Introduction

An inclusive economy can be seen as having three main, interlinked components: social capability, productive capability and well-being. The key objective in an inclusive economy is to improve people’s well-being. The concept draws on the links between a productive and innovative economy and a strong, cohesive society, and how each of these contributes to well-being. It directs policy at ensuring broad-based opportunities to participate in society and the economy as the key route to improved well-being.

The overall objective in the inclusive economy is the well-being of New Zealanders. Well-being derives not only from average material living standards but also the distribution of income and a range of social characteristics such as values, trust, participation, cohesion and people’s freedom to do the things that they have reason to value.

A strong association between human capital and well-being has been established …

The relationship between “human capital”[4], individual well-being and the characteristics of a well functioning society are widely recognised. Over the last 40 years the human capital literature has established a strong and consistent association between years of education, qualifications and higher earnings. Though less certain, and less robust, an association between human capital and economic growth has also been established.

In addition, education is positively associated with a range of other individual and societal goods – for instance, healthier life-styles, lower propensity to commit crime, higher levels of trust, richer social networks and greater participation in volunteering and in democratic institutions. Moreover, higher levels of human capital in one generation of families and communities are strongly associated with higher levels in the next.

Thus, governments of all complexions and in most countries in the developed and developing world have put major effort into achieving increased levels of human capital, primarily through the funding and provision of formal education.

… but many policy questions remain

Nevertheless, important questions remain for policy, even in the broadest context.

• Will human capital policies[5] chosen to be best for increasing economic growth (narrowly measured) also be best for improving the overall level and distribution of well-being? If not, in what way do they differ? How much will policies aimed primarily at improving the distribution of well-being also increase growth? Further, to what extent do alternative objectives compete for government funding, and, if so, how much will one need to be traded for the other, in deciding on the allocation of funding?

A wide range of secondary questions follow:

• What dimensions of human capital are most important for well-being?
• What is the importance of formal education compared to other influences on human capital formation – e.g. families, workplaces and the community? What scope has government to affect human capital formation through these other channels?
• Which level of formal education (early childhood, primary, secondary, tertiary) should receive additional policy attention?
• Where should new resources be allocated or existing resources re-allocated, by mode of education and subject area?
• Given a strong role for private decisions by families, individual students, education providers and firms, what is the appropriate role for government? What problems does government involvement address? What problems does it entail? What sort of institutions and what regulatory, funding and financing arrangements are best?

The purpose of this paper is to improve the basis for reasonable judgements on a number of these issues, in the New Zealand context.