Victor D. Norman, who passed away in September 2024, was a leading figure in international economics. This column outlines the contributions he made to the field through his own research, his leadership in several research projects in Norway and Europe, and the organisation of the most pleasurable conferences and workshops in the profession.
Victor Danielsen Norman passed away on 20 September after a long battle with cancer. For almost 50 years he was a leading figure in the field of international economics, not only for his own research, but also for his leadership in several research projects in Norway and Europe, and the organisation of several conferences that were both academically important and personally enjoyable.
Victor Norman was born in Risør, Norway in 1946. He graduated from Yale in 1969, received his PhD from MIT in 1972, and an honorary doctorate from the Stockholm School of Economics in 1991. His entire career was spent at the Norwegian School of Economics in Bergen (including three years as its Rector), except for a couple of years in Kristiansand, a period during which he served as Norway’s Minister of Labour and Public Administration (2001-2004), and academic leaves spent at Stockholm, Warwick, and Sussex universities.
A Norman-Krugman model?
At the Warwick Summer Workshop in 1976, Victor presented with great success a pathbreaking paper entitled “Product Differentiation and International Trade”. The paper’s model featured two factors and two sectors, one of which produces symmetric varieties of a differentiated product subject to increasing returns to scale. Victor assumed monopolistic competition in the market for differentiated products and observed that the model would generate intra-industry trade alongside inter-industry trade. Trade economists will recognise that Victor’s paper pre-dates the independently developed, highly influential contribution by Paul Krugman. Victor’s formulation integrated the ‘new’ and ‘old’ trade theories, something that Krugman would achieve only in later extensions of his work. Despite the warm reception in Warwick, Victor never submitted the paper to a journal. He felt little need or incentive to spend effort on that; so long as senior economists in Norway knew the value of his work, his future there would be assured. Indeed, Victor never even typed up the draft, which survives today only in handwritten photocopies in a few personal collections. Had Victor adopted a different attitude, we would probably be referring today to the Norman-Krugman model.
Dixit and Norman: Theory of international trade
The Warwick workshops also initiated a collaboration with Avinash Dixit that would lead to the publication in 1980 of their esteemed Theory of International Trade. Remarkably, that book – falling somewhere between a monograph and a textbook – remains a staple on graduate reading lists some 44 years later. Eschewing the heavily diagrammatic approach that was popular among trade economists at the time, Dixit and Norman consolidated and extended the familiar models of international trade using tools that had become popular in modern microeconomic theory. The result was an elegant presentation of the ‘old’ theory using the mathematical methods of duality and general competitive equilibrium. In so doing, the authors laid bare the most general versions of the competitive models and made clear what was generalisable in the special cases associated with the names of Ricardo, Heckscher and Ohlin. In later chapters, Dixit and Norman introduced the ‘new’ theory based on scale economies and product differentiation, drawing in part on Victor’s untyped and unpublished paper from 1976.
The book contained an important new result on the gains from trade that featured also in the article “Gains from Trade without Lump-Sum Compensation”, published in the Journal of International Economics in 1986. From the work of Paul Samuelson and others, economists understood that the gains from trade under perfect competition could be redistributed using lump-sum taxes and transfers to provide shared gains (i.e. a Pareto improvement) for all households in a country. This result, though pedagogically useful, was thought to be of limited practical relevance in as much as it required the government to have detailed information about individual household preferences that would be difficult or impossible for it to acquire. Dixit and Norman proposed an alternative redistribution scheme that requires no information about individual actors, but only an understanding of the behaviour of the aggregate economy. In an intermediate logical step, the government could use consumption taxes and subsidies to ensure that households face the same consumer prices in a trade equilibrium as in autarky, which would leave everyone with the same levels of welfare as they enjoyed in autarky. Meanwhile, producers would face world prices and achieve a greater value of output than in autarky. The production gains from a more efficient resource allocation would generally yield positive revenues for the government. In the final step leading to implementation, the potential for positive revenues would allow it to reduce some tax rates or increase some subsidy rates relative to those that generate autarky prices and thereby provide strictly positive benefits to all the households. This important result shows that even when the market forces of opening trade generate winners and losers, the losers can be made whole by a scheme with anonymous redistribution.
