Economists and the social signals of productivity

The Cape York Institute has made available online a collection of papers presented at the recent ‘Strong Foundations’ conference. 

The Secretary to the Treasurer, Dr Ken Henry, gave an interesting speech, located here.  Reading the speech I’ve noticed how economists have played a more influential role in the last decade in relation to formulating development policy, at least in the international context.  Despite this there appears to be a substantial gap in how they might otherwise assist.        


Dr Henry notes:  

Some might ask what a Treasury economist can offer in this space – especially one who, on his own admission, has much more to learn than he knows.  Well, let me chance my hand, if I may.  If you were to take your guide from the media, you would probably think that economics is all about models and forecasts, budget surpluses, current account deficits, inflation, employment and interest rates.  And it is about those things.  But the description is superficial, and misleading. 

Economists may be distinguished from anthropologists, yet they share an interest in the drivers of human development.  Economists may be distinguished also from sociologists, yet they share an interest in the factors that explain the development and functioning of human society.  Economics explores especially closely the way in which human development, including societal development, may be explained by the essentially atomistic responses of individuals to the set of signals confronting them. 

By signals I mean those various factors that influence people’s decisions on a daily basis.  Economics is concerned with individual responses to those signals, and the way in which those responses affect other individuals and society at large.  When Governments spend money in certain areas, individuals respond.  When tax rates are changed, individuals respond.  When interest rates change, individuals respond.   And all of these individual responses combine to have aggregate consequences.  Some of these are labelled ‘macroeconomic’; others ‘distributional’, including intergenerational consequences.  Signals are critical to the way people, communities and societies develop.  Broadly, economists would hope that the mix of signals in the economy draws individual responses that enhance the wellbeing of all Australians over time.

Given these statements, I’m suprised why there are not more economists influencing, or attempting to influence, social policy with a specific indigenous focus.  In this field it is often the case that economists’ contributions centre around support for the ‘capabilities’ argument put forward by Dr Henry, and not much else. 

Having said that, even in the core subject of economics there appears to be a lack of analysis.  For example, the ’emergency intervention’ in the Northern Territory is commonly described as the greatest shift in indigenous policy in decades, yet I find it difficult to find an economists analysis, despite some glaring examples of reform: 

  • welfare (quaranteening the expenditure of half of welfare payments to designated shops, as opposed to the previous expenditure arrangements at full discretion of individual),
  • health (subsidising doctors from outside of the Territory to perform work that present health structures are designed to provide, at least partially), and  
  • general changes to cash (a significant injection of $1b plus over a number of years in regional and remote parts of the Territory).

I’d be interested to view an economists analysis of these changes, but I find it incredibly difficult to find one. 


2 Responses to “Economists and the social signals of productivity”

  1. 1 gordon
    16 October 2007 at 9:57 am

    I think you will find that there is a very significant contribution by economists on indiginous policy, namely the push to abolish communal land title in favour of individual title or long-leasehold. This is a simple application of basic economic theory, which says that without individual title to property there is no incentive for development. THis is discussed on the HREOC website in an interesting piece based on the HREOC’s 2005 Native Title Report.

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