Australia has the know-how to boost wellbeing

The Saturday Age-Lateral Economics Index of Australia’s wellbeing – which measures improvements in welfare across a range of indicators, not just economic output – rose nearly four times faster than gross domestic product over the past year.

The wellbeing boom has been driven by a marked rise in the nation’s human capital, or collective know-how, which is a key component of the index. This more than offset sluggish growth in another key component – national disposable income – which has been crimped by falling commodity prices.

The estimated value of the nation’s wellbeing reached $343 billion in the June quarter, an increase of 3.9 per cent or $13 billion. It was the index’s fastest quarterly increase since it was first published last year.

The annual growth rate of the index – which takes account of income, know-how, the environment, health, inequality and job satisfaction – accelerated to 14.3 per cent. Gross domestic product, released by the Bureau of Statistics last Wednesday, revealed annual growth of 3.7 per cent.

The wellbeing index has been growing at more than twice the rate of GDP growth for six years, thanks mainly to the improvement in the value of the nation’s combined knowledge – its human capital.

Nicholas Gruen, chief executive of Lateral Economics and lead author of the index, said the strong growth in the value of human capital augured well.

“The index shows that our ability to invest in ourselves is not only paying dividends, but at this stage it’s outweighing some of the bad news that’s arriving via the declining terms of trade and problems in the global economy,” he said.

A jump in the total amount of adult formal education underpinned the impressive improvement in human capital. Lateral Economics estimates the increase in the amount of formal adult qualifications in the labour force grew by $19 billion last financial year. There was also strong growth in children participating in early schooling and continued growth in secondary schooling, which also lifted the nation’s stock of know-how.

“The development of know-how through early childhood development, schooling and training is building up human capital at a faster rate than our purchasing power has been increasing,” the index’s quarterly report said.

One of the biggest surprises since the release of the index last December is the big rise it has revealed in the value of the population’s know-how.

National disposable income grew a relatively subdued 0.7 per cent in the quarter and 2.6 per cent in the year. This was a positive contribution to national wellbeing but, because it was not evenly distributed, inequality was a small drag on national wellbeing. The health component also took away from national wellbeing mainly because of the rising costs of obesity.

Both inequality and health have been a small but consistent drag on wellbeing in the past year. The index components that assess natural capital and job satisfaction have had little impact on wellbeing over the past year.