Listener 1 September, 2001

Keywords: Growth & Innovation

The 1928 National Industrial Conference was the first of a long line of national conferences to address the economic problems of the day. Initiated by Prime Minister Gordon Coates, the 64 delegates included the businessmen, representatives of commercial groups, unionists and civil servants of the day. ….

…No woman attended, no Maori, and no-one from Treasury, for once upon a time that department was peripheral to economic policy. Instead the nation’s five professors of economics gave papers which, together with subsequent discussion and replies, made up over a third of the conference proceedings.

Since then, every three to five years we have had a similar gabfest. This year’s was ‘The Knowledge Wave’. This time there were ‘minorities’ like women, Maori, and Treasury officials. For the first time it was located outside Wellington, in Auckland. But there was no formal contribution by any academic economist from New Zealand (although there were some from overseas).

This poses the local economics profession with a problem. Did the conference organisers think our economists have nothing to contribute to the future of the New Zealand economy? One possibility is that many are not interested in the New Zealand economy, their focuses being the highly abstract economies of economic theory, which have little to do with reality, while others are interested in local problems not addressed in the conference. Perhaps too, some are so associated with Rogernomics, that it was thought impolitic to display them, although this did not prevent invitations to a number of overseas speakers of that ilk. (To be fair one, ex-New Zealander Robert Wade, presented the opposite view.) Perhaps the absence of local academics contributing to the conference (for the only university contributions came from administrators) was intended to signal that our universities are so rundown they have little to contribute to understanding economic growth. That would be ironic because if development depends on a knowledge, the conference’s choice of speakers says a key part of the nation’s infrastructure is unable to create much.

So let me defend the role of academic economists. I am not going to justify their heavy bias towards Rogernomics or irrelevant abstraction. Every profession should have some, although one could argue that New Zealand’s is imbalanced. My point is that economics contains a core lesson, as Keynes reminded us, that practical men and women depend on the theories of defunct economists. That was evident enough at the ‘Knowledge Wave’ conference. As one ‘Herald’ reporter wrote, the conference was ‘an act of faith.’ So was Rogernomics, and the anecdotes and random data that littered the conference inspired articles certainly maintained that tradition of a lack of systematic analysis. Reading the deluge one can only conclude that if New Zealand businesses operated on the same loose thinking, it would no surprise if the economy is doing worse than it is.

Now it is true that economists – academic and non-academic – can be loose thinkers too. That is why the late Professor Bryan Philpott emphasised the need for systematic quantitative estimates and forecasts to be a part of the conference exercise. That does not prevent the optimistic forecasts and contradictions which characterise the political rhetoric on such occasions, but it does mean the thoughtful can see beneath them to the underlying issues. I explored this in a column recently, but since then the Opposition has announced it wants to double wages rates in ten years. Systematic analysis would show the most likely (perhaps the only) way this can be done is by a rate of inflation of above 5 percent per annum. I am not saying National promises to be the party of inflation, but simply that far too many politicians are into rhetoric rather than analysis.

Now rhetoric has a feel-good factor, so many people came away from the conference feeling good. (Those who had not been invited seemed to be more sceptical: South Islanders talked about the ‘knowledge ripple’.) The central conclusion was that New Zealand has to focus on knowledge for economic and social prosperity. That may be a long way from the Rogernome’s prescription, but Philpott’s modelling identified the need a quarter of a century ago – and it did so quantitatively. (The modelling’s other main finding, that the health of the external sector is vital for the health economy may well be the topic of the next gabfest – perhaps under a title like ‘transforming the economy’.)

Philpott might take a little satisfaction of now being a defunct economist, except he moved on in the twenty-five years. Perhaps in another quarter of a century the gabfesters will have caught up to him. I have no doubt he would have been impatient with their current conclusions, especially over their lack of systematic analytic thinking that a quantitative model generates.

There are at least three university chairs of economics coming up in the near future. Let us hope that in one case there will be an appointment who could contribute to the next national conference on the economy – albeit it would still be at a fifth of the rate of 73 years ago.