is well known, especially by the general public, by activities that have been ongoing for 40 or so years: publications such as Westpac – Melbourne Institute Survey of Consumer Sentiment and Westpac – Melbourne Institute Indexes of Economic Activity, The Australian Economic Review and Poverty Lines.
To recognise the Golden Jubilee of the Melbourne Institute, the following events and activities took place:
Melbourne Institute 50th Anniversary Conference (a conference held to celebrate and recognise the major achievements the Institute has made in the last 50 years)
The Melbourne Institute at 50 (Policy Forum in the Australian Economic Review, vol 46, no. 2)
Celebrating 50 years at the Melbourne Institute (article in the Faculty of Business and Economics Journal, Insights)
The Policy Providers: A History of the Melbourne Institute of Applied Economic and Social Research, 1962-2012 (a book written by Professor Ross Williams)