Michael G. Porter
Michael G. Porter is an Australian academic economist who taught at the Australian National University and Monash University. In 1979, he set up a think-tank at Monash University, the Centre of Policy Studies supporting freer markets in commodities, finance and foreign exchange along with researching and advocating significant market-improving regulatory reforms. As part of this process CoPS employed leading US and other international economists and industry specialists. He was also the founding director of Tasman Institute from 1990-98.
Early life
Michael Glenthorne Porter attended Scotch College, South Australia, was an undergraduate economics student and then tutor at Adelaide University, 1961–64 and a PhD student at Stanford University 1965-68.As an undergraduate, he was Treasurer of the Student's Representative Council 1962-63, and founding Treasurer of the ALP Club 1963, which replaced the Labour Club. He was appointed to the three-person economics committee of national Young Labor during the reform-oriented Dunstan and Whitlam period. He was a founding organiser of what became the Adelaide branch of the Australian Overseas Student Travel Service, and its 60 selected students 3-month inaugural visit to India in 1962-63. The pioneer group travelled by 3rd class rail and hitch-hiking on trucks across village India. There were family homestays in major capitals. Porter was one of 10 students invited to meet with Prime Minister Jawaharlal Nehru in the Lok Sabha of the Indian Parliament. He was an Adelaide delegate to the annual National Union Australian University Students meetings.
Initial post graduate activity
After finishing his PhD course work at Stanford University in Palo Alto, California in 1968, he was an assistant professor at Simon Fraser Universities 1968-70 and visiting research scholar at the University of Essex, UK on a Canada Council Fellowship in 1969-70, while finishing the thesis component of the Stanford PhD. His PhD research thesis was on exchange rate dynamics, both short and long run, as reflected in the relative intertemporal term structure of national government bond interest rates. In the spirit of Irving Fisher, it was a new way of addressing the implications of high capital mobility on monetary autonomy and inflation and economic management at the national level. The Canadian currency float in the 1950s was a useful case study, but the subsequent float of the German Deutsche Mark in 1971 became his policy focus when he later moved to the Research and policy Department of the International Monetary Fund in Washington DC 1970-72. He later took similar jobs on leave from the IMF, with the Reserve Bank of Australia in 1972-73 and the Department of Prime Minister and Cabinet 1973-75.Career
1970-73 - International Monetary Fund and Central Banking - Australia and GermanyHis first post-academic job after completing PhD course work at Stanford University and two years in universities in Canada and the UK, was with the International Monetary Fund. In the IMF Research Department, he played a lead role in modelling the factors and reasons why Germany, for example, needed to and eventually did float the DM currency in March 1973. This was a pioneering move in the IMF "Bretton Woods" context, given the international inflation emerging from the US with its "unfinanced" Vietnam war. The shackles of politically fixed exchange rates and direct trade and capital controls post the Bretton Woods agreements underpinning the IMF were being challenged, now including within the IMF.
Porter's main work within the IMF and some central banks, was much inspired by Stanford's Ronald McKinnon's and Nobel Laureate Robert Mundell for theories of internal and external balance under fixed versus floating exchange rate. Given high international capital mobility between the German Deutsche Mark and other foreign currencies, floating with consistent fiscal policies, became understood as a probable but not yet quantified key means to restore control of the money supply and resist importing inflation. This monetary pressure came from US and global capital markets in the context of the LBJ deficit-funded Vietnam War.
The contribution of Porter's internal arguments and then documents and published IMF Staff Paper's model, was to successfully quantify behavioural links to IMF satisfaction, Ãla McKinnon and Mundell, between attempts at independent monetary policy and induced offsetting capital movements. These models and their econometric estimation accurately predict and predicted net international capital movements in relation to Germany and showed that with fixed exchange rates independent anti-inflationary policy would not work at all. There would be 100% offset to monetary restriction through induced net international capital inflows.
