Will his flair for economics help improve Australia's competitiveness?
This article was published in the September 2014 issue of INTHEBLACK.
Professor Ian Harper is a career economist, first as an academic at the Melbourne Business School and later a founding partner of leading economic advisory firm Deloitte Access Economics. Now he holds one of the most scrutinised roles in Australia – chair of the government’s 2014 Competition Review Panel, tasked with analysing what drives, and what stifles, competition across the country.
Harper learned the bread and butter of economics through life as the son of a butcher and grandson of a shopkeeper. Like so many of his generation who are leaders in their professional lives, he was the first in his family to attend university. He switched courses mid-stream, as law was not for him – “I don’t have a legal mind” – but economics came naturally.
And it appears doing the right thing by the Australian people also comes naturally to him. A devoted Christian, Harper has a sharp analytical mind and revels in a good debate.
He traded views and theories with former chief executive of CPA Australia
, Alex Malley, when they caught up in Melbourne.
Alex Malley: Ian, this flair you have for economics, did that grow roots in the family home, did you speak of economics and politics around the table?
Professor Ian Harper: I come from a long line of small business people. My father was a butcher and his father was a grocer so I was raised with the very practical economics of running a small business and watching the vicissitudes of business come and go. My mother and father worked together in the business and the mood in the household would fluctuate with cash flow. That was how I learnt bits of my economics.
The kids would say to me at school, “Ian, your father is a butcher, you must eat well at home.” I knew we did but we didn’t have all the best cuts of meat. We had sausages and my mother used to do mutton chops in a pressure cooker that you could smell coming up the street.
I asked my father: “How come we don’t get fillet steak and the best cuts of meat?” and he said: “I can buy fillet steak and the best cuts of meat cheaper than anybody else can but if I brought that home to us every night, pretty soon we would have nothing to eat at all. I sell the fillet steak to the customers who will pay the best price. Then every now and then we can afford to have fillet steak, too.”
Malley: Did you find through your studies that you were leaning towards economics?
Harper: If anything, Alex, I was destined to be a lawyer. People say I have the gift of the gab; my father did as well. In our family I was the first one to go to university; my father wasn’t educated beyond the sixth grade. His father said to my father and his brother, “All you need is to be able to read and write and add up.”
My father, of course, resented that and still does. So he reacted the other way. He pushed and pushed and on we went to university.
"I’m not interested in power. What I am interested in is getting the best answer that you can get." – Ian Harper
Once there I discovered that the law really wasn’t for me. I don’t have a legal mind. Economics was clear to me; the logic is straightforward; the issues I could recognise because of my upbringing.
Malley: And so your leaning towards academia started to grow as your results were going well. You enjoyed that environment?
Harper: I think I was attracted to the autonomy which academic life provided. There is a book by Daniel Pink called Drive. Pink identifies three things that motivate people: mastery, autonomy and purpose. I think that’s very helpful. I was determined to master this. I wanted to be the best that I could be at this, and the autonomy that academic life gave me enabled me to do it the way I wanted to do it. By that stage I was convinced that this was not just important as an intellectual exercise, it actually mattered for people’s lives.
Every day people ask you, “What are we going to do about this? Or what about that? What about my grandchildren? How are we going to pay for my retirement?” All of these are nitty gritty issues. So I’m not a doctor, I’m not a teacher, but I can help people by helping guide economic policy in this country. That’s what switched me on.
Malley: From the outside looking in, your career appeared pretty well fixed in academia and then there was a dean’s role (Dean of the Melbourne Business School, the graduate business school of the University of Melbourne) that you didn’t get.
Harper: Yes, that was in 2008. It’s one of those instances where I was aspiring to that position in academic life and you get to the stage where you need to make a decision. You can continue to be an academic until the day they carry you out, but you have to be very good to be at the forefront. And that’s rare. I had done a lot of teaching and I had no desire to go back. I suppose what convinced me of the need to change was that I threw everything I had at that (deanship). I pulled out all the stops and it didn’t work and I thought, OK, there is a message in that. It’s time to go. So I picked up the phone to Ric Simes, who is now a partner here with me at Deloitte Access Economics, and I said, “It’s time for me to make a change.”
Malley: How easy was it for you to make the transition to leave academia to go into commerce?
Harper: The answer to this shocks a lot of people …
Harper: Absolutely. The reality is that I had made up my mind. The Bible talks about times and seasons. And my experience of life is exactly as the Scriptures say: there are times and seasons in a person’s life and that season of my life had closed.
Malley: To that Christian belief which is a very strong foundation for you, was that from day one?
Harper: I went to a church school … which gave me a framework and in subsequent years it really came to the fore. Christians often have an experience they describe, nicely written in a poem (by Francis Thompson) called the Hound of Heaven, that is consistent with what the Scriptures tell you, and that is that the hound chases you down. So the Hound of Heaven chased me down and one day caught me and then all of the things that had been set there as foundations suddenly came to life like cut-outs in a child’s book. Whoosh! It all stood up and I could see it in three dimensions.
Malley: So when I take those two very interesting backgrounds – economics and faith – you find yourself chairing the Competition Review Panel. What do you hope for it, because competition ultimately is about the future and better lives for people?
Harper: That’s right. What I hope for is that we are able to present to the government a coherent and appealing set of answers to their questions. They have said it’s been 20 years since we’ve looked at this stuff, and circumstances have changed in all sorts of ways. As we come off this mining boom, we’ve got major challenges in how we are going to drive productivity growth and living standards.
