In His Own Words

– CESifo’s silver jubilee offers a good vantage point from which to take stock—not to mention the ifo Institute’s 75th anniversary. How did it all start?

When the Center for Economic Studies was launched in 1991, after I received an offer to stay here in Munich to fend off a call from Bern, I had an uneasy feeling: I knew that it would involve a lot of administrative work. But I took the offer, and this is how CES, the visitor programme, and also the first mandatory graduate programme in economics in Germany, compulsory for all doctoral student of the faculty, came about. And this later became the Munich Graduate School.

The many visitors that CES received contributed significantly to the faculty’s intellectual life, writing scientific papers here. Conversely, they also made the faculty attractive for new appointments and highly qualified new academics. At one point, early on in the 90s, it made sense to create a working paper series out of it: and thus, the CES Working Papers series was born.

The first paper was by Richard Musgrave, who had once studied in Munich and with whom I shared the subject of Public Finance at the university, the field he brought from Europe to America and the world. We also welcomed other renowned academics, such as David Bradford, Agnar Sandmo, Ray Rees, Rick van der Ploeg and many others. Important names.

At some point I thought I could expand this into a formal network like the NBER in the United States. I even drew up a programme for it and submitted it to the Bavarian state government. A delegation from the state parliament came to us to find out about these plans, but there wasn't enough money, so it couldn't be realised. Later I got the call to the ifo Institute. I didn't want to accept it at first because it would pose an additional administrative burden for me. Then the ministry remembered this plan with the network and said that if I could do the institute, I could also realise this network and funds would be made available for it.

That clinched it, together with the fact that I could keep my formal chair in Public Finance at Munich University, albeit with a reduced teaching load. From then on I lived in two worlds: teaching my Public Finance curriculum at Munich University, where I kept my chair in economics, and endeavouring to internationalise the ifo Institute and raise its scientific profile.

 

– What did the endeavour to internationalise the institute involve, concretely? What was your strategy?

The vehicle by which the internationalisation was brought about was CESifo. The CESifo Working Papers came into being in short order, together with the whole CESifo apparatus of research areas and research coordinators—typically foreign academics of the highest repute, who then had the opportunity to realise their ideas for scientific research in Munich. They came together with their peers at CESifo-organised conferences held at the ifo Institute.

And then later came the CESifo Venice Summer Institute at Venice International University, where the University of Munich has an ownership stake. It was all a nice package. As it took a life of its own it also brought life to the ifo Institute, in which this constant stream of guest researchers exerted a stimulating effect on the institution’s research staff through their cooperation and joint work.

 

– It took a bit more than just visiting researchers to turn ifo around, didn’t it? And why did the institute need to be “saved”, to start with?

The entire ifo Institute had to be revamped. It had failed an evaluation, and there was even talk of winding it up. This is the reason why I was hired.

But the institute was saved, albeit only as a service institute. My mission was to turn it back into a research institute again, an endeavour that succeeded by the 2006 evaluation, and was confirmed in the subsequent ones in 2009 and 2012. It was now, once more, a fully-fledged research institute in accordance with Germany's definition, enjoying the full funding of the Blue List, or now that of the Leibniz Association.

This is how ifo and the CESifo Network developed hand in hand. My colleague Meinhard Knoche, an experienced lawyer who possessed much more profound administrative knowledge than I, helped me develop these organisations, tackle the administrative burden and overcome whatever obstacles arose. We were a very harmonious and dedicated team and have stayed friends ever since.  

 

The CESifo Network

– Let’s now turn to your brainchild, CESifo, this unique construct in economics research. What is it exactly, and how did it come about?

CESifo is a legally separate limited-liability outfit, half-owned by the University of Munich and the other half by the ifo Institute. As a pure non-profit it has no commercial purpose, its sole purpose being to facilitate the European discussion of economic research topics.

It was back in the 1980s that Europe's economists started to come together. In the course of European integration, it became obvious that European networks would also be formed on a subject-specific basis. One such network was the European Economic Association, founded in 1984, which I wholeheartedly supported as a member, board member and fellow.

Another such network was CEPR, a London-based think-tank. Together with a French partner institution, the Maison des Sciences de l'Homme, it founded the Economic Policy journal. CES and, subsequently, the CESifo network ultimately came into being in this spirit of new awareness that Europeans needed to meet to exchange research. In the early 1990s, CES was invited to become an equal partner and co-owner of Economic Policy.

All of this was part of the general spirit of optimism, where Europeans no longer had to go to America to get to know each other but could now just as well do so in Europe.

 

The ifo Institute

– Now, with CESifo firmly established as a global brand and ifo having been turned around, how do you feel about the course of the institute itself?

I am very satisfied with the development of the ifo Institute. It has been internationalised. It has gained international recognition; it has put its name and Munich’s name on the map of economic research worldwide. The driving concept is clear: economic research cannot only be national; it has to take also an international focus. And since there must be mutual exchange with researchers elsewhere, of course it also requires the English language.

True, it was a challenge to do all this in English for such a linguistically focused country like Germany, with its strong cultural tradition. We have similar intellectual difficulties with this topic as the French or the Italians. However, in earlier years I had taught at North American Universities and I was fascinated with their scientific achievements, their intellectual spirit and the quality of their teaching. That experience prompted me to modernise the German Economic Association (Verein für Socialpolitik), whose president I had been for four years, and also modernise our Munich graduate teaching and, ultimately, modernise ifo.

