Peace and prosperity for Indigenous Australians

In mainstream Australia, we have a strong and enviable set of institutions that includes a representative political process, a sound judicial system and a set of national social norms that are egalitarian and encourage innovation and dynamism. But the experience of Cape York Indigenous Australians with such institutions can sometimes be radically different from the mainstream, and can impose a high-level constraint on their opportunity to lead a rich and fulfilling life.

The only way to break the vicious cycle of disadvantage and dysfunction is to build capabilities through economic and social development based on engagement with the real economy. Two critical components that help this process in Cape York are welfare reform and land reform.

First, welfare reform. Indigenous Australians have largely not experienced the positive features of the mainstream welfare state: public health, education, infrastructure, a helping hand during short-term unemployment and other aspects that have underpinned the quality of life and the opportunities of generations of Australians. They have experienced only the income support that is payable to the permanently unemployed and marginalised.

Unlike earned income, the unearned income of passive welfare leads to a gammon economic relationship, where transactions between the provider and the recipient are not based on reciprocity. The recipient gets money but gives or does nothing in return. It is money for nothing. The structure of income support payments in Cape York have set up a poverty trap where perverse incentives encourage people towards welfare and away from real employment.

Apart from depriving people of a real income, unemployment has other, more serious, effects that cannot be ameliorated and indeed may be exacerbated by long-term income support. These effects include psychological harm, loss of work motivation, skill and self-confidence, an increase in sickness, and disruption of family and social life. Indeed, chronic unemployment of whole groups of people or geographic regions leads to social exclusion, loss of self-reliance and self-confidence, and damage to psychological and physical health.

In addition, it is chiefly by working that parents convey the message to their children that opportunity exists for the taking, ensuring that attitudes of defeat are not transmitted across generations. Incentives matter because they influence behaviour. They can be in the form of carrots (which pull) and sticks (which push).

The pushes in the system are towards: no work (through the continued provision of sit-down money through government allowances); make work (through the inadequacies of Community Development Employment Projects systems); or no study (through inadequate ABSTUDY payments).

It is critical that the perverse incentives are removed from the welfare system, to break the unemployment trap. Incentives are changed by getting the price right: people need to perceive greater benefits from working, entrepreneurial activity and investing in themselves (in their education, health and so on), than from staying on welfare.

Welfare payments instead should be structured to support and encourage earning or learning. Where they do not, other obligations must be attached to payment to benefit the community. This is a crucial point for the implementation of the overall reform agenda. It is almost certain that more external support will be required, at least in the short term, to build capabilities in communities. But if support is supplied without also redesigning incentives, further dysfunction caused by passivity and addiction will ensure that fundamental community transformation will not be achieved.

The challenge, then, is to ensure that policy is targeted at economic development and capability building in Indigenous Australia rather than simply letting Indigenous Australians fall into the poverty trap of welfare dependency.

Then there is land reform. There is no question that communal title is integral to Indigenous culture. It is a principle founded in the common law and that has been reflected in statutory law in this country for a long time. But it is equally true that transferable property rights are integral to development.

The challenge for the reform agenda is to reconcile these two apparently contradictory principles: communal ownership and transferable property rights. Long-term leases enabling Indigenous individuals and families to use and develop communal land are almost certainly a key component of this reconciliation. The challenge is to preserve the culture of communal tenure while enabling maximum individual and private economic use of the land.