Listener: 25 October, 1986

Keywords: Political Economy & History;

The N.Z. Institute of Economic Research is a rather special part of the economics profession but until recently I felt unable to write about it, because between 1981 and earlier this year I was its director. However, now the ties are cut with my retirement, and the Institute can receive the attention it deserves.

It was founded in 1958, following a recommendation from the 1956 Royal Commission on Money and Banking. Over the following 28 years it has built up a staff of around a dozen economists, and is the largest group of economic researchers in the country. Some universities and government departments bave more economists but they have duties other than research.

The Institute is governed by a board of trustees, including some of the captains of industry from the private sector and some public-sector representatives, including those from the universities. Its chief executive officer and head of research is the director; Dr David Mayes is the sixth. About half of the funding comes from subscriptions from corporations who receive various services from the Institute, but they also contribute to research in the public interest. Most of the remaining funding comes from research contracts. A very small proportion comes from public sector grants.

The main objective of the Institute is to carry out independent economic research to improve New Zealanders’ understanding and management of the economy. The Institute is probably best known for its forecasts of the New Zealand economy published every three months in Quarterly Predictions. It also surveys businessmen and women as to the current state of their firms and the economy. Their judgments are published as the Quarterly Survey of Business Opinions.

There are, of course, other forecasting agencies. Business and Economic Research Ltd (Ber1) and Infometrics are also private sector forecasters, and the Reserve Bank also releases parts of its forecasts. In addition, the Treasury produces forecasts; but [at the time of writing] these are confidential to the ministers of finance. Like some of these agencies, the Institute also publishes a medium-term (i.e. five-year) outlook for the economy.

While the macro-economic forecasts, and the speeches and media interviews which the senior economists give to explain them, are the most publicly visible activity of the Institute, no less valuable is its economic research. In any year the Institute releases in excess of 60 working papers and other publications; some come out of the forecasts, some from its contract work, and some are generated from its own judgment.

It is difficult to summarise the entire range of Institute research, even for a single year. Over the five years I was director, major publications included reports on transport, income distribution, trade with Australia, market behaviour , economy-wide modeling, equity investment and the exchange rate. But we also did research on alcohol consumption, energy, financial institutions, agriculture, the business cycle, regional issues, health economics, the economics of regulation, economic growth, competitions policy, migration, taxation, forestry, childcare and other social policy issues. The Institute is the most important centre of industrial economics research.

Of course, not all of this research is immediately recognised by the public. Researchers are well aware of the difficult and unpopular research finding of one year becoming the conventional wisdom of another, with the research contribution totally unrecognised. Check the Institute ‘s original prognostications on the inflation impact of the price and the wage freeze or of the goods and services tax. Or recall the Institute ‘s first discussion paper on Should There Be Free Trade with Australia? Impractical idealism, they were told back in 1960.

If the Institute is so productive and its research so valuable, why does anyone give up the directorship? The first five directors all finished after the end of their first five-year term, despite the offer of renewal. Each has found the pressure of direction too great to make continuation worthwhile.

As well as managing the Institute, directing a research program and defending the Institute’s integrity (against marauding politicians inside and outside Parliament), the director is responsible for raising most of the funding of the Institute. Only 15 percent of the revenue comes from government grants which, I was told as I was leaving, would be cut even further. This compares with the Institute ‘s overseas equivalents receiving between 60 and 100 percent of their funding from government grants.

As the heads of DSIR research teams will find, as the Government requires them to raise an increasing proportion of their funding, the pressures become intolerable. Australian salaries and working conditions will look even more attractive. New Zealand will lose our top researchers and break up top research groups as a result of these ill-thought through policies from governments happy to benefit from the research, but unwilling to contribute a fair share to its costs.