17
Dec
07

Designing markets and investing in human capital

Progressive think-tank Per Capita have written a memo to the newly elected Prime Minister, located here

An excerpt reads:

Your government can build the Investing Society by focusing on the two big policy themes of market design and human capital investment. Designing markets and investing in people brings together the economic and social roles of government in a new fusion.

Market design is about setting the ‘rules of the game’ to get the right outcomes – in new markets like carbon, water and broadband, and in old markets where existing provision has failed, like infrastructure and housing. With good market design, governments harness market forces by setting incentives and accounting for risk.

Human capital is Australia’s most valuable asset and you have rightly made it the centrepiece of your education revolution. In addition to building human capital, your government should focus on protecting this precious asset: damaged human capital means opportunities lost and lives destroyed. Human capital investment not only makes economic sense, it’s morally right.

A focus of my blog concerns how this broad framework is applied to indigenous policy.

The first policy direction, designing markets, involves shaping the correct set of incentives through the prism of welfare reform.  But it also involves the design of markets that value the indigenous knowledge economy.  There appears to be no strategic approach to this second issue (an issue I include in the category located here).  As a result, reform is confined to shaping the perverse incentives without adding positive incentives.   

The second policy direction, investment in human capital, involves ensuring full participation of indigenous school-aged students in a merit-based education system.  There are generations of indigenous people who are locked out of a substantial bloc of employable options.

An important point, though, is that a strategic design of the indigenous knowledge economy enables a connect between indigenous (exclusive) human capital and employable options.  In this sense indigenous (exclusive) human capital is local indigenous knowledge where there is a significant gap in human capital that would otherwise result from a merit-based education.

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