One of the instruments we have to do that is competition policy. We want you to ask lots of other people what they think, and think about it yourselves. Four people from different backgrounds of goodwill and intelligence will come back to the government and say: “These are the things we think competition policy can do; these are the things we think it can’t. This is where the existing institutions and law are perhaps deficient in respect of what we have learnt over the last 20 years, these things need to be fixed up anyway, and this is how it needs to be modified to deal with what we think is coming down the pike.”
There’s our opinion. It’s a matter for the government what it then does.
Malley: CPA Australia commissioned Professor Michael Enright and Professor Richard Petty to conduct a similar analysis which was interested in two perspectives: how we see ourselves and our issues, but as importantly, what the emerging economies saw and their perspectives. Do you envisage getting the perspective from those who are going to trade with us in the next 30 years?
Harper: One thing we agreed to do very early on was, rather than the four of us traipsing around the world, where you might have 50 conversations and come back wondering “what on earth has gone on?”, we decided to bring in foreign experts.
We’re having a conference at the end of October where we have invited four international specialists to deal with specific dimensions of what we’re talking about – the law, the design of regulatory institutions, and so on. They will talk about their perspective from their experience and how they see us fitting into that.
Malley: I’m interested in culture in relation to this. My parents migrated from Europe and they had an ethic that was very different to what might pervade today. There was a Second World War to come back from that gave people a great sense of wanting to improve. Across the emerging economies, that keenness to improve is far more gilt edge than it is in established economies. I sense that Australia’s belief in itself is a little inflated in terms of what’s ahead and how to deal with it.
How will you factor in the cultural perspective of our perception of ourselves?
Harper: One thing that my colleagues and I will be very clear about is that there is a distinction between competitiveness and competition. If you take competitiveness to its extreme, what it says is the only way you could ever succeed is by winning, being the best.
Comparative advantage means that, even if you don’t have an absolute advantage, there is still room for you. We get stuck in Australia in this sporting idea that to win you have to be the absolute best, yet, in economics, comparative advantage is what makes us prosperous.
Strengthening competition is what will help us identify our comparative advantages and pursuing these will make us richer.
In business it’s also true. You might be the absolute best at some particular thing, but that isn’t how you are going to make money. The economy is just that principle writ large.
Malley: But there is a timing issue here, isn’t there? There’s the debate, politically and economically, about whether when we were riding the wave we should have made some tough calls around restructuring?
Harper: In my mind those things have to do with productivity, which ultimately is what drives living standards. The competitiveness thing, if you will, falls out of that. If you put competition in place, that will drive productivity growth and the innovation that surrounds that, and then you will get your competitive price.
Malley: At the core of that is culture. There is culture and belief. And the only way to get outcomes is to build a culture.
Harper: First, as I read my countrymen, I think they do understand the benefits of competition. They understand very well that it’s through the competitive process, coming up through the ranks, iron sharpening iron, that produces excellence. They also understand the essence of that is the competitive clash.
The other thing they understand is that this process must occur within a framework of rules for fair behaviour, rights and decency. So you understand that competition produces excellence; competition produces value on the sporting field but it needs to be contained within a framework that is policed.
Malley: I genuinely believe that people of your ilk are the best people we can get to do this but somehow we’ve got to bring this to a point where everyone sees a compulsion. That’s difficult to do in a report but I think there is a story around this that we’ve got to get right.
Harper: I agree. The government has said: “Go where you like Ian, turn over whatever rock you want.” On one level the competition thing can just be a very technical, dry discussion about provisions of the law, and the way the institutions are structured but that’s not going to capture anybody’s attention; that’s a complete yawn. I’m still working on what it is that is going to get people to say: “Hey, that guy’s got something.” It has to cross the generations as you rightly say but is it a priority? Absolutely a priority.
I’m a bit more sanguine about that because I see a lot of the younger generation, yeah they don’t necessarily get what you and I are talking about but they do understand choice, they understand “I want this for me.” There’s a negative side of that, but they do understand that the digital revolution is blowing away all the obstacles that our generation would accept are there. Put those two things together, facilitate choice, competition, technological innovation, away we go.
Malley: That’s an area I wanted to talk more about – technology, and I’ll use the example of Bitcoins. At any level they’re a protest against the model that exists, a gap in the market that only technology can provide.
Harper: We call it disruption.
Malley: Is that part of what you want to talk to on this review?
Harper: The engine of growth, as we understand it, is innovation. And the spur to innovation is the combination of competition with the technology that facilitates ways in which this can be considered. How do you build a set of institutions that recognise that innovation is important but also recognise that there are costs as well as benefits?
Even if there are net benefits, the guy who loses his livelihood [because of a technological advance], does he have no claim? How do you massage that? Institutional design, Alex, is one of the big themes that we are looking at.
“Institutional design is one of the big things that we are looking at in this inquiry, and my pin-up regulator is the Reserve Bank.
It has wide public support, and it has the confidence of 50 years behind it to be able to effectively tell the government what it is doing.
It moves interest rates in the teeth of an election if it feels it needs to do that. Perhaps most importantly, The Reserve Bank has sufficient confidence that it can go back on its own decisions.”
Two types of people
“From a very early time in my life, I’ve acknowledged that there are essentially two types of people. There’s the person who wants to be the king or queen, who wants to sit in the chair and make the decisions. And then there is the person who traditionally was dressed in the big black cape, who would stand beside them and give advice: the vizier, the counsellor.
“The king asks, ‘What do you think I should do?’ … ‘Well sire, blah blah blah …’ But at the end of the day, the king is going to say ‘Enough!’
And of those two I’ve always been the vizier. I’m not interested in power, it does nothing for me. What I am interested in is getting the best answer that you can get.”
This article is from the September 2014 issue of INTHEBLACK.