 

– The symbiosis between the Faculty, ifo and CESifo ultimately benefited everyone, didn’t it?

The whole construct is like an ecosystem. The department heads at the ifo Institute are also professors at the university. This came about partly through a key structural decision that had to be made right at the beginning: How to reorganise the ifo Institute? It had 16 departments. That was far too many, far too diversified, and thus difficult to finance. We reduced it to 8.

At the same time, we wanted to upgrade these eight departments by installing a professor as the head of each. We first tried this with C2 professorships embedded in Munich University, but that wasn't attractive enough: the people we got were good, but they left fairly quickly, accepting better offers from elsewhere.  We used this experience to ensure that higher-value positions were made available at the University as proper, full professorships.

However, it was a half-time model: university work hand in hand with ifo work. ifo provides the solid basis for these professorships, so they are more or less research professorships, as they are known in the Anglo-Saxon world. They have a reduced  teaching load at the faculty, and their centre of activity is the ifo Institute. Both the faculty and ifo have benefited  from this construct, as it made it possible to attract excellent people with superb publication records. The University endorsed this approach by offering ifo to formally become an “Institute at Ludwig Maximilian University”.

 

– The doctoral programme offered jointly by the Munich University and the ifo Institute also represented a novel approach, right, given that at ifo the students gain practical experience, with real-life projects?

Yes, they are a bit more applied than purely academic doctoral students more closely attached to the university. This is also something that makes it possible to recruit top people internationally as doctoral students.

After they complete their degree in economics, which is often very abstract,  theoretical and technical, they want to get a little closer to applied research questions.

That was for us a success model. Before that, there were hardly any doctoral students at ifo. Today there are 40 or so at the Institute at any time, with the department heads acting as their supervisors.

 

– It is acknowledged as very successful. Particularly impressive is that the doctoral graduates quickly land very good positions in Germany and everywhere. That makes it very attractive for students to do their doctorate here, right?

The successful placement of my university students and these doctoral students in good positions in Germany and Europe is a pleasant side effect that I encounter again and again in my life. Every now and then I meet former students who are now in high office, who talk about how wonderful it was back then to study in Munich. I enjoy seeing the fire of science awakened in them.

ifo and Munich University have become a well-regarded cradle for top positions in Germany and beyond, but also long the holders of Germany’s top position in terms of scientific citations as measured by RePEc, ahead of all other economic institutes and university departments.

 

– And what is your feeling, when you look back? At what you accomplished with both ifo and Munich, putting both on the map? What ifo has come to be?

I am grateful that the continuity of this work and its further development is also very much assured by an exceptionally successful successor in Clemens Fuest. What more could you wish for when you have built up an institution, revitalised it, when this dynamic that you have tried to develop is also continued and further developed? Not only continuity, but also forward-looking development.

 

Research

– Your soul is, has always been, in research. How did you manage to do both, the running of these new-fangled institutions without relinquishing the research?

Initially, since research was always important to me, I was very worried about whether I would go under in the administration of the ifo Institute, i.e. in the administration of the research of others, whether I would still be able to publish at all.

But the worry turned out to be unfounded, because I was able to keep my academic freedom and enough time for research thanks to the support of Meinhard Knoche. And also thanks to the support of my wife Gerlinde, without whom I could not have lived my life. (A tender smile, as his eyes soften for a second, lost in the middle distance.)

So I was able to do research, and that resulted in a series of scientific articles and, increasingly, books. It is a different type of research from what I did before. For decades, I did purely theoretical, abstract, formal mathematical research, if on hopefully relevant economic problems, which I found very satisfying. It was a lot of fun. But later in life I turned to more applied, policy-oriented research.

In the beginning, the search for truths independent of time and space took centre stage, while later it was the preoccupation with new, emerging economic policy issues. Just think of the fall of the Berlin Wall, the integration of a communist economy into the market economy, which so dominated the reality of the times. It fascinated me to deal with these new topics, especially as it is a different thing whether I continue to spin out some theoretical and abstract thoughts that someone else has already developed, or whether I am trying to discern and understand the patterns behind the new events taking place in the diffuse fog of a new reality.

This kind of research, working on the reality front and perhaps occasionally being one of the first to be able to comment on what is going on, analyse it against a theoretical background, that was very appealing to me and that is what characterises my books. My books are all monographs in the classic sense, academic works, not just non-fiction for laypeople. I am first and foremost a researcher and try to stimulate academic discussion with my books, whether about the welfare state, the Green Paradox, the Lehman crisis or the TARGET balances. They have always been highly theoretical and complicated stories in the end, but hopefully accurate ones that take proper account of the institutional realities and rules of this world.

The impetus came from the necessary engagement with reality. As ifo President, you are asked questions by journalists and have to comment on what is going on or could happen in the future. Often, no one has any idea, not even yourself, but you have to deal with fuzzy new phenomena taking place as history unfolds, and over time the ongoing dialogue with these new historical events ultimately results in a level of knowledge and a kind of theoretical overview that makes it possible to write books like these. That fascinated me and it became my speciality.

ifo was, clearly, a great challenge. It left no time at all for anything else like leisure. But it also gave me a huge opportunity to do this kind of research, and beyond the whole development of the CESifo network and the ifo Institute, that is what really fascinated me the most.

 

– If you look back, very briefly, in just one sentence, how would you describe what you have achieved with CESifo?

It replaced provinciality in German economic research with its internationalisation, and it built a bridge between real-life problems and academic economic research, enabling citizens and policymakers to participate in a rational political and economic discourse.