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How are we going? Happy?

By Nicholas Gruen - posted Thursday, 6 October 2005

How are we going? As a nation that is - or rather, as 20 odd million people (or is that 20 million odd people?) on our wide brown island continent.

Here’s three ways to answer - the good, the bad and the ugly - not necessarily in that order. First we can look at our income.

Economic reform and some luck has seen us rocketing back up the international league ladder of economic prosperity. At the end of the 19th century Australia (and Argentina), had the highest average income in the world. By playing to our strengths in agriculture and minerals (like gold) we could afford to pay ourselves incomes that were the envy of the world.


With industrialisation making scale economies increasingly important, our fall from the top of the tree was probably inevitable. But the extent to which we contributed to our fate is shown by the way in which our reversals of protectionist policies have sent us back up the league ladder from around 15th in 1990 to 7th today.

Still that’s just average income. Money doesn’t buy you happiness right? More of that in a sec. But even if it did buy you happiness, there are other obvious objections to using average income even to measure economic wellbeing.

If you clean your house, or cook dinner no money changes hands so your production isn’t measured. Get in a cleaner or cook, their income rises and it registers in the national accounts even though your tummy is no fuller and your house no cleaner. Put starkly, a bit of quiet love-making at home does nothing for the national accounts. Visit the local brothel and you’re doing your bit to take us another notch up from seventh on the league ladder of national wealth. Your patriotic duty perhaps?

Still, for all its faults income growth per capita isn’t all bad as a measure. Growing income is a huge help in tackling social problems. It reduces unemployment - a major cause of human suffering. And it gives us “momentum”. We’re much more prepared to be generous when it comes to redistributing growth in our income than we are about the income we’ve got used to.

Still, it is only money.

The United Nations Development Index (HDI) (pdf file 707KB) is an attempt to broaden this perspective. The idea is that wealth is only a means to a more important end of human wellbeing goes back at least to Aristotle. HDI tries to focus on “enlarging people’s choices”.


Of course money is very important in enlarging people’s choices - particularly when they don’t have much of it! So it’s measured in the HDI. But so too are things like life expectancy, and educational opportunities. With those two additional measures thrown in, Australia does even better than on per capita income alone.

The HDI methodology had us further in front for longer early last century and falling far less during the 70s and 80s than we did, judged by average income alone. And our position on the UN’s HDI has recovered even more strongly than our per capita income: from 14th in 1990 to 3rd in 2004 behind Norway and Sweden.

But before you get too smug about it there’s at least one other measure you should know about. Even education isn’t an end in itself but a means to a more fulfilled life.

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First published in The Courier-Mail on August 24, 2005.

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About the Author

Dr Nicholas Gruen is CEO of Lateral Economics and Chairman of Peach Refund Mortgage Broker. He is working on a book entitled Reimagining Economic Reform.

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