Adam Triggs | Indigenous Voice to Parliament makes economic sense

For economists, it's an odd criticism. This is because decades of research on economic development in poor countries suggests the Voice is exactly what is required to achieve practical outcomes in people's lives.

Let's start at the beginning. Early theories on why some countries are poor while others are rich tended to focus on the idea of a "poverty trap".

The logic was simple. Economies need to grow their capital stock - factories, offices, farms - in order to produce things and generate growing incomes into the future. This requires investment.

But if an economy is so poor people are forced to consume all their income and have nothing left to save for investment, the economy becomes trapped in a vicious spiral of disadvantage: a poverty trap.

The solution, this simple model says, is foreign aid. Providing cash and resources to these economies allows them to satisfy their basic consumption needs and then start saving and investing in capital.

As they build their capital stock, their incomes grow, they invest in even more capital and, voila, the virtuous cycle of economic growth kicks off.

The same logic has been applied for many years to the challenges faced by Indigenous Australians, particularly in remote communities.

Much like the world's approach to developing countries, successive Australian governments have pumped huge sums of money into Indigenous communities to try to address disadvantage.

Has it worked in developing countries? The results have been mixed. Sometimes it has worked and sometimes it hasn't.

The good news is half a century of data has led economists to an important finding: the critical thing which determines whether an economy will successfully develop (and how effective foreign aid will be) is the quality of institutions.

Think of "institutions" as being the rules of the game in society, including how those rules are made and who makes them. "Institutions" include things like the legal system, property rights, government bureaucracies and the systems that ensure quality laws and policies are made.

In analysing all the things that determine whether a country is rich or poor, economist Dani Rodrik concluded the quality of institutions trumps all others. Get institutions wrong, and you're in trouble.

The lessons here for addressing the disadvantage of Indigenous Australians are striking.

Those who advocate "practical solutions" are often falling into the same old tired traps of the past and appear to have learned nothing from decades of experience.

For the political left, "practical solutions" means pumping billions more dollars into communities despite the overwhelming evidence from scholars like Noel Pearson that this doesn't necessarily work if the community is suffering from welfare dependency or drug or alcohol addiction.

For the political right, "practical solutions" means welfare reform and more tough love, ignoring the equally overwhelming evidence that intergenerational disadvantage and institutional discrimination renders such policies pointless in many circumstances.

What would economics recommend, based on decades of experience and research on economic development in developing countries?

Economics would recommend a focus on institutions. It would recommend a focus on making sure government processes, policies and rules are properly informed by Indigenous perspectives so they support economic and social development in Indigenous communities.

To put it bluntly, economics would recommend exactly what the Voice is offering.

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The purpose of the Voice is to improve Australia's institutions; to make sure the perspectives of Indigenous Australians are heard and reflected within them.

The core idea of the Voice is straight out of an economics textbook: ensuring institutions support development.

This is our best bet for making sure Australia's laws, policies and bureaucracies are properly calibrated for addressing Indigenous disadvantage.

The suggestion Australia's institutions are currently serving Indigenous Australians effectively is laughable.

Our legal system is delivering catastrophic outcomes for Indigenous Australians.

Our system of property rights and their interaction with Native Title hobbles economic development and creates perverse incentives for households and businesses alike.

Our healthcare system often fails in remote communities and is too often delivered in a culturally inappropriate way.

Our policies on infrastructure leave whole communities out in the cold. Our financial system leaves thousands unbanked. Our product markets leave food deserts in many parts of the country.

Our tax and welfare systems often worsen disadvantage, such as where welfare payments fuel the interaction between addiction and cultural norms like humbugging - where resources are shared within Indigenous communities - or by creating disincentives to work, save and invest.

Our regulations on competition policy often fail in small towns where there is one supermarket, one bank and one doctor. If you're lucky.

Our institutions are failing Indigenous Australians.

If economists had to pick a single policy to address Indigenous disadvantage, it would be a policy that focuses on institutions and improving those institutions with the Indigenous perspective.

It's little wonder why the wise people who gathered at Uluru chose the Voice.

Perhaps we should listen.