Market Watch

  • Date:01 Dec 2007
  • Type:CompanyDirectorMagazine

Society and business are in a state of constant evolution, with occasional regression; so what lies ahead over the next 13 years? Phil Ruthven has some answers.

The numbers for 2020

When casting one’s mind long-term, in this case 13 years to 2020, it is some help to see where we have come from over a similar time frame in the past. The statistics in Figure 1 below covers 1994, 2007 and IBISWorld forecasts for 2020.

There is not a lot of scary figures in this surprise-free or shock-free scenario, which assumes we do not experience some nuclear Armageddon caused by rogue states or sects; and nor do we yet suffer unduly from global warming, which may, or indeed will, come later according to the experts.

The forecasts are suggestive of better times ahead: bigger population; continuing full employment; rising incomes, manageable interest rates (although higher than in 2007), a bigger China (our then biggest trading partner) and slightly higher taxes to cope with ageing and the insatiable demands on health service by the population at large.

Australia’s economy hasn’t experienced many recessions over the past 50 years. They are few and far between. The main reason for production being less volatile than in the pre-WWII era is that our agricultural industry – which can fluctuate by around 30 per cent in booms and droughts – is now less than three per cent of GDP, so it cannot by itself cause a recession as it once did when it was 15 per cent or more of our GDP.

Indeed, our economy runs in eight and a half year cycles. Recessions happen (if at all) at the end of each cycle. The next two cycles are due to end around March 2010 and the end of 2018, and if the economy is well managed, we could avoid recessions in both periods.

Our mix of industries will have changed by 2020, as it has over the past 13 years. The mix as at the middle of 2007 is shown in Figure 3. The main forecast differences for 2020 include the increased importance of the agriculture and mining industries (up to 3.9 per cent and 6.0 per cent of GDP respectively); a diminished share for manufacturing (down to 7.8 per cent of GDP); and with the largest industry continuing to be property and business services (up to 12.9 per cent of GDP and one and a half times the size of the next biggest industry, manufacturing).

It is remarkable how the secondary sector of our economy – made up of manufacturing, utilities and construction – has shrunk from 38 per cent of GDP in the early 1960s to 19.5 per cent today and is now on the way to an even lower share of under 15 per cent by 2020. There is indeed life after the Industrial Age.

It is our quaternary and quinary sectors that are in the vanguard of tomorrow’s economy. The information and finance dominated quaternary sector is expected to grow further to 44.2 per cent of GDP from the 42.8 per cent of 2007; and the household services based quinary sector is expected to edge up to 12.6 per cent of GDP from today’s 11.5 per cent as we do even more outsourcing from the home.

One of the forecasts in Figure 1 suggested union membership could fall to 11 per cent of the workforce by 2020, down from 18.5 per cent in 2007 and well down from the 31 per cent of 1994. It is already below 12 per cent in the US, and that country last had our current level of union membership in 1984, some 23 years ago.

Clearly, we moved to a more contractual system than collective bargaining despite clumsy legislation by the Howard Government and threats of regression by the ALP. Already the combination of owners, self-employed and AWA employees is a quarter of the nation’s workforce of 10.5 million, or nearly one and a half times the proportion of union members, on the way to a potential 43-44 per cent in 2020.

The fact that the nation’s population and workforce will be dominated by Gen Xs and the Net Generation in 2020 is significant.

In 2007, these two generations account for over half (57 per cent) of the population and will still do so in 2020, making up 53 per cent of the population. More importantly, the Net Generation – the high achieving ‘civic’ minded generation – which has 21 per cent of all jobs in 2007, will have 51 per cent in 2020. This generation is a more independent, no-nonsense and can-do generation that is largely immune to humbug ideologies and rhetoric. We need have no fear of low productivity or slowing economic growth at that time.

At the same time, we could expect wages to keep rising while average hours of work keep falling. Average hours of the workforce (full and part-time) are expected to fall from today’s 32.9 hours per week to 31 hours by 2020 while average real wages are expected to rise by over ten per cent.

The wages growth is, of course, higher for both full-time and part-time workers. It is just that the proportion of part-time employees is expected to grow from 28.4 per cent in 2007 towards a third of all employees in 2020 (as already seen in the Netherlands today), so the overall average rises at a slower pace in line with the total hours worked.

And there are many other changes in our society and its lifestyles. There are enough changes, almost all positive, to warrant being optimistic about the future. But there are some provisos. The really serious challenges centre on respecting and treating our planet better than the destructive 20th Century; combating terrorism and addressing its causes (for example, hegemony); further developing a world without borders and one that is more peaceful and, of course, finding better ways to close the frightening gap between the rich and the poor within countries and between them.

Phil Ruthven is the founder and non-executive chairman of leading strategic business information provider, IBISWorld.