Post the consequences of early 1920s hyperinflation, Germany was not in 1970 a country to tolerate domestic or imported inflation and so had to float, Porter argued within the IMF and at conferences, against powerful official and academic opposition. The Deutsche Bundesbank eventually agreed in public, not least at a 1972 international monetary conference in Konstanz at which Porter presented.
Following a challenge from a leading American monetary economist, Karl Brunner, the session featured a phone call from the Governor of the Fed to the President of the Deutsche Bundesbank on the point that Germany had to float the DM in order to retain independent control of the German base money supply, with both central bankers confirming their agreement with the Kouri-Porter paper.. And there were many countries in Germany's situation in the early 1970s - even Australia - and floating currencies followed over the next decade or so.
In 1972 Porter published at the IMF and later on 1974 with Pentti Kouri the first successful predictive general equilibrium portfolio econometric model of how international capital movements offset the workings of attempts at independent monetary policy applied to four differing economies - Germany, Italy, Canada and Australia. The extent of offset was shown to vary significantly across these different currency areas, creating a reason to float within a market-based foreign exchange system. Versions of these papers were presented at many conferences in Europe, North America and Australia and published in IMF Staff Papers 1971 and The Journal of Political Economy, March 1972 and later applied in Australia and many other economies.
Reserve Bank of Australia
After implementation of the German financial reforms Porter was invited to be a Senior Adviser at The Reserve Bank of Australia, International Department, 1972–73, as Australia battled the same global imported inflation given official exchange rate rigidity that weakened independent monetary policy in open economies. He prepared RBA papers for the international Committee of 20 meetings on related monetary and capital market reform.1973-75 Department of Prime Minister and Cabinet
Extending leave from the IMF, post a pneumonectomy in Washington DC. and related health issues, and a period at the RBA, the election of the Whitlam Labor government in Dec 1972, created a role for Porter as a founding senior economic adviser with The Priorities Review Staff of the new Prime Minister of Australia. Austin Holmes, former Chief Economist of the RBA was made founding Director of the PRS, and Porter became Senior Adviser from the start.A key part of the PRS assignment, with a staff rising to 20, was development of economic and social reform policy options, commentary on most economically important Cabinet submissions by all Ministers and preparation of comment on the long term forward estimates of potential expenditure and revenue and associated policies. This involved advising Ministers via the PM as to consequences of alternative economic and financing strategies, in the context of the Labor government having been out of office for 23 years.
Despite the Whitlam government's fiscal foibles and failures, due in part to an impatient parliamentary "back bench", the social reforms were substantial, e.g. in health, welfare and education, and beneficial economic trade and financial reform pressures set in. Australia rose to the top of league growth tables and international economic performance in the decades ahead. Whereas blue collar workers real incomes in the USA have been stagnant over three most recent decades their Australian counterparts have doubled their real incomes within the same three decades, and in a fairly equitable and sustainable society.
There was however resulting pressure after 23 years out, for what became an excessive and inflationary pace of new expenditures to meet pent up and reformist social and political demands in the elected base. Measures agreed by the reforming Whitlam government included dramatic tariff cuts and anti-protectionist regulatory changes, and what became new comprehensive universal Medicare and insurance reforms integrated with tax reforms. Some reforms were frequently contested with Treasury including financial liberalisation supported by the Reserve Bank, but which was eventually implemented by the Hawke-Keating government 1983.
1975 -1989, The Australian National University and Monash University
In 1975, as the Whitlam government battled the consequences of failure to implement fiscal rectitude, Porter accepted a part time senior lectureship at the ANU, which briefly became full time in 1976. However, Monash University concurrently offered Porter a tenured chair which he accepted later in 1975 and moved to Monash in mid 1976.His Monash days as a teaching professor were cut short with acceptance of the Irving Fisher Chair, Yale University in 1978-79 followed by a brief Visiting Professorship at "The Fed", in the International Department of the Federal Reserve System in Washington DC. The Fed is the USA Central Bank, and the banker to most of the world's central banks' foreign currency reserves.