Advertising and welfare
Dixit and Norman coauthored another paper on quite a different topic, “Advertising and Welfare”, which was published in 1978 in the Bell Journal of Economics. (Dixit handled the submission and the process of negotiation with editors!) They showed that even if the added consumption induced by advertising is evaluated using the tastes (utility functions) as they emerge after being influenced by the advertising, the equilibrium level of advertising under most market structures exceeds what would be socially optimal. The paper was academically influential (with almost 800 citations to date on Google Scholar), but there is no evidence that it had any effect on actual policy!
CGE, Policy modelling, and collaboration
Victor wrote almost 20 monographs, textbooks, and research reports in English and Norwegian. At Bergen he played important leadership roles in many research projects dealing with Norwegian, European, and world economic issues, including the construction of computable general equilibrium (CGE) models.
An important strand of this built on his work on monopolistic competition, addressing the effects of policy in models of trade and imperfect competition. There was intense policy interest in these questions as the EU (the European Community, as it then was called) was designing and implementing its Single Market programme of deeper integration. How might better market integration between similar countries change economic performance and create possible gains or losses between regions within the European Community, and with other trading partners? With coauthors, Victor wrote a series of novel studies calibrating particular industries, and a full computable general equilibrium model to simulate possible effects. These studies were influential in highlighting the possibly large effects of removing frictions to cross-border interactions.
Much of this work was conducted under the auspices of the newly formed Centre for Economic Policy Research. Victor played a central role in shaping the intellectual core of CEPR, engaging with CEPR projects, and inspiring many of its younger members. He organised memorable conferences, cementing the continuing success of the annual European Workshop in International Trade (ERWIT). For his research collaborators in CEPR and elsewhere, he was not only an important source of ideas and execution, but also one who brought an unerring sense of what were the most important aspects, how to model and express things in the simplest possible way, and a sense of pure joy, taking special delight in being provocative to purveyors of conventional wisdom and mistaken beliefs.
Teacher and supervisor
Having instructed generations of students, Victor will be remembered as an eminent teacher. No one could explain complex models and mechanisms with simple elegance the way he did. As a supervisor and mentor, Victor was both generous, demanding, and trusting. Generous in sharing research ideas and offering ample advice based on his very sharp analytical skills and insights, as well as in letting young faculty draw on his broad network and contacts. Demanding in assuming that his students and colleagues should grasp complicated analytical challenges as easily as he did. And trusting in giving both students and young colleagues significant responsibilities and challenges, beyond what they otherwise would receive.
Conferences and shrimps
Victor enjoyed another distinction in the eyes of his trade colleagues: for years, he organised and hosted the most pleasurable conferences and workshops in the profession. We recall fondly a dinner in a Kristiansand smokehouse that featured dried reindeer and other dried meats alongside prodigious quantities of Norwegian aquavit and that ended with a very international group of trade economists contributing out-of-tune renditions of their favourite national folk songs. On another occasion, conference participants cruised the gorgeous fjords near Bergen while enjoying a pile of shrimp that reached at least a meter high.
Victor introduced Norway to the international academic community and his gracious hospitality was widely appreciated. By routinely including PhD students and junior faculty in the conferences and seminars that he organised, he performed an enormous service to the Norwegian academic community as well.
Politics
Outside of academia, Victor Norman was a major figure in policy analyses and debates. Victor strongly believed in economics as a force for good policy. Throughout his career he contributed to many expert committees and official reports with significant impact on Norwegian policy, most recently (in 2020) as chair of a public commission on demographic challenges in Norway.
As Minister of Labour and Public Administration in the Norwegian government from 2001 to 2004, he had some major, sometimes controversial, political achievements. His most well-known accomplishment was to move several public service institutions out of the capital, Oslo, relocating them to other parts of the country. While controversial at the time, this is still considered a major achievement in Norwegian politics. He also made several important contributions to Norwegian competition policy, including a new, modern competition law as well as enhancing competition in specific industries, like domestic airlines.
Victor wrote numerous columns in Norway’s leading newspapers, starting in 1978. The last of these was published just months before he passed away. He also served on the boards of several companies, research institutes, and local organisations.
A wry smile
Victor had a wry smile and a soft way of chuckling. He was an endless source of ideas. Always enthusiastic, always inquisitive, always provocative. We will miss him.
Source : VOXeu
