Hansen's last crusade

Professor Terje Hansen retires after a long and distinguished career at NHH.

08.05.2005 - James Hosea

Hansen qualified with the Siviløkonom degree from NHH in 1963. After a year and a half at Bergens Privatbank, Hansen felt the lure of research and decided to return to NHH. The school was not so strongly focused on research at this time, but Professor Karl Borch stood out as an eminent researcher. "Borch was a spiritual leader for the younger researchers at the time", says Hansen, "He was an international figure in his field".

Borch proved to be a dominant factor in Hansen's decision to leave NHH in the summer of 1965 and move to Yale with his wife to take a PhD. The atmosphere at Yale was special. As Hansen recalls, "It was a very prestigious place to study. A high calibre of work was produced and high expectations were held for students." A term paper from one of Hansen's doctoral courses at Yale was subsequently published in the International Economic Review.

World class research from Bergen
Although sorely tempted to remain in the US, Hansen chose to come back to Bergen after completing his studies. He was appointed an Assistant Professor of Economics in 1968 and became a Professor of Business Administration in 1972.

Hansen retained his links with Yale after returning to Norway, being appointed a Research Fellow at the Cowles Foundation at Yale University. This position carried no salary, but enabled Hansen to continue working with some of the best talent in Economics research in the world.

The continued cooperation with Yale lead to Hansen's collaboration with Professor Herbert E. Scarf on the Lanchester Prize winning book "The Computation of Economic Equilibria". It was cited by INFORMS as presenting "the first comprehensive treatment of an idea, currently under intense development, which permits the constructive computation of approximate fixed points of continuous mappings".

Building foundations for the next generation of researchers
Having been immensely impressed by the US style of graduate programme, Hansen discussed establishing a similar programme at NHH. Jan Mossin and Agnar Sandmo became co-sponsors of the idea and a proposal was put together to introduce a US style taught graduate programme and to establish a system of thesis advisors for graduate students.

The proposals were approved and what later became know as the HAS programme was introduced, along with a system of faculty members acting as thesis advisors to graduate students.

"It was a completely different environment back then. The staff in the Department of Business Administration was, with a few exceptions, not very research oriented", recalls Hansen. "It was very tough being in the 'missionary phase'. I became very unpopular with some of my colleagues as I was pestering them to engage themselves as advisors for the graduate students."

Creating value for Norwegian businesses
Hansen realised that many elements of his work could be practically applied to the business sector. One example of this was when he developed an advertising model for Lilleborg. The essence of the model was to help management allocate money to different advertising mediums to maximise the effect.

The model was such a success for Lilleborg that the company used it for many years and felt that it was a major contribution to their success in beating the globally dominant Colgate Palmolive in the Norwegian market.

Hansen's interest for practical applications of research, together with his belief in the US system of funding research projects with outside funds, led him to realise that there was an opportunity to develop a centre dedicated to applied research. Together with co-sponsor Einar Hope, Hansen launched the idea of a centre of applied research and SAF, the forerunner of SNF, was born in 1974.

"The early days of SAF were not easy", recalls Hansen, "but it is marvellous to see what has become of SNF today."

Crusading against subsidies
A SAF-project, commissioned by the Department of Industry in 1975, to examine the structure of the herring industry became very controversial. The recommendation from the researchers was to significantly reduce the size of the fishing fleet and to close down a number of processing plants. The political fallout was enormous.

"The industry were so against the report in general that I became a hate figure for them", says Hansen. "But about 5 years later I met one of our sharpest critics and he said 'you were right after all'"

"This was essentially the first time that people from NHH were publicly involved in a debate on policy issues", reflects Hansen. "It really got SAF noticed."

The applied work brought Hansen into close contact with industries that were beneficiaries of the industrial policy of the time, and the heavy subsidies this brought to some industries. This particularly applied to deliveries of electricity to the power intensive industries. Hansen, together with Lars Mathiesen (now Pro-rector), engaged in a series of campaigns against electricity subsidies.

Detailed analysis by Hansen and Mathiesen ensured that when confronted by leaders in the aluminium and other power intensive industries, in the media or on live debates on TV, they could always back up their arguments with solid data.

"It was interesting how things have changed since the debates of the late 1970's", says Hansen. "In the 1980's I felt like a hate figure for the industry, but in the last ten years the climate has changed considerably."

"I have since worked closely with the major companies in the power intensive industries on energy issues", continues Hansen. "It is now generally accepted that electricity prices should be determined by market forces and not by negotiations with the government."

Looking for loop holes
The successful practical application of Hansen's work presented him with another problem. By the early 1980's he had started earning some money from royalties and consulting fees, and this additional income was taxed at the punitive rate of 75%. Hansen therefore became interested in investigating the Norwegian tax system, and began to refocus his research efforts on tax and personal finance.

The textbook "Personlig Økonomi", written together with Knut Boye, proved hugely successful. "It was very interesting to see the consequences of loop holes in the tax system", recalls Hansen. "In Personlig Økonomi we sought to illustrate how beneficial some of these loop holes could be to the tax payer."

"One notable example from the first edition of the book illustrated how a law-abiding tax payer could get a cruise with his wife by using a special loop hole in the tax system.", continues Hansen. "We called this example 'På cruise med kona'. It was quoted in 300 newspapers in Norway shortly after the book was released, and was a major contributor to the book's success."

Hansen's work on the tax system lead him to become involved in both evaluating proposed tax reforms for parliament and suggesting new tax reforms to the government himself. He was also sought out by individuals who felt they had been treated particularly unfairly by the tax system.

One sad example was a family who's child had been born with severe disabilities due to a mistake at the hospital during birth. The child had been awarded a significant lump sum compensation payment to ensure a good quality of life through to adulthood and beyond. The family had invested the compensation in bonds. Unfortunately the interest income from the bonds was counted as additional income to the family and they had to pay 75% income tax, as well as asset tax on the investment amount. The tax that was paid took nearly the entire income from the bonds, that was meant to provide for the child. Despite the obvious injustice of the situation, both the Department of Finance and the Likningskontor said that there was nothing to be done.

Hansen contacted a number of tax experts who all concurred with the conclusion of the Department of Finance and the Likningskontor. Finally he mentioned the case to colleague Arthur Brudvik, an outstanding tax expert at NHH. Brudvik discovered by coincidence an obscure interpretation of the tax laws that implied a much more favourable taxation of the child's investment income.

"It was incredible", says Hansen "Neither the Finance Department nor the Likningskontor knew the tax law!"

"The case illustrates how unfair a complicated tax system may be for tax payers who don't have the resources to check out special interpretations of the tax laws", concludes Hansen.

The last crusade
After a long and fruitful career, Hansen now wants to spend his time engaging in public debate on issues that he is interested in. These may be tax related, but they may also be connected to government decisions that Hansen considers "irrational".

"Norwegians have an irrational attitude towards certain public services being provided by non-public employees" says Hansen. "It also seems that the government introduces new programmes without being fully aware of the true costs."

Paraplyen expects to hear plenty more from Professor Terje Hansen over the next years, and wishes him "happy hunting" in his last crusade.