Home » Economics » The Economic Case for Reducing Indigenous Disadvantage in Australia

The Economic Case for Reducing Indigenous Disadvantage in Australia

Sign up to the Barefoot Economist’s Newsletter

© Barefoot Economic Services

All content on this website (unless otherwise specified) is copyright of Barefoot Economic Services. Please acknowledge any content used in your work appropriately. Thank you for your consideration.

In Australia, the Australian Football League celebrated the contribution of Indigenous Australians to the game. This year’s ‘Indigenous round’ will be remembered for Adam Goodes’ war dance after kicking a goal. It was also reconciliation week, that is the week where Indigenous people were counted in the census and the historic Mabo decision that recognised Native Title. Yet, despite the mainstream acceptance that the past treatment of Indigenous Australians was shameful, there was little discussion that Indigenous Australians are still living with the effects of European colonisation. Indigenous Australians have a 10 years shorter life expectancy than non-Indigenous Australians; they make up 26% of the prison population in 2008 whilst making up 2.5% of total Australian population in 2006; 17% were unemployed in 2011 compared to 3.6% of non-Indigenous population; and Indigenous people account for 9% of homelessness. These social, health and economic indicators have budgetary consequences for both Federal and State governments. While there exists a strong moral case to reduce Indigenous disadvantage, there is also a very strong economic case for Australian governments: reducing Indigenous disadvantage could save both Federal and State governments $450,000per person over their lifetime.

How is this possible? I go through this is painstaking detail in a report I did for Children’s Ground. I did a benefit-cost analysis of their program. The Children’s Ground approach is a long-term, intensive investment program to reduce Indigenous disadvantage over 25 years at a cost of $10,000 per year. It seeks to address Indigenous disadvantage in a holistic way by providing high-quality health and educational services and economic expand opportunities. This approach recognises that the short-term, output-oriented approach has failed. Instead, evidence has shown that a long-term, multi-dimensional approach is more likely to break the cycle of disadvantage. But it won’t come cheap.

But it will be worth it. For every $1 invested into the Children’s Ground approach, it will generate $3.82 in reduced ‘avoidable costs’ or ‘regrettable spending’ to government. Given that the Australian governments spent $25.4 billion in 2010-11 on Indigenous people, there could be significant efficiencies from adopting a Children’s Ground approach. How is this even possible? First, I didn’t assume that all social problems would be eradicated, instead each Indigenous person would access government services as much as the ‘average’ Australian – i.e. reduce per person spending from $44,000 to $20,000. That is, Children Ground achieves equality of public spending for their Indigenous beneficiaries.

Second, the multi-dimensional approach by delivering health and education services principally to the children but also by providing community wide services has been shown to produce improvements in economic participation and associated reduction in social problems such as substance abuse and crime. I discuss some pertinent studies in the report that were used to inform the design of the Children’s Ground approach. By tackling the broader scope of social problems, this also broadened the scope of benefits of the Children’s Ground approach. Many social programs can be too tightly defined to the extent where they are focused on addressing the ‘symptoms’ rather than the underlying causes of the social problem. Children’s Ground seeks to take on the causes directly. But this requires a long-term and intensive commitment of resources to get right.

So what can government do to realise these savings? The most obvious way would be to fund Children’s Ground directly and monitor the change in use for other services. To be successful, government would have to commit to 25 years of funding and implementing a regular monitoring and evaluation plan. Results probably won’t be apparent for 20 years. There may be some improvements such as improvements in educational attainment, parents’ health and reduction in risky behaviour. But you won’t know you are really successful until those children become adults and are ready to enter the workforce. For some governments, they may not be able to afford the patience to stay the course.

Another option is using impact investment approaches to finance a Children’s Ground approach. I have previously discussed how it could be used here and here. Government still needs to be involved in establishing the performance indicators and repaying the principal and the performance bonus. But much of the financial and political risk is shared with impact investors which may make a long-term commitment more sustainable. Furthermore, provided the indicators are designed properly, impact investment is explicitly outcome-oriented to address these ‘wicked’ social problems.

So, it is clear that there is a way to improve the effectiveness of our spending on the problems of Indigenous Australians. It is clear that there is no economic or moral excuse to let this situation persist. It will take a long-term partnership with governments, the private sector and Indigenous Australians to make this happen. Let’s get